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

31. Operating lease commitments

  December 2012
Rm
  June 2012
Rm
Land and buildings       
Year 1  1,430.8    1,329.8 
Years 2 to 5  5,537.4    5,104.2 
Subsequent to year 5  6,379.9    5,799.3 
  13,348.1    12,233.3 
Plant and equipment       
Year 1  4.9    5.5 
Years 2 to 5  7.9    7.4 
  12.8    12.9 
Other       
Year 1  10.2    9.8 
Years 2 to 5  12.3    15.0 
Subsequent to year 5   
  22.5    24.8 
  13,383.4    12,271.0 

  • Promissory notes that represent commitments under non-cancellable operating leases of R208.9 million (June 2012: R303.9 million) entered into by Masstores (Pty) Ltd on behalf of certain Makro stores are included in operating lease commitments in land and buildings. These leases terminate in December 2020 and have a discounted present value of R193.6 million (June 2012: R262.8 million), discounted at 10.5% (June 2012: 15%). In accordance with IAS 17 Leases, the rentals paid are amortised over the entire remaining lease period on a straight-line basis.

32. Contingent liabilities

  December 2012
Rm
  June 2012
Rm
Contingent liabilities   

  • There are no current or pending legal or arbitration proceedings, of which the Group is aware, which would have a material effect on the Group's financial position.

33. Related-party transactions

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
Transactions between the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties are disclosed below.       
       
Compensation of key management personnel:       
       
The remuneration of executive directors and other key management were as follows:       
Short-term benefits (salaries, benefits and short-term incentives) 36.0    56.3 
Retirement benefits  1.7    3.0 
Other long-term benefits  2.3    5.7 
Gains on exercise of share options  52.6    54.1 
  92.6    119.1 

  • Key management is defined as the 13-person (June 2012: 17-person) Massmart Executive Committee.
  • The remuneration of directors and key executives is determined by the Nomination and Remuneration Committee having regard to the performance of individuals and market trends. There were four less members on the Executive Committee in the current year. Two resigned just after year end, and thus were accounted for in the numbers above in the current year. Two resigned midway through the current financial year.

Other related-party transactions:

  • Transactions between the Company and Wal-Mart Stores Inc. (its Holding Company), are accounted for in Walmart transaction, integration and related costs in the income statement. These costs comprise professional fees, integration costs, expatriate employment costs, share-based payments, travel, consulting costs and other direct expenses relating to the Walmart transaction, of which certain amounts remain unpaid at the reporting date as disclosed in note 25. The income statement detail is disclosed in note 6. As a shareholder, Wal-Mart Stores Inc. receives dividends from Massmart Holdings Ltd. Of the dividend paid on 17 September 2012 for 146.0 cents, an amount of R166 million was paid to Wal-Mart Stores Inc.
  • From time to time, in the normal course of business, Massmart and its divisions make use of private aircraft hired from competitively selected charter companies, two of which operate aircraft indirectly beneficially owned by the Group's Chairman, Mark Lamberti.
  • The Group holds cash reserves on behalf of the Group's Chairman, Lamberti Education Foundation Trust. Further details relating to these cash reserves can be found in note 27.
  • Loans to directors have been disclosed in note 16.
  • The post-retirement medical aid liability, Massmart Pension Fund and Massmart Provident Fund are managed for the benefit of past and current employees of the Group. Further details can be found in note 24 and note 29 respectively.

34. Directors' emoluments

The comments below provide further background and context to the figures disclosed in this note, Directors’ emoluments, and Interests of directors in the Company’s Share Scheme (note 35).

GM Pattison

Following a third party executive remuneration analysis which assessed positions of similar stature and complexity, the Nomination and Remuneration Committee awarded Grant a 7.0% increase to his salary and allowances for the December 2012 financial year, from R3.90 million for the 52 weeks to R2.09 million for the 26 weeks. Grant did not receive a bonus for this financial year.

During the 26 weeks ended 23 December 2012, Grant converted and sold 49,000 Massmart options, realising a pre-tax gain on exercise of share options of R6.5 million.

Through the Share Scheme, Grant holds 684,021 Massmart shares and options of which 42,202 shares and 158,603 options are held in the Pattison Family Trust, of which Grant is a beneficiary. The average length of time that he has held these is 5.1 years and the average strike price is R80.58 per share. The Pattison Family Trust also directly owns 218,055 Massmart shares.

GRC Hayward

Following a third party executive remuneration analysis which assessed positions of similar stature and complexity, the Nomination and Remuneration Committee awarded Guy a 6.3% increase to his salary and allowances for the December 2012 financial year, from R3.00 million for the 52 weeks to R1.73 million for the 26 weeks. Guy did not receive a bonus for this financial year.

During the 26 weeks ended 23 December 2012, Guy sold 171,500 Massmart shares, realising a pre-tax gain on sale of shares of R20.8 million.

Through the Share Scheme, Guy holds 456,906 Massmart shares and options of which 19,912 shares are held in the Bluett-Hayward Trust, of which Guy is a beneficiary. The average length of time that he has held these is 2.24 years and the average strike price is R124.67 per share. Guy also owns 36,517 Massmart shares directly.

I Zwarenstein

Ilan was appointed to the Board on 7 May 2012. His salary and allowances for the June 2012 financial year, as reflected in the Directors’ emoluments table (note 34), are representative of his salary and allowances during his time in this role. Following a third party executive remuneration analysis which assessed positions of similar stature and complexity, the Nomination and Remuneration Committee awarded Ilan an 8.1% increase to his salary and allowances for the December 2012 financial year, from R1.91 million for the 52 weeks to R1.19 million for the 26 weeks. Ilan did not receive a bonus for this financial year.

During the 26 weeks ended 23 December 2012, Ilan converted and sold 20,000 Massmart options, realising a pre-tax gain on exercise of share options of R2.0 million.

Through the Share Scheme, Ilan holds 182,659 options. The average length of time that he has held these is 1.38 years and the average strike price is R144.95 per share.

  Services
as
directors
of
Massmart
Holdings
Limited
R000
  Salary
and
allowances
R000
  Bonuses
and
performance
related
payments1
R000
  Other
benefits
R000
  Retirement
and
related
benefits
R000
  Subtotal
R000
  Fringe
benefit of
interest-
free
loans
used to
finance
shares2
R000
  Gains on
exercise of
share
options
and on
shares
purchased
by
directors
R000
  Total
R000
For the 26 week year ended December 2012                                  
Executive directors                                   
Pattison, GM    2,085      325    219    2,629    751    6,495    9,875 
Hayward, GRC    1,728      262    182    2,172    490    20,819    23,481 
Zwarenstein, I    1,187        111    1,304      1,998    3,304 
    5,000      593    512    6,105    1,243    29,312    36,660 
Non-executive directors                                   
Lamberti, MJ  505            505        505 
Seabrooke, CS  460            460        460 
Cheesewright, D3                 
Davis, JA                 
Gwagwa, NN  183            183        183 
Langeni, P  296            296        296 
Suarez, JP                 
  1,444            1,444        1,444 
Prescribed Officers                                   
Prescribed Officer A            6,099    243    4,524    10,866 
Prescribed Officer B            3,420      4,665    8,089 
Prescribed Officer C            1,892    314    5,566    7,772 
Prescribed Officer D            1,523      4,801    6,328 
Prescribed Officer E            5,218        5,218 
Prescribed Officer F            3,400      39    3,439 
Prescribed Officer G            1,000    120    1,850    2,970 
Prescribed Officer H            2,152      452    2,604 
Prescribed Officer I            1,139    39    1,390    2,568 
Prescribed Officer J            1,607    148      1,755 
Prescribed Officer K            1,597        1,597 
Prescribed Officer L            1,115        1,115 
Prescribed Officer M            1,030    38      1,068 
Prescribed Officer N            451    87      538 
            31,643    997    23,287    55,927 
Total  1,444    5,000      593    512    39,192    2,240    52,599    94,031 
  1. In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year.
  2. Held in terms of the rules of the Company's share scheme.
  3. Appointed 20 August 2012.
  Services
as
directors
of
Massmart
Holdings
Limited
R000
  Salary
and
allowances
R000
  Bonuses
and
performance
related
payments1
R000
  Other
benefits
R000
  Retirement
and
related
benefits
R000
  Subtotal
R000
  Fringe
benefit of
interest-
free
loans
used to
finance
shares2
R000
  Gains on
exercise of
share
options
and on
shares
purchased
by
directors
R000
  Total
R000
For the 52 week year ended June 2012                                  
Executive directors                                  
Pattison, GM -   3,899   -   828   409   5,136   1,654   19,891   26,681
Hayward, GRC -   2,995   -   522   314   3,831   1,329   5,043   10,203
Zwarenstein, I3  -   366   -   2   35   403   -   -   403
  -   7,260   -   1,352   758   9,370   2,983   24,934   37,287
Non-executive directors                                  
Lamberti, MJ 976   -   -   -   -   976   -   -   976
Seabrooke, CS 891   -   -   -   -   891   -   -   891
Davis, JA -   -   -   -   -   -   -   -   -
Gwagwa, NN 354   -   -   -   -   354   -   -   354
Langeni, P 574   -   -   -   -   574   -   -   574
McMillon, CD4  -   -   -   -   -   -   -   -   -
Suarez, JP -   -   -   -   -   -   -   -   -
  2,795   -   -   -   -   2,795   -   -   2,795
Prescribed Officers                                  
Prescribed Officer A -   -   -   -   -   5,051   581   1,314   6,946
Prescribed Officer B -   -   -   -   -   4,406   9   7,890   12,305
Prescribed Officer C -   -   -   -   -   3,837   673   -   4,510
Prescribed Officer D -   -   -   -   -   2,822   -   -   2,822
Prescribed Officer F -   -   -   -   -   5,900   -   165   6,065
Prescribed Officer G -   -   -   -   -   2,147   258   -   2,405
Prescribed Officer H -   -   -   -   -   6,346   -   854   7,200
Prescribed Officer I -   -   -   -   -   2,279   134   4,527   6,940
Prescribed Officer J -   -   -   -   -   3,195   321   -   3,516
Prescribed Officer K -   -   -   -   -   1,945   -   -   1,945
Prescribed Officer L -   -   -   -   -   5,346   -   -   5,346
Prescribed Officer M -   -   -   -   -   2,107   100   7,346   9,553
Prescribed Officer N -   -   -   -   -   2,547   621   5,031   8,199
Prescribed Officer O -   -   -   -   -   2,035   1   2,000   4,036
  -   -   -   -   -   49,963   2,698   29,127   81,788
Total 2,795   7,260   -   1,352   758   62,128   5,681   54,061   121,870
  1. In order to match incentive awards with the performance to which they relate, bonuses above reflect the amounts accrued in respect of each year and not amounts paid in that year.
  2. Held in terms of the rules of the Company's share scheme.
  3. Appointed 7 May 2012.
  4. Resigned 20 August 2012.

35. Interests of directors in the Company's share scheme

Details of directors' shares and share options per director: 

  Relevant date    Subscription
price (R)
  Market
price (R)
  Number of
shares/share
options
  Gain on
sale/exercise
(R 000's)
  Expiry date 

GM Pattison 

                     
Balance at the beginning of the previous year              723,418         
Options exercised   27 August 2001   11.0    148.5    (49,000)   6,732     
Options exercised   1 April 2005   41.9    173.9    (100,000)   13,159     
New shares/options granted   1 September 2011    153.8        158,603         
Balance at the beginning of the year              733,021    19,891     
Options exercised   1 April 2005    41.9        (49,000)   6,495     
Balance at the end of the year              684,021    6,495     
Comprising:   1 April 2005   41.9        47,000        31 March 2015
  23 May 2006   54.1        367,500        22 May 2016
  24 May 2007   94.3        26,948        23 May 2017
  26 May 2008   72.9        41,768        25 May 2018
  27 May 2009   77.6        42,202        26 May 2019
  1 September 2011   153.8        158,603        31 August 2021
                       
                       

GRC Hayward 

                     
Balance at the beginning of the previous year              394,627         
Options exercised   27 August 2001   11.0    148.5    (36,750)   5,043     
New shares/options granted   1 September 2011   153.8        120,987         
New shares/options granted   16 May 2012    159.6        149,542         
Balance at the beginning of the year              628,406    5,043     
Shares sold 1 April 2005   41.9    168.9    (98,000)   12,410     
Shares sold 23 May 2006   54.1    168.9    (73,500)   8,409     
Balance at the end of the year              456,906    20,819     
  24 May 2007   94.3        24,444        23 May 2017
  1 April 2008   66.9        19,912        31 March 2018
  26 May 2008   72.9        36,573        25 May 2018
  27 May 2009   77.6        105,448        26 May 2019
  1 September 2011   153.8        120,987        31 August 2021
  16 May 2012   159.6        149,542        15 May 2022
                       
                       

I Zwarenstein 

                     
Balance on date appointed as Executive Director              110,983         
New shares/options granted   16 May 2012   159.6        91,676         
Balance at the beginning of the year              202,659         
Options exercised   1 April 2008   66.9    172.4    (5,484)   576     
Options exercised   26 May 2008   72.9    172.4    (10,840)   1,075     
Options exercised   27 May 2009   77.6    172.4    (3,676)   347     
Balance at the end of the year              182,659    1,998     
Comprising:   1 April 2008   66.9        2,742        31 March 2018
  26 May 2008   72.9        13,271        25 May 2018
  27 May 2009   77.6        11,029        26 May 2019
  1 September 2011   153.8        63,941        31 August 2021
  16 May 2012   159.6        91,676        15 May 2022
                       

36. Principal subsidiaries

Details of Massmart's material subsidiary companies are as follows:

Name of company    Number of
shares in issue
000s
  Place of
incorporation
and operation
  Ownership
%
  Voting power
%
  Principal activity   Interest in
Subsidiaries
December 2012                         
Massbuild (Pty) Ltd       South Africa     100.0    100.0    Wholesale and retail of DIY products     1,552.0 
Masscash Holdings
   (Pty) Ltd  
    South Africa     100.0    100.0    Holding company     165.4 
Massmart International
   Holdings Ltd  
    Mauritius     100.0    100.0    Holding company     81.4 
Massmart Management &
   Finance Company
   (Pty) Ltd  
    South Africa     100.0    100.0    Management, investment and finance     (48.4)
Masstores (Pty) Ltd     200    South Africa     100.0    100.0    Retailing, warehousing, mass merchandising     (437.6)
Mystic Blue Trading 62
   (Pty) Ltd
  100    South Africa     100.0    100.0    Selling of retail food   200.0 
Other smaller subsidiaries                       34.0 
                        1,546.8 
June 2012                         
Massbuild (Pty) Ltd       South Africa     100.0    100.0    Wholesale and retail of DIY products     183.0 
Masscash Holdings
   (Pty) Ltd  
    South Africa     100.0    100.0    Holding company     75.5 
Massmart International
   Holdings Ltd  
    Mauritius     100.0    100.0    Holding company     81.4 
Massmart Management &
   Finance Company
   (Pty) Ltd  
    South Africa     100.0    100.0    Management, investment and finance     (106.8)
Masstores (Pty) Ltd     200    South Africa     100.0    100.0    Retailing, warehousing, mass merchandising     (478.0)
                        (244.9)

  • The above details are given in respect of interests in subsidiaries, where material. A full list of subsidiaries is available to shareholders, on request, at the registered office of the Company.

37. Notes to the cash flow statement

  December 2012
26 weeks
Rm
  June 2012
52 weeks
Rm
37.1 Cash flow from trading      
Profit before taxation  1,064.7    1,834.1 
Adjusted for:       
Depreciation, amortisation and impairment  348.0    610.7 
Net loss on disposal of property, plant and equipment  6.2    12.6 
Interest income  (45.6)   (68.8)
Interest expense  106.0    183.9 
Investment income    (0.1)
Dividend income    (3.8)
Share-based payment expense  39.9    66.1 
Unrealised foreign exchange loss  2.1    (24.0)
Other non-cash movements  17.6    (44.4)
Other Walmart non-cash movements  168.6    48.3 
Supplier Development Fund  140.0   
Share-based payment expense  28.6    47.7 
Depreciation    0.6 
  1,707.5    2,614.6 
37.2 Working capital movements      
Increase in inventories  (2,060.9)   (1,373.4)
Increase in trade receivables and prepayments  (728.5)   (369.4)
Increase in trade payables  3,910.2    1,814.6 
Decrease in provisions  (10.8)   (17.9)
  1,110.0    53.9 
37.3 Taxation paid      
Normal taxation:       
Amounts owing at the beginning of the year  (238.0)   (148.1)
Amounts owing at the end of the year  281.5    238.0 
Other  (13.9)   (0.8)
Receiver of Revenue balance acquired on current year acquisitions  (0.1)   (0.2)
Taxation charged to the income statement (excluding deferred taxation) (398.6)   (684.5)
  (369.1)   (595.6)
37.4 Investment to maintain operations      
Land and buildings/leasehold improvements  (34.7)   (89.9)
Vehicles  (18.1)   (35.1)
Fixtures, fittings, plant and equipment  (192.9)   (334.6)
Computer hardware  (34.1)   (90.5)
Computer software  (65.4)   (87.0)
Right of use  (2.4)  
  (347.6)   (637.1)
37.5 Investment to expand operations      
Land and buildings/leasehold improvements  (42.5)   (158.9)
Vehicles  (29.2)   (26.1)
Fixtures, fittings, plant and equipment  (294.4)   (461.5)
Computer hardware  (21.0)   (40.2)
Computer software  (15.5)   (14.7)
Right of use    (9.0)
  (402.6)   (710.4)
37.6 Proceeds on disposal of property, plant and equipment      
Land and buildings/leasehold improvements  2.4   
Vehicles  1.9    3.3 
Fixtures, fittings, plant and equipment  (0.3)   6.2 
Computer equipment and software  4.6    0.7 
  8.6    10.2 
37.7 Proceeds on disposal of assets classified as held for sale 5.7    6.5 
37.8 Investment in subsidiaries      
Fair value of assets and liabilities acquired in subsidiaries:       
Cash and cash equivalents    (18.8)
Inventories  (15.0)   (105.0)
Trade and other receivables and prepayments    (51.3)
Tangible assets  (7.8)   (106.9)
Intangible assets    (0.1)
Taxation    0.2 
Trade payables    158.9 
Provisions  4.3    208.6 
Long term debt    57.2 
Deferred taxation    (3.1)
Goodwill  (38.4)   (486.4)
Total purchase price  (56.9)   (346.7)
Less: Cash and cash equivalents of subsidiary    18.8 
Cash impact of acquisition, net of cash and cash equivalents acquired  (56.9)   (327.9)
37.9 Disposal of subsidiaries      
Net assets at date of disposal:       
Attributable goodwill  2.0   
Cash and cash equivalents  52.5   
Loans and investments  2.0   
Net liabilities associated to assets classified as held for sale  (42.9)  
Minorities  (8.2)  
Other  0.2   
Total net assets at date of disposal  5.6   
Loss on disposal  (3.8)  
Proceeds received on sale  1.8   
Less: Cash and cash equivalents of subsidiary disposed  (52.5)  
Cash impact of disposal, net of cash and cash equivalents disposed  (50.7)  
37.10 Other investing activities       
Investment in a trading and logistics structure  73.2    72.9 
Cost of acquiring non-controlling interests    (25.8)
Other  9.1    3.6 
  82.3    50.7 
37.11 Cash and cash equivalents at the end of the year       
Cash on hand and balances with banks  2,032.0    1,305.4 
Bank overdrafts  (392.1)   (632.6)
Cash and cash equivalents at the end of the year  1,639.9    672.8 

38. Financial Instruments

Capital risk management

The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return to stakeholders through the optimisation of the debt and equity balances.

The capital structure of the Group consists of debt, more specifically medium-term interest-bearing debt and equity attributable to equity holders of the parent, comprising share capital, share premium, other reserves and retained profit. (See notes 21 and 22 respectively).

The targeted level of gearing is determined after consideration of the following key factors :
- the needs of the Group to fund current and future capital expenditure to achieve its stated production growth target; and
- the desire of the Group to maintain its gearing within levels considered to be acceptable taking into account potential business opportunities and the position of the Group in the business cycle.

The Group has medium-term debt facilities that include certain covenants, including:
- maximum gearing ratio
- minimum interest cover
- specified levels of shareholders' equity.

The Group's general banking facility can be analysed as follows:

  December 2012
Rm
  June 2012
Rm
Available cash reserves  1,639.9    672.8 
General banking facility  3,332.4    3,311.9 
  4,972.3    3,984.7 


The Group complies with all externally imposed capital requirements.

Categories of financial instruments

Financial assets

Fair value through profit or loss (FVTPL)
These are held at fair value and any adjustments are taken to the income statement. Listed investments are carried at market value by reference to stock exchange quoted selling prices.

Loans and receivables
These are held at amortised cost less any impairment losses recognised to reflect irrecoverable amounts.

Held-to-maturity investments
These are held at amortised cost less any impairment losses recognised to reflect irrecoverable amounts.

Available-for-sale investments
These are held at fair value and any adjustment to fair value is taken to other comprehensive income.

Financial liabilities

Fair value through profit or loss (FVTPL)
These are held at fair value and any adjustments are taken to the income statement.

Liability at amortised cost
These are held as non-trading liabilities and are shown at amortised cost.

Fair values of financial instruments

There is no difference between the fair value and carrying value of financial assets and liabilities presented below except for the Group's participation in the Trencor export partnership.

The cash flows expected from the Group's participation in the Trencor export partnership over the next two to five years cannot, in the opinion of the directors, be accurately fair valued and therefore have not been discounted. For fair presentation purposes, it is noted that any fair value impairment in the amounts due to the Group by virtue of its participation in such partnerships would result in a corresponding reduction in the fair value of the related deferred tax liability. Consequently, such fair value impairment would have no impact on either the statement of cash flows or income statement of the Group.

Review of the statement of financial position split into financial instruments and non-financial instruments

  Total
Rm
  Non-
financial
instrument
Rm
  Financial
instrument
Rm
  FVTPL
Rm
  Liability at
amortised
cost
Rm
  Loans and
receivables
Rm
  Held-to-
maturity
investments
Rm
  Available-
for-sale
financial
instruments
Rm
December 2012                               
Non-current assets                               
Property, plant and equipment  3,868.2    3,868.2             
Goodwill  2,557.7    2,557.7             
Other intangibles  387.6    387.6             
Investments  258.8      258.8    248.8      2.5    0.1    7.4 
Bare dominium revaluation  110.0      110.0    110.0         
Investment in a trading and logistics structure  104.0      104.0    104.0         
Participation in insurance cell-captive on premium contributions  34.8      34.8    34.8         
Trencor export partnership  2.5      2.5        2.5     
Other unlisted investments  0.1      0.1          0.1   
Other listed investments  7.4      7.4            7.4 
Other financial assets  126.5      126.5        126.5     
Housing and staff loans  0.4      0.4        0.4     
Employee share trust loans  70.6      70.6        70.6     
Finance lease deposit  33.0      33.0        33.0     
Third party loan 20.2      20.2        20.2     
Other loans  2.3      2.3        2.3     
Deferred taxation  396.3    396.3             
Current assets                               
Inventories  9,691.5    9,691.5             
Trade, other receivables and prepayments  3,681.7    194.7    3,487.0    8.5      3,478.5     
Trade receivables  1,692.9      1,692.9        1,692.9     
Other accounts receivable  1,908.7    123.1    1,785.6        1,785.6     
FEC asset  8.5      8.5    8.5         
Prepayments  71.6    71.6             
Taxation  17.0    17.0             
Cash and bank balances  2,032.0      2,032.0        2,032.0     
Non-current assets classified as held for sale  2.5    2.5             
Total assets  23,019.8    17,115.5    5,904.3    257.3      5,639.5    0.1    7.4 
Non-current liabilities                               
Non-current liabilities - interest-bearing  671.8      671.8      671.8       
Medium-term bank loans  616.6      616.6      616.6       
Capitalised finance lease  55.2      55.2      55.2       
Non-current liabilities - interest-free  305.7    302.7    3.0      3.0       
Loans to non-controlling interests  3.0      3.0      3.0       
Operating lease liability  302.7    302.7             
Non-current provisions and other 169.2    104.6    64.6      64.6       
Onerous lease provision  23.1    23.1             
Liabilities raised on business acquisitions  64.6      64.6      64.6       
Provision for post-retirement medical aid contributions and other medical aid provisions  81.5    81.5             
Deferred taxation  36.7    36.7             
Current liabilities                               
Trade and other payables  15,305.5    613.7    14,691.8    10.5    14,681.3       
Trade payables  12,601.3      12,601.3      12,601.3       
Operating lease liability  90.6    90.6             
Leave pay accrual  195.4    195.4             
FEC liability  10.5      10.5    10.5         
Income received in advance  27.6      27.6      27.6       
Insurance income received in advance  91.6      91.6      91.6       
Rebates and advertising  91.3      91.3      91.3       
Shareholders for dividends  15.0      15.0      15.0       
Interest accrual  10.3      10.3      10.3       
Walmart accrual  76.7      76.7      76.7       
Sundry payables and other accruals  2,095.2    327.7    1,767.5      1,767.5       
Current provisions and other  363.8    11.2    352.6      352.6       
Onerous lease provision  7.3    7.3             
Liabilities raised on business acquisitions  124.1      124.1      124.1       
Provision for Supplier Development Fund  225.4      225.4      225.4       
Other current provisions  7.0    3.9    3.1      3.1       
Taxation  298.5    298.5             
Other current liabilities  561.2      561.2      561.2       
Medium-term payable  113.1      113.1      113.1       
Medium-term bank loans  414.7      414.7      414.7       
Capitalised finance lease  33.4      33.4      33.4       
Bank overdrafts  392.1      392.1      392.1       
Total liabilities  18,104.5    1,367.4    16,737.1    10.5    16,726.6       
                               
  Total
Rm
  Non-
financial
instrument
Rm
  Financial
instrument
Rm
  FVTPL
Rm
  Liability at
amortised
cost
Rm
  Loans and
receivables
Rm
  Held-to-
maturity
investments
Rm
  Available-
for-sale
financial
instruments
Rm
June 2012                               
Non-current assets                               
Property, plant and equipment  3,520.6    3,520.6             
Goodwill  2,521.4    2,521.4             
Other intangibles  347.1    347.1             
Investments  321.9      321.9    313.1      3.0    0.1    5.7 
Bare dominium revaluation  82.0      82.0    82.0         
Investment in a trading and logistics structure  177.2      177.2    177.2         
Participation in insurance cell-captive on extended warranties  18.8      18.8    18.8         
Participation in insurance cell-captive on premium contributions  35.1      35.1    35.1         
Trencor export partnership  3.0      3.0        3.0     
Other unlisted investments  0.1      0.1          0.1   
Other listed investments  5.7      5.7            5.7 
Other financial assets  134.6      134.6        134.6     
Housing and staff loans  0.5      0.5        0.5     
Employee share trust loans  82.4      82.4        82.4     
Finance lease deposit  37.6      37.6        37.6     
Third party loan 13.9      13.9        13.9     
Other loans  0.2      0.2        0.2     
Deferred taxation  330.2    330.2             
Current assets                               
Inventories  7,615.6    7,615.6             
Trade, other receivables and prepayments  2,953.9    122.6    2,831.3    20.9      2,810.4     
Trade receivables  1,545.2      1,545.2        1,545.2     
Other accounts receivable  1,353.9    88.7    1,265.2        1,265.2     
FEC asset  20.9      20.9    20.9         
Prepayments  33.9    33.9             
Taxation  21.0    21.0             
Cash and bank balances  1,305.4      1,305.4        1,305.4     
Non-current assets classified as held for sale  103.2      103.2            103.2 
Total assets  19,174.9    14,478.5    4,696.4    334.0      4,253.4    0.1    108.9 
Non-current liabilities                               
Non-current liabilities - interest-bearing  852.7      852.7      852.7       
Medium-term bank loans  777.2      777.2      777.2       
Capitalised finance lease  75.5      75.5      75.5       
Non-current liabilities - interest-free  345.8    342.8    3.0      3.0       
Loans to non-controlling interests  3.0      3.0      3.0       
Operating lease liability  342.8    342.8             
Non-current provisions and other 259.0    105.9    153.1      153.1       
Onerous lease provision  27.7    27.7             
Provision for Supplier Development Fund  94.9      94.9      94.9       
Liabilities raised on business acquisitions  58.2      58.2      58.2       
Provision for post-retirement medical aid contributions and other medical aid provisions  78.2    78.2             
Deferred taxation  28.5    28.5             
Current liabilities                               
Trade and other payables  11,302.0    652.8    10,649.2    4.0    10,645.2       
Trade payables  8,908.8      8,908.8      8,908.8       
Operating lease liability  62.1    62.1             
Leave pay accrual  175.3    175.3             
FEC liability  4.0      4.0    4.0         
Income received in advance  31.0      31.0      31.0       
Rebates and advertising  60.3      60.3      60.3       
Shareholders for dividends  14.5      14.5      14.5       
Interest accrual  14.4      14.4      14.4       
Walmart accrual  73.7      73.7      73.7       
Sundry payables and other accruals  1,957.9    415.4    1,542.5      1,542.5       
Current provisions and other  139.7    9.0    130.7      130.7       
Onerous lease provision  6.2    6.2             
Liabilities raised on business acquisitions  124.1      124.1      124.1       
Other current provisions  9.4    2.8    6.6      6.6       
Taxation  259.0    259.0             
Other current liabilities  648.9      648.9      648.9       
Medium-term payable  110.2      110.2      110.2       
Medium-term bank loans  503.8      503.8      503.8       
Capitalised finance lease  34.9      34.9      34.9       
Bank overdrafts  632.6      632.6      632.6       
Liabilities associated to assets classified as held for sale  141.9      141.9      141.9       
Total liabilities  14,610.1    1,398.0    13,212.1    4.0    13,208.1       

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

  • Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities
  • Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are observable, either directly or indirectly
  • Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on observable market data
Financial instruments carried at fair value in the statement of financial position:  Total
Rm
  Level 1
Rm
  Level 2
Rm
  Level 3
Rm
December 2012               
Assets measured at fair value               
Financial assets at fair value through profit or loss               
Bare dominium revaluation  110.0      110.0   
Investment in a trading and logistics structure  104.0      104.0   
Participation in insurance cell-captive on premium contributions  34.8      34.8   
FEC asset  8.5    8.5     
Available-for-sale financial assets               
Listed investments  7.4    7.4     
  264.7    15.9    248.8   
Liabilities measured at fair value               
Financial liabilities at fair value through profit or loss               
FEC liability  10.5    10.5     
  10.5    10.5     

There were no transfers between Level 1 and Level 2 fair value measurements during the December 2012 financial year. 

Financial instruments carried at fair value in the statement of financial position:  Total
Rm
  Level 1
Rm
  Level 2
Rm
  Level 3
Rm
June 2012               
Assets measured at fair value               
Financial assets at fair value through profit or loss               
Bare dominium revaluation  82.0      82.0   
Investment in a trading and logistics structure  177.2      177.2   
Participation in insurance cell-captive on extended warranties  18.8      18.8   
Participation in insurance cell-captive on premium contributions  35.1      35.1   
FEC asset  20.9    20.9     
Available-for-sale financial assets               
Listed investments  5.7    5.7     
  339.7    26.6    313.1   
Liabilities measured at fair value               
Financial liabilities at fair value through profit or loss               
FEC liability  4.0    4.0     
  4.0    4.0     


There were no transfers between Level 1 and Level 2 fair value measurements during the June 2012 financial year.

Financial risk management

The Group does not trade in financial instruments, but in the ordinary course of business operations, the Group is exposed to a variety of financial risks arising from the use of financial instruments. These risks include:
- market risk (comprising interest rate risk, currency risk and other price risk);
- liquidity risk; and
- credit risk.
The Group has developed a comprehensive risk management process to facilitate, control and monitor these risks. This process includes formal documentation of policies, including limits, controls and reporting structures. The Executive Committee is responsible for risk management activities within the Group.

Market risk management

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The market risks that the Group is primarily exposed to include currency risk, interest rate risk, and other price risk. Market risk is managed by identifying and quantifying risks on the basis of current and future expectations and ensuring that all trading occurs within defined parameters. This involves the review and implementation of methodologies to reduce risk exposure. The reporting on the state of the risk and risk practices to executive management is part of this process. The processes set up to measure, monitor and mitigate these market risks are described below. There has been no change to the Group’s exposure to market risk or the manner in which it manages and measures the risk since the prior period.

Interest rate risk management

During the year, the position of the Group alternated between having surplus cash and being in a borrowed position. The size of the Group's position, be it either surplus cash or borrowings, exposes it to interest rate risk. The interest-bearing debt funding requirements and the investment of surplus cash funds are managed by the Group through its own commercial bank facilities.

The carrying amount of the Group's financial assets and liabilities at reporting date that are subject to interest rate risk is as follows:

  Subject to interest rate movement   Non-interest bearing   Total
  Fixed
Rm
  Floating
Rm
  Rm   Rm
December 2012               
Financial assets               
Investments               
Bare dominium revaluation      110.0    110.0 
Investment in a trading and logistics structure      104.0    104.0 
Participation in insurance cell-captive on premium contributions      34.8    34.8 
Trencor export partnership    2.5      2.5 
Other unlisted investments      0.1    0.1 
Other listed investments      7.4    7.4 
Other financial assets               
Housing and staff loans  0.4        0.4 
Employee share trust loans      70.6    70.6 
Finance lease deposit  33.0        33.0 
Third party loan     20.2    20.2 
Other loans      2.3    2.3 
Trade, other receivables and prepayments               
Trade receivables    1,692.9      1,692.9 
Other accounts receivable      1,785.6    1,785.6 
FEC asset      8.5    8.5 
Cash and bank balances    2,032.0      2,032.0 
Total financial assets  33.4    3,727.4    2,143.5    5,904.3 
Financial liabilities               
Non-current liabilities - interest-bearing               
Medium-term bank loans  616.6        616.6 
Capitalised finance lease  55.2        55.2 
Non-current liabilities - interest-free               
Loans to non-controlling interests      3.0    3.0 
Non-current provisions and other               
Liabilities raised on business acquisitions      64.6    64.6 
Trade and other payables               
Trade payables      12,601.3    12,601.3 
FEC liability      10.5    10.5 
Income received in advance      27.6    27.6 
Insurance income received in advance      91.6    91.6 
Rebates and advertising      91.3    91.3 
Shareholders for dividends     15.0    15.0 
Interest accrual      10.3    10.3 
Walmart accrual      76.7    76.7 
Sundry payables and other accruals      1,767.5    1,767.5 
Current provisions and other               
Liabilities raised on business acquisitions    124.1      124.1 
Provision for Supplier Development Fund      225.4    225.4 
Other current provisions      3.1    3.1 
Other current liabilities               
Medium-term payable    113.1      113.1 
Medium-term bank loans  414.7        414.7 
Capitalised finance lease  33.4        33.4 
Bank overdrafts    392.1      392.1 
Total financial liabilities  1,119.9    629.3    14,987.9    16,737.1 
               
  Subject to interest rate movement   Non-interest bearing   Total 
  Fixed
Rm
  Floating
Rm
  Rm   Rm
June 2012               
Financial assets               
Investments               
Bare dominium revaluation      82.0    82.0 
Investment in a trading and logistics structure      177.2    177.2 
Participation in insurance cell-captive on extended warranties      18.8    18.8 
Participation in insurance cell-captive on premium contributions      35.1    35.1 
Trencor export partnership    3.0      3.0 
Other unlisted investments      0.1    0.1 
Other listed investments      5.7    5.7 
Other financial assets               
Housing and staff loans  0.5        0.5 
Employee share trust loans      82.4    82.4 
Finance lease deposit  37.6        37.6 
Third party loan     13.9    13.9 
Other loans      0.2    0.2 
Trade, other receivables and prepayments               
Trade receivables      1,545.2    1,545.2 
Other accounts receivable      1,265.2    1,265.2 
FEC asset      20.9    20.9 
Cash and bank balances    1,305.4      1,305.4 
Non-current assets classified as held for sale      103.2    103.2 
Total financial assets  38.1    1,308.4    3,349.9    4,696.4 
Financial liabilities               
Non-current liabilities - interest-bearing               
Medium-term bank loans  777.2        777.2 
Capitalised finance lease  75.5        75.5 
Non-current liabilities - interest-free               
Loans to non-controlling interests      3.0    3.0 
Non-current provisions and other               
Provision for Supplier Development Fund      94.9    94.9 
Liabilities raised on business acquisitions    58.2      58.2 
Trade and other payables               
Trade payables      8,908.8    8,908.8 
FEC liability      4.0    4.0 
Income received in advance      31.0    31.0 
Rebates and advertising      60.3    60.3 
Shareholders for dividends      14.5    14.5 
Interest accrual      14.4    14.4 
Walmart accrual      73.7    73.7 
Sundry payables and other accruals      1,542.5    1,542.5 
Current provisions and other               
Liabilities raised on business acquisitions    124.1      124.1 
Other current provisions      6.6    6.6 
Other current liabilities               
Medium-term payable    110.2      110.2 
Medium-term bank loans  503.8        503.8 
Capitalised finance lease  34.9        34.9 
Bank overdrafts    632.6      632.6 
Liabilities associated to assets classified as held for sale      141.9    141.9 
Total financial liabilities  1,391.4    925.1    10,895.6    13,212.1 


Interest rate sensitivity

The Group is sensitive to the movements in the SA Prime interest rate. The rates of sensitivity represents management's assessment of the possible change in interest rates. The average interest rate for the Group for the year was 6.77% (June 2012: 7.11%), and the variable interest paid was R15.1 million (June 2012: 53.0 million). If the SA Prime interest rate increased and decreased by 50 average basis points (June 2012: increased and decreased by 50 average basis points) at year-end, the income for the year would have decreased and increased by R1.1 million respectively (June 2012: decreased and increased by R3.7 million respectively).

Currency risk management

All foreign-denominated trading liabilities are covered by forward exchange contracts. Foreign-denominated assets are not covered by forward exchange contracts.

The carrying amount of the Group's foreign currency denominated monetary assets at reporting date is as follows:

  South African
Rand
Rm
  US Dollar
Rm
  Euro
Rm
  Other
Rm
  Total
Rm
December 2012                   
Investments  148.1    104.0      6.7    258.8 
Trade receivables  3,337.0    0.8      149.2    3,487.0 
Cash and bank balances  1,256.4    (63.6)   11.6    435.5    1,639.9 
  4,741.5    41.2    11.6    591.4    5,385.7 
June 2012                   
Investments  139.5    177.2      5.2    321.9 
Trade receivables  2,697.3        134.0    2,831.3 
Cash and bank balances  270.3    (11.9)   11.3    403.1    672.8 
  3,107.1    165.3    11.3    542.3    3,826.0 


Foreign currency sensitivity

The US Dollar is the primary currency to which the Group is exposed. In the past, the US Dollar movement against the Rand has been a good proxy for the Group's exposure to the basket of African currencies. During the 2009 financial year, this relationship broke as the African currencies weakened considerably more than the US Dollar, as can be seen in the graph below. In the 2010 and the 2011 financial years, the relationship was restored. In the prior year, the relationship was maintained, except for Malawi, where the Kwacha devalued by 50% in May 2012. The devalued Malawian Kwacha distorts the graph illustrated below showing the African basket weakening against the Rand. In the current year, the African basket and the US Dollar strengthened again against the Rand. Again the Malawian Kwacha weakened against the Rand, however, due to the weaker Malawian Kwacha at June 2012, this had a much smaller impact on the basket of African currencies illustrated below. The African basket below gives no weighting to the different African currencies nor is impacted by the exposure to the relevant countries. As a result, the graph below illustrates a different foreign exchange outcome to that in the income statement where the December 2011 high Malawian loan balance and large currency devaluation have had a large impact.

This graph shows the annual change of closing spot rates at each financial year-end.

The table below indicates the Group's sensitivity at year-end to movements in the relevant foreign currencies on financial instruments, excluding forward exchange contracts. The rates of sensitivity are the rates used when reporting the currency risk to the Executive Committee of the Group and represents management's assessment of the possible change in reporting foreign currency exchange rates.

Currency  December 2012
Spot rate
  5% increase
Rm
  5% decrease
Rm
US Dollar  8.5878    0.1    (0.1)
Pound Sterling  13.8878    0.0    (0.0)
Euro  11.2948     
Botswana Pula  1.0993    0.1    (0.1)
Ghanaian New Cedi  4.5238    0.0    (0.0)
Malawian Kwacha  0.0259    3.6    (3.6)
Mozambican New Metical  0.2906    0.5    (0.5)
Nigerian Naira  0.0546    0.4    (0.4)
Tanzanian Shilling  0.0054    0.1    (0.1)
Uganda Shilling  0.0032    0.4    (0.4)
Zambian Kwacha  0.0017    0.0    (0.0)
           
Currency  June 2012
Spot rate
  5% increase
Rm
  5% decrease
Rm
US Dollar  8.4049    0.4    (0.4)
Pound Sterling  13.1009     
Euro 10.5201    0.1    (0.1)
Botswana Pula  1.0854    0.4    (0.4)
Ghanaian New Cedi  4.3563    0.5    (0.5)
Malawian Kwacha  0.0311    8.5    (8.5)
Mauritian Rupee  0.2730    0.1    (0.1)
Mozambican New Metical  0.3037    0.6    (0.6)
Nigerian Naira  0.0517    0.7    (0.7)
Tanzanian Shilling  0.0053    0.9    (0.9)
Uganda Shilling  0.0034    1.1    (1.1)
Zambian Kwacha  0.0016    0.4    (0.4)


For each 5% increase, profit is increased and the financial asset is increased, for each 5% decrease, profit is decreased and the financial asset is decreased.

Forward foreign exchange contracts

Forward exchange contracts are entered into to manage exposure to fluctuations in foreign currency exchange rates on specific trading transactions. The Group's policy is to enter into forward contracts for all committed foreign currency purchases to hedge the Group's exposure to variability in cash flows. These FEC hedges are classified as cash flow hedges and have been accounted for according to IAS 38 Financial Instruments: Recognition and Measurement. Fair value has been determined using money market derivative rates at 23 December 2012 (24 June 2012) and the net gain or exposure on the contracts has been reflected in the financial statements. There are no other hedges in the Group.

At year-end, the open forward exchange contracts were as follows:  Foreign currency
(millions)
  Fair value adjustment
Rm
  Contract equivalent
Rm
  Average exchange rate
Rm
December 2012               
US Dollar  80.8    (2.3)   703.0    8.7 
Sterling  0.3    0.1    3.9    13.6 
Euro 0.6    0.2    6.2    11.1 
      (2.0)   713.1     
June 2012               
US Dollar  75.7    16.8    627.5    8.3 
Sterling  0.4    0.1    5.0    13.1 
Euro  0.2      2.0    10.7 
Swiss Francs      0.4    8.8 
Australian Dollar  0.1      0.6    8.1 
      16.9   635.5    


The contract equivalent represents the balance at the end of the reporting period and is included in Trade and other receivables (FEC asset balance) and included in Trade and other payables (FEC liability balance). As the average duration is three months, these FEC balances would be derecognised and the resulting impact would be accounted for in the income statement within the next reporting period for both periods under review.

During the December 2012 financial year an amount of -R4.2 million (June 2012: R8.1 million) relating to the FEC hedges was recognised in other comprehensive income.

Forward foreign exchange contracts sensitivity

The following table indicates the Group's sensitivity of the outstanding forward exchange contracts at the reporting date to movements in the US Dollar. The US Dollar is the primary currency in which the Group has entered into forward foreign exchange contracts. The rates of sensitivity are the rates used when reporting the currency risk to the Executive Committee of the Group and represents management's assessment of the possible change in foreign currency exchange rates. The Rand/US Dollar year-end rate was R8.59 (June 2012: R8.40).

      US Dollar 
  5% increase
Rm
  5% decrease
Rm
December 2012       
Profit/(loss) 30.9    (39.1)
Derivative financial assets/(liabilities) 35.0    (35.0)
Equity  4.1    4.1 
       
June 2012       
Profit/(loss) 34.8    (29.6)
Derivative financial assets/(liabilities) 32.2    (32.2)
Equity  (2.6)   (2.6)


Liquidity risk management

Liquidity risk is the risk that the Group will be unable to meet a financial commitment in any location or currency. This risk is minimised through the holding of cash balances and sufficient available borrowing facilities (refer to note 23). In addition, detailed cash flow forecasts are regularly prepared and reviewed so that the cash needs of the Group are managed according to its requirements.

The following table details the Group's contractual maturity for its non-derivative financial liabilities. The table has been compiled based on the undiscounted cash flows of financial liabilities based on the earliest date on which the Group can be required to repay the liability. The cash flows include both the principal and interest payments.

  Repayable
within 1 year
Rm
  Repayable
2 - 5 years
Rm
  Repayable
after 5 years
Rm
  Total
Rm
 
December 2012                 
Financial liabilities                 
Non-current and current liabilities - interest-bearing                 
Medium-term payable  113.1        113.1   
Medium-term bank loans  478.4    615.9    76.6    1,170.9   
Capitalised finance lease  40.4    59.0      99.4   
Non-current liabilities - interest-free                 
Loans to non-controlling interests      3.0    3.0   
Non-current and current provisions and other  352.6    64.6      417.2   
Trade and other payables                 
Trade payables  12,601.3        12,601.3   
Sundry payables and other accruals  2,090.5        2,090.5   
Bank overdrafts  392.1        392.1   
Total undiscounted cash flows of the Group's financial liabilities  16,068.4    739.5    79.6    16,887.5   
Less: Future finance charges              (150.4)  *
Total financial liabilities              16,737.1   
                 
* Included in future finance charges is R10.8 million that relates to finance leases. 
 
  Repayable
within 1 year
Rm
  Repayable
2 - 5 years
Rm
  Repayable
after 5 years
Rm
  Total
Rm
 
June 2012                 
Financial liabilities                 
Non-current and current liabilities - interest-bearing                 
Medium-term payable  110.2        110.2   
Medium-term bank loans  593.4    887.4      1,480.8   
Capitalised finance lease  41.9    80.7    0.2    122.8   
Non-current liabilities - interest-free               
Loans to non-controlling interests      3.1    3.1   
Non-current and current provisions and other  130.7    153.1      283.8   
Trade and other payables                 
Trade payables  8,908.8        8,908.8   
Sundry payables and other accruals  1,740.4        1,740.4   
Bank overdrafts  632.6        632.6   
Liabilities associated to assets classified as held for sale  141.9        141.9   
Total undiscounted cash flows of the Group's financial liabilities  12,299.9    1,121.2    3.3    13,424.4   
Less: Future finance charges              (212.3)  *
Total financial liabilities              13,212.1   

* Included in future finance charges is R12.4 million that relates to finance leases.

Included in Trade and other receivables is the FEC asset balance and included in Trade and other payables is the FEC liability balance. The average duration of the FEC's are three months and so they would fall in the repayable within one year for both periods under review.

Credit risk management

The carrying amount of the financial assets represents the Group's maximum exposure to credit risk without taking into consideration any collateral provided.

Credit risk analysed:  Financial
assets
Rm
  High
exposure
Rm
  Medium
exposure
Rm
  Low
exposure
Rm
December 2012               
Non-current assets               
Investments  258.8      2.5    256.3 
Bare dominium revaluation  110.0        110.0 
Investment in a trading and logistics structure  104.0        104.0 
Participation in insurance cell-captive on premium contributions  34.8        34.8 
Trencor export partnership  2.5      2.5   
Other unlisted investments  0.1        0.1 
Other listed investments  7.4        7.4 
Other financial assets  126.5        126.5 
Housing and staff loans  0.4        0.4 
Employee share trust loans  70.6        70.6 
Finance lease deposit  33.0        33.0 
Third party loan 20.2        20.2 
Other loans  2.3        2.3 
               
Current assets               
Trade and other receivables  3,487.0        3,487.0 
Trade receivables  1,692.9        1,692.9 
Other accounts receivable  1,785.6        1,785.6 
FEC asset  8.5        8.5 
Cash and bank balances  2,032.0        2,032.0 
Total financial assets  5,904.3      2.5    5,901.8 
               
Credit risk analysed:  Financial
assets
Rm
  High
exposure
Rm
  Medium
exposure
Rm
  Low
exposure
Rm
June 2012               
Non-current assets               
Investments  321.9      3.0    318.9 
Bare dominium revaluation  82.0        82.0 
Investment in a trading and logistics structure  177.2        177.2 
Participation in insurance cell-captive on extended warranties  18.8        18.8 
Participation in insurance cell-captive on premium contributions  35.1        35.1 
Trencor export partnership  3.0      3.0   
Other unlisted investments  0.1        0.1 
Other listed investments  5.7        5.7 
Other financial assets  134.6        134.6 
Housing and staff loans  0.5        0.5 
Employee share trust loans  82.4        82.4 
Finance lease deposit  37.6        37.6 
Third party loan  13.9        13.9 
Other loans  0.2        0.2 
               
Current assets               
Trade and other receivables  2,831.3        2,831.3 
Trade receivables  1,545.2        1,545.2 
Other accounts receivable  1,265.2        1,265.2 
FEC asset  20.9        20.9 
Cash and bank balances  1,305.4        1,305.4 
Non-current assets classified as held for sale  103.2        103.2 
Total financial assets  4,696.4      3.0    4,693.4 


Potential areas of credit risk include trade and consumer accounts receivable and short-term cash investments. Credit risk arises from the risk that a counterparty may default or not meet its obligations timeously. Trade accounts receivable consist primarily of a large, widespread customer base. Group companies regularly monitor the financial position of their customers. Where considered appropriate, credit guarantee insurance is used. The granting of credit is controlled by application and account limits. Provision is made for both specific and general bad debts, and at the year-end management did not consider there to be any material credit risk exposure that was not already covered by credit guarantee insurance or bad debt provisions. Further details relating to trade and other receivables can be found in note 19.

39. Segmental reporting

Business segments

The Group is organised into four divisions for operational and management purposes, being Massdiscounters, Masswarehouse, Massbuild and Masscash. Massmart reports its primary 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
Masscash - food wholesaler, retailer and buying association

  Total
Rm
  Corporate
Rm
  Massdiscounters
Rm
  Masswarehouse
R
m
  Massbuild
Rm
  Masscash
Rm
For the 26 week year ended December 2012                       
Sales  36,122.6      8,422.1    9,630.2    4,663.1    13,407.2 
Operating profit before interest
and taxation 
1,125.1    (214.9)   352.5    516.4    269.1    202.0 
Trading profit before interest
and taxation 
1,427.1      426.5    518.1    271.0    211.5 
Net finance (costs)/income  (60.4)   (131.8)   23.1    17.0    21.6    9.7 
Operating profit before taxation  1,064.7    (346.7)   375.6    533.4    290.7    211.7 
Trading profit before taxation  1,498.5      449.6    535.1    292.6    221.2 
Inventory  9,691.5    31.2    3,406.2    2,376.9    1,321.6    2,555.6 
Total assets  23,019.8    (3,462.5)   7,667.1    6,136.0    4,594.9    8,084.3 
Total liabilities  18,104.5    (7,176.7)   7,492.7    6,299.1    4,236.5    7,252.9 
Net capital expenditure  741.6    22.4    261.8    265.9    73.8    117.7 
Depreciation and amortisation  342.6    9.4    128.1    62.0    61.6    81.5 
Impairment losses  5.4            5.4 
Non-cash items other than depreciation and impairment  234.4    190.9    34.5    22.6    12.1    (25.7)
Cash flow from operating activities  2,071.0    1,545.9    37.2    100.9    102.4    284.6 
Cash flow from investing activities  (761.2)   54.9    (261.6)   (253.2)   (73.7)   (227.6)
Cash flow from financing activities  (367.8)   (1,087.6)   388.0    249.1    (11.8)   94.5 
Inventory days  59.9      99.7    53.6    73.7    38.8 
Number of stores  359      133    18    85    123 
Trading area (m2) 1,413,573      441,382    179,202    395,871    397,118 
Trading area (m2) increase on June 2012 (excluding re-measurements) 4.7%      5.8%    17.0%    0.5%    3.3% 
Average trading area per store (m2) 3,938        3,319    9,956    4,657    3,229 
Distribution centre space (m2) 290,704      178,488    51,300    29,624    31,292 
Distribution centre space (m2) increase on June 2012  11.1%      5.6%    32.2%    -     29.3% 
Number of full-time equivalents  36,053    314    13,767    3,854    8,083    10,035 
Number of full-time equivalents increase on June 2012  11.1%    0.3%    38.1%    9.5%    9.4%    -10.8% 


  Total
Rm
  Corporate
Rm
  Massdiscounters
Rm
  Masswarehouse
R
m
  Massbuild
Rm
  Masscash
Rm
For the 52 week year ended June 2012                       
Sales  61,209.1    -      14,805.7    15,370.6    8,138.0    22,894.8 
Operating profit before interest
and taxation 
1,949.2    (205.4)   656.2    848.4    397.2    252.9 
Trading profit before interest
and taxation 
2,265.3    -      749.8    844.5    389.8    281.2 
Net finance (costs)/income  (115.1)   (306.6)   63.2    61.8    45.5    21.0 
Operating profit before taxation  1,834.1    (512.0)   719.4    910.2    442.7    273.9 
Trading profit before taxation  2,456.8    -      813.0    906.3    435.3    302.2 
Inventory  7,615.6    8.6    2,661.2    1,793.2    1,198.3    1,954.3 
Total assets  19,174.9    (2,763.5)   5,912.0    4,838.7    4,298.5    6,889.2 
Total liabilities  14,610.1    (6,237.5)   5,775.7    5,032.5    4,131.3    5,908.1 
Net capital expenditure  1,337.3    (106.6)   505.9    318.9    304.9    314.2 
Depreciation and amortisation  594.2    16.1    213.2    110.2    119.7    135.0 
Impairment losses  16.5    -      -      -      -      16.5 
Non-cash items other than depreciation and impairment  54.7    (34.7)   51.9    22.5    18.3    (3.3)
Cash flow from operating activities  1,122.9    385.7    (136.1)   76.5    209.9    586.9 
Cash flow from investing activities  (1,608.0)   187.1    (505.9)   (455.8)   (304.9)   (528.5)
Cash flow from financing activities  345.9    (1,070.1)   607.7    245.5    332.9    229.9 
Inventory days  55.6    -      89.0    51.0    75.0    34.0 
Number of stores  348    -      125    16    84    123 
Trading area (m2) 1,350,300    -      415,186    146,026    406,987    382,101 
Trading area (m2) increase on June 2011  5.4%    -      7.1%    13.7%    -1.5%    8.6% 
Average trading area per store (m2) 3,880        3,321    9,127    4,845    3,107 
Distribution centre space (m2) 261,579    -      168,953    38,800    29,624    24,202 
Distribution centre space (m2) increase on June 2011  11.2%    -        210.4%      13.2% 
Number of full-time equivalents  32,439    313    9,972    3,519    7,390    11,245 
Number of full-time equivalents increase on June 2011  17.0%    5.4%    18.1%    22.3%    8.1%    21.2% 



  • The corporate column includes certain consolidation entries.
  • All intercompany transactions have been eliminated in the above results.
  • Additional information can be found in Massmart at a Glance and the Financial Director's Review.
  • Trading profit before taxation is earnings before corporate net interest, asset impairments, BEE transaction IFRS 2 charges, foreign exchange movements, loss on disposal of business, assets classified as held for sale and Walmart related costs.
  • Net capital expenditure is defined as capital expenditure less disposal proceeds.

Geographic segments

The Group's four divisions operate in two principal geographical areas - South Africa and the rest of Africa.

  Total
December 2012
26 weeks
Rm
  South Africa
December 2012
26 weeks
Rm
  Rest of Africa
December 2012
26 weeks
Rm
  Total
June 2012
52 weeks
Rm
  South Africa
June 2012
52 weeks
Rm
  Rest of Africa
June 2012
 
52 weeks
Rm
         
         
         
Sales  36,122.6    33,503.5    2,619.1    61,209.1    56,456.2    4,752.9 
Segment assets  16,719.2    16,218.3    500.9    14,148.4    13,690.6    457.8 
Net capital expenditure  741.6    700.6    41.0    1,337.3    1,212.1    125.2 

  • All intercompany transactions have been eliminated in the above results.
  • Segment assets excludes financial instruments and deferred taxation and reflects the geographic location of the Group's physical current and non-current assets. Previously the Group disclosed the total assets by geographic segment which provided less insight.
  • Net capital expenditure is defined as capital expenditure less disposal proceeds.

40. Value added statement

  December 2012
26 weeks
Rm
  %   June 2012
52 weeks
Rm
  %
Sales, royalties, franchise fees, rentals and management and adminisitration fees (inclusive of VAT) 42,447.9        69,167.1     
Cost of sales   (29,523.2)       (49,957.1)    
Interest and investment income  73.3        81.8     
Net costs of services and other operating expenses  (2,707.0)       (4,405.3)    
Value added  10,291.0        14,886.5     
Applied as follows :               
To employees as salaries, wages and other benefits  2,536.6    24.6    4,456.6    29.9 
To Government as taxation  6,583.5    64.0    8,435.4    56.7 
To shareholders as dividends  317.0    3.1    838.8    5.6 
To lenders as interest  106.0    1.0    183.9    1.2 
Depreciation and amortisation  342.6    3.3    594.8    4.0 
Minorities  29.2    0.3    36.3    0.2 
Net earnings retained  376.1    3.7    340.7    2.4 
Total  10,291.0    100.0    14,886.5    100.0 

41. Critical accounting judgements and key sources of estimation uncertainty

Critical judgements in applying the Group's accounting policies

In the process of applying the Group's accounting policies, which are described in note 1, management has not made any critical judgements that have a significant effect on the amounts recognised in the financial statements.

  • Classification of leases as financing or operating in nature

    The Group enters into commercial property leases for the majority of its stores. Where management has determined, based on an evaluation of the terms and conditions, that the lessor retains all significant risks and rewards of these properties, it will account for the contracts as operating leases.

Key sources of estimation uncertainty

  • Property, plant and equipment

    Property, plant and equipment is depreciated over its useful life taking into account, where appropriate, residual values. Assessment of useful lives and residual values are performed annually, taking into account factors such as technological innovation, maintenance programmes, market information and management considerations. In assessing the residual values, the remaining life of the asset, its projected disposal value and future market conditions are taken onto account. For more detail on property, plant and equipment, please see note 12.
  • Goodwill impairment

    Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the Group to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the reporting date was R2,557.7 million (June 2012: R2,521.4 million). No goodwill was impaired in the current year. The impairment of goodwill in the prior year relates to the impairment of certain acquired goodwill in Masscash. Details of the impairment loss calculation are provided in note 13.
  • Inventory provisions

    Inventory provisions include shrinkage, obsolescence and write-downs which take into account historical information related to sales trends and stock counts and represent the expected write-down between the estimated net realisable value and the original cost. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. For more detail on the provisions, please see note 18.
  • Allowance for doubtful debts

    The Group assesses it doubtful debt allowance at each reporting date. Key assumptions applied are the estimated debt recovery rates and the future market conditions that could affect recovery. For more detail on the allowance, please see note 19.
  • Fair value of options granted

    The fair value of options granted in terms of IFRS 2 Share-based Payment is obtained using option pricing models. Assumptions include expected volatility, expected life, risk-free rate and expected dividend yield. By obtaining an external valuation by accredited valuators, management is of the opinion that the risk relating to estimation uncertainty has been mitigated. For more detail on the valuations, please see note 22.
  • Provision for post-retirement medical aid

    Post-retirement healthcare benefits are provided to certain retired employees. Actuarial valuations are performed to assess the financial position of the fund. Assumptions used include the discount rate, healthcare cost inflation, mortality rates, withdrawal rates and membership. By obtaining an external valuation by accredited valuators, management is of the opinion that the risk relating to estimation uncertainty has been mitigated. Details can be found in note 24.
  • Deferred tax assets

    Deferred tax assets are raised to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused tax credits can be utilised. Assessment of future taxable profit is performed at every reporting date, in the form of future cash flows using a suitable growth rate. For more detail on deferred taxation, please see note 17.

42. Events after the reporting date

Effective 25 January 2013, Massmart acquired control of seven Makro stores that had previously been lease-held. The cash consideration paid amounted to R575 million and was funded by debt. We expect the income statement effect of this transaction to be neutral initially but with significant annual income statement and cash flow benefits thereafter.

43. Shareholder analysis

The following analysis of shareholders was extracted from the shareholders register as at December 2012:

  Number      Number of shares   
Shareholder spread               
1 - 1,000 shares  5,285    84.7    1,234,732    0.6 
1,001 - 10,000 shares  720    11.5    2,170,672    1.0 
10,001 - 100,000 shares  163    2.6    4,894,586    2.3 
100,001 - 1,000,000 shares  48    0.8    15,895,477    7.3 
1,000,001 shares and over  20    0.4    192,714,728    88.8 
  6,236    100.0    216,910,195    100.0 
               
Distribution of shareholders               
Walmart subsidiary: Main Street 830 (Pty) Ltd      113,859,293    52.5 
Unit Trusts/Mutual Fund  88    1.4    41,753,805    19.2 
Pension Funds  85    1.4    24,683,070    11.4 
Other Managed Funds  42    0.7    18,089,519    8.3 
Sovereign Wealth  17    0.3    6,130,374    2.8 
Private Investors  21    0.3    3,608,507    1.7 
Custodians  13    0.2    3,797,887    1.8 
Charity    0.1    1,210,917    0.6 
Insurance Companies    0.1    649,734    0.3 
Exchange-Traded Fund Total      939,246    0.4 
BEE      145,703    0.1 
Investment Trust      243,399    0.1 
Local Authority      64,238   
Remainder  5,947    95.5    1,734,503    0.8 
  6,236    100.0    216,910,195    100.0 
               
Public/non-public shareholders               
Non-public shareholders:               
Walmart subsidiary: Main Street 830 (Pty) Ltd      113,859,293    52.5 
Directors and Group Executives of the Company    0.1    938,967    0.4 
Share trusts      30,510   
Public shareholders  6,230    99.9    102,081,425    47.1 
  6,236    100.0    216,910,195    100.0 
               
Custodians and managers holding 3% or more               
The following custodians and managers held beneficially, directly or indirectly, more than 3% of the Company's shares:               
Aberdeen Asset Management Group          29,194,402    13.5 
Public Investment Corporation          12,493,541    5.8 
J.P. Morgan Asset Management          9,437,919    4.4 
Baillie Gifford & Co Ltd          8,974,970    4.1