Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES...

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Massmart Group and Company Annual Financial Statements For the year ended December 2019 Saving our customers money so they can live better

Transcript of Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES...

Page 1: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

Massmart Group and Company Annual Financial Statements

For the year ended December 2019

Saving our customers money

so they can live better

Page 2: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

Directors’ reporDirectors’ responsibilities

The Directors acknowledge responsibility for the preparation of the audited consolidated Group Annual Financial Statements, which, in their opinion, fairlypresent the results and cash flows for the year ended December 2019 and the state of affairs of Massmar Holdings Limited and its subsidiaries at the endof the financial year. The external auditor is responsible for reporing on the fair presentation of these financial statements.

The Company and its subsidiaries have maintained satisfactory accounting records and an effective system of internal controls to ensure the integrity ofthe underlying information. Appropriate accounting policies, suppored by sound and prudent managerial judgements and estimates, have beenconsistently applied.

The Board’s Audit Committee reviews the financial information presented and ensures that there has been adherence to International Financial ReporingStandards and the Companies Act of South Africa. Internal and external auditors of Group companies have unrestricted access to this Committee.

Group financial results

The financial results of the Group are set out in the Income Statement, Statement of Comprehensive Income, the Statement of Cash Flows and theStatement of Changes in Equity. The financial position of the Group is set out in the Statement of Financial Position and accompanying notes.

Directorate and secretary

The current Directorate of the Company can be found on the website. The Board comprises 10 Directors at the time of this repor. Three of whom areNon-Independent Non-Executive, two are Executive and five are Independent Non-Executive Directors. In addition, each Board Committee is chaired byan Independent Non-Executive Director.

The Company Secretary provides a central source of guidance and advice to the Board, and within the Company, on matters of ethics and goodgovernance. The Interim Company Secretary is Nicole Morgan, whose business and postal addresses are the same as that of the Company. She wasappointed on 1 January 2020.

Several Board and committee changes took place in 2019. In February 2019, Johannes (Hans) van Lierop indicated that he was not available to extend histenure with Massmar for personal reasons after the formal conclusion of his South African work visa in February 2020. On 30 April 2019, shareholderswere informed that Mohammed Abdool-Samad would succeed Hans as Chief Financial Officer and Executive Director, effective 1 August 2019.

On 6 May 2019, CEO Guy Hayward, informed the Board of his decision to step down before the end of 2019. On 23 May 2019, it was announced that MitchSlape would assume the role of CEO and Executive Director; his appointment was effective 1 September 2019.

Lindiwe Mthimunye was appointed as an Independent Non-Executive Director and member of the Audit and Risk committees on 28 February 2019, and JPSuarez, a Walmar-appointed Non-Executive Director replaced Roger Burnley. Chris Seabrooke retired as Deputy Chairman and Lead Independent Non-Executive Director of the Board on 23 May 2020.

On 27 May 2019, Phumzile Langeni assumed the role of Lead Independent Non-Executive Director effective from 23 May 2019.

On 5 September 2019, Mohammed Abdool-Samad was appointed as a member of the Risk Committee effective 1 August 2019, and Mitch Slape a memberof the Risk and Social and Ethics Committees effective 1 September 2019.

The Group’s General Counsel and Company Secretary, Joseph Ralebepa, resigned as of 31 December 2019 and the appointment of Nicole Morgan as theInterim Group Company Secretary came into effect as of 1 January 2020.

On 25 February 2020, Enrique Ostalé resigned from the Board, Remuneration and Nominations committees. JP Suarez was appointed to the Remunerationand Nominations committees on the same day. Charles Redfield was also nominated for appointment as a Non-Executive Director of the Board.

On 6 March 2020, Phumzile Langeni’s resignation as a member of the Audit and Risk committees, to focus on her other Massmar Board and Committeeduties, was announced with effect from 21 May 2020.

Shares in issue

Please find the movement in ordinary and preference shares for the financial year under review below:

ORDINARY SHARES

Balance at December 2017 217,145,489

Convered preference shares* 33,653

Balance at December 2018 217,179,142

Scrip Dividend additions 1,959,667

Ordinary shares in issue at December 2019 219,138,809

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

PREFERENCE SHARES

Balance at December 2017 2,831,328

Convered ordinary shares (33,653)

Balance at December 2018 2,797,675

Convered ordinary shares –

Preference shares in issue at December 2019 2,797,675

* These preference shares above relate to Massmar’s Black Scarce Skills Trust.

Interests of Directors in the Company’s shares

At December 2019, Directors owned, directly or indirectly, ordinary shares or options over ordinary shares in the Company. These holdings were allbeneficial and are aggregated in the table below:

                     DECEMBER 2019   DECEMBER 2018

Non-executive Directors  Shares  

Options/Share Awards   Shares  

Options/Share

Awards                 K Dlamini   9,954   –   9,800   –NN Gwagwa   9,800   –   9,800   –                 Executive Directors                MW Slape   –   –   –   –M Abdool-Samad   –   142,440   –   –GRC Hayward   230,389   376,676   208,183   545,435JJM van Lierop   –   –   2,511   150,706                 At the date of this repor, the Directors’ beneficial holdings were as follows:                     MARCH 2020   APRIL 2019

Non-executive Directors  Shares  

Options/Share Awards   Shares  

Options/Share

Awards                 K Dlamini   9,954   –   9,800   –NN Gwagwa   9,800   –   9,800   –                 Executive Directors                MW Slape   –   –   –   –M Abdool-Samad   –   142,440   –   –GRC Hayward   230,389   376,676   208,183   545,435JJM van Lierop   –   –   2,511   150,706 

Subsidiaries

As at the date hereof, the following companies are material subsidiaries of the Company:

Massbuild Proprietary Limited 2004/035206/07Masscash Holdings Proprietary Limited 1997/014716/07Massmar International Holdings Limited (incorporated in Mauritius) 47902 C1/GBLMassmar Management and Finance Company Proprietary Limited 1992/004084/07Masstores Proprietary Limited 1991/006805/07Wild Developments Proprietary Limited 1973/000178/07

The principal subsidiaries above are determined based on the Group’s cross-surety arrangement. These subsidiaries represent the Group for which lendercovenants shall be maintained. Details of the Company’s interests in material subsidiaries are set out in note 35 of the audited consolidated Group AnnualFinancial Statements.

Borrowing powers

In terms of the Memorandum of Incorporation, the Group has unlimited borrowing powers. At December 2019, borrowings were R3.7 billion (2018: R4.7billion).

Going concern

The Directors are of the opinion that the business will be a going concern in the year ahead. In reaching this opinion, the Directors considered the followingfactors:

Strong positive cash flows from trading;

No recurring operating losses at Divisional and Group level;

Well-controlled working capital and good quality inventory;

···

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

Approved shor- and long-term financing, with sufficient additional shor-term borrowing capacity if required;

Key Executive management in place;

There have been no material changes that may affect the Group in any of its customer, product or geographic markets; and

Budgets to December 2020 reflect a continuation of the above positive factors.

Direct and ultimate holding companies

The Company’s direct holding company is Main Street 830 Proprietary Limited, incorporated in South Africa, and the Company’s ultimate holding companyis Wal-Mar Stores, Inc., incorporated in the United States.

Company Secretary cerificate

In terms of section 88(e) of the Companies Act No. 71 of 2008, as amended (‘Companies Act’), I, Nicole Morgan, in my capacity as Interim Group CompanySecretary of Massmar Holdings Limited, confirm that, to the best of my knowledge and belief, in respect of the year under review, Massmar HoldingsLimited has filed with the Companies and Intellectual Propery Commission all such returns and notices as are required of a public company in terms of theCompanies Act and that all such returns and notices appear to be true, correct and up to date.

On behalf of the Board

Nicole Morgan Interim Company Secretary 02 April 2020

 

Massmar addressThe Company’s registered office and postaladdress are as follows:Registered office:Massmar House, 16 Peltier Drive, Sunninghill Ext6, Sandton, 2157, South AfricaPostal address:Private Bag X4, Sunninghill, 2157, South AfricaCompany registration number:1940/014066/06

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

Independent auditor’s repor

To the Shareholders of Massmar Holdings Limited

Repor on the Audit of the Consolidated and Separate Financial Statements

Opinion

We have audited the consolidated and separate financial statements of Massmar Holdings Limited and its subsidiaries (the Group) set out onpages 13 to 111, which comprise the Consolidated and Separate Statements of Financial Position as at 29 December 2019, the Consolidated andSeparate Income Statements, the Consolidated and Separate Statements of Other Comprehensive Income, the Consolidated and SeparateStatements of Changes in Equity and the Consolidated and Separate Statements of Cash Flows for the year then ended, and notes to theconsolidated and separate financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separatefinancial position of Massmar Holdings Limited as at 29 December 2019, and its consolidated and separate financial perormance and itsconsolidated and separate cash flows for the year then ended in accordance with International Financial Reporing Standards (IFRSs) and therequirements of the Companies Act of South Africa.

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are furherdescribed in the Auditor’s Responsibilities for the Audit of the consolidated and separate financial statements section of our repor. We areindependent of the group and company in accordance with the sections 290 and 291 of the Independent Regulatory Board for Auditors’ Codeof Professional Conduct for Registered Auditors (Revised January 2018), pars 1 and 3 of the Independent Regulatory Board for Auditors’ Codeof Professional Conduct for Registered Auditors (Revised November 2018) (together the IRBA Codes) and other independence requirementsapplicable to perorming audits of financial statements of the group and company and in South Africa. We have fulfilled our other ethicalresponsibilities, as applicable, in accordance with the IRBA Codes and in accordance with other ethical requirements applicable to perormingaudits of the group and company and in South Africa. The IRBA Codes are consistent with the corresponding sections of the InternationalEthics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA code) and the International Ethics StandardsBoard for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards)respectively We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated andseparate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separatefinancial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For eachmatter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the consolidated and separate financialstatements section of our repor, including in relation to these matters. Accordingly, our audit included the perormance of proceduresdesigned to respond to our assessment of the risks of material misstatement of the consolidated and separate financial statements. The resultsof our audit procedures, including the procedures perormed to address the matters below, provide the basis for our audit opinion on theaccompanying consolidated and separate financial statements. We have determined that there are no key audit matters relating to theseparate financial statements and the identified key matters relate only to the consolidated financial statements.

The Key Audit Matters apply only to the audit of the Consolidated Financial Statements.

Key audit matter How our audit addressed the key matter

Goodwill impairment assessment  

Goodwill for the Group is unchanged from 2018 and amounts to R2.6billion comprising 6.4% (2018: 7.5%) of total assets in the statement offinancial position at year end. Goodwill arises from separate acquisitionsthat have been made by the Group.

We focused our testing on the key assumptions made by managementand our procedures amongst others included:

We considered the methodology applied by management to assess theimpairment of the Goodwill value and evaluated the reasonablenessthereof by comparing to prior year methodology and ourunderstanding of the business;

Standards.

We focussed on this area due to the significance of the Goodwill value,the tough trading and economic conditions, as well as the judgementalnature of the assumptions and projections that are used in thediscounted cash flow models to determine the value in use of the cashgenerating units that the Goodwill relates to. Specific focus was placedon the growth rates applied to sales and costs, target trading marginsand the discount rate used.

Accordingly, the impairment tests of goodwill are considered to be a keyaudit matter. Goodwill is disclosed in both note 2 and note 12 to thefinancial statements.

We recalculated the arithmetical accuracy of the calculations inmanagements discounted cash flow models to determine that allformulas contained therein were applied accurately;

We evaluated the determination of the cash generating units withreference to the requirements of the accounting standard;

We evaluated the assumptions and judgements applied by managementin their discounted cash flow models used in determining the value inuse of the cash generating units, by assessing the reasonableness ofkey assumptions against historic achievements and market information.Key assumptions included revenue growth rates, trading margins, costassumptions and the weighted average cost of capital used to discountthe cash flows;

Our EY valuation specialists assessed the discount rates againstexternal market references;

We perormed sensitivity analyses on the key assumptions applied bymanagement in their respective discounted cash flow models todetermine the impact that a reasonable expected change could haveon the recoverable amount of the cash generating unit. The impact ofthe tough trading and economic environment was specificallyconsidered on the sales and cost growth, target trading margins anddiscount rates; and

We evaluated the completeness and accuracy of disclosure relating tothe impairment assessments to determine compliance with therequirements of IAS 36: Impairment of Assets.

Deferred taxation assets related to assessed losses  

The Group has recognised deferred tax assets amounting to R885.7million (2018: R743.1 million), R386.5 million related to the recognition ofassessed losses (2018: R385.2 million).

In order to recognise the deferred tax assets, management has madecerain estimates in relation to the future taxable income of the entities,including appropriate taxation planning strategies relevant torestructured entities within the group in order to suppor therecoverability of the deferred tax assets.

We focussed on this area due to the judgemental nature of cerain of theassumptions made, that are used to suppor the recognition of thedeferred taxation asset.

Accordingly, the audit of deferred taxation assets is considered to be akey audit matter. Deferred tax assets are disclosed in note 16 to thefinancial statements.

Our procedures amongst others included:

We evaluated the assessments perormed by management with regardto future taxable income, and the realisation of the deferred taxation,by comparing their assessment to evidence obtained, such as cash flowforecasts and business plans;

We recalculated the arithmetical accuracy of the calculations inmanagements cash flow forecasts to determine that all formulascontained therein were applied accurately;

We perormed sensitivity analyses around the key assumptions appliedby management in their cash flow forecasts to determine the impactthat a reasonable expected change could have on the entities ability toutilise future taxable profits. The key assumptions considered includedrevenue growth, trading margins and cost assumptions;

We inspected minutes, managements’ taxation planning strategies andthe restructuring of the group to assess the completeness andaccuracy of the assumptions made by management concerning theutilisation of assessed losses on which deferred tax assets have beenrecognised;

We reviewed the conclusions on all taxation and legal opinionsobtained to suppor managements taxation planning strategies withreference to the relevant tax legislation;

We evaluated the completeness and accuracy of disclosure relating todeferred taxation to determine compliance with the requirements ofIAS 12: Income taxes

Impairment of assets  

The Group owns propery, plant and equipment to the value of R8.6billion (2018: R9.1 billion) and comprises 21.3% (2018: 26.2%) of total

Our procedures amongst others included:

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Standards.

We focussed on this area due to the significance of the Goodwill value,the tough trading and economic conditions, as well as the judgementalnature of the assumptions and projections that are used in thediscounted cash flow models to determine the value in use of the cashgenerating units that the Goodwill relates to. Specific focus was placedon the growth rates applied to sales and costs, target trading marginsand the discount rate used.

Accordingly, the impairment tests of goodwill are considered to be a keyaudit matter. Goodwill is disclosed in both note 2 and note 12 to thefinancial statements.

We recalculated the arithmetical accuracy of the calculations inmanagements discounted cash flow models to determine that allformulas contained therein were applied accurately;

We evaluated the determination of the cash generating units withreference to the requirements of the accounting standard;

We evaluated the assumptions and judgements applied by managementin their discounted cash flow models used in determining the value inuse of the cash generating units, by assessing the reasonableness ofkey assumptions against historic achievements and market information.Key assumptions included revenue growth rates, trading margins, costassumptions and the weighted average cost of capital used to discountthe cash flows;

Our EY valuation specialists assessed the discount rates againstexternal market references;

We perormed sensitivity analyses on the key assumptions applied bymanagement in their respective discounted cash flow models todetermine the impact that a reasonable expected change could haveon the recoverable amount of the cash generating unit. The impact ofthe tough trading and economic environment was specificallyconsidered on the sales and cost growth, target trading margins anddiscount rates; and

We evaluated the completeness and accuracy of disclosure relating tothe impairment assessments to determine compliance with therequirements of IAS 36: Impairment of Assets.

Deferred taxation assets related to assessed losses  

The Group has recognised deferred tax assets amounting to R885.7million (2018: R743.1 million), R386.5 million related to the recognition ofassessed losses (2018: R385.2 million).

In order to recognise the deferred tax assets, management has madecerain estimates in relation to the future taxable income of the entities,including appropriate taxation planning strategies relevant torestructured entities within the group in order to suppor therecoverability of the deferred tax assets.

We focussed on this area due to the judgemental nature of cerain of theassumptions made, that are used to suppor the recognition of thedeferred taxation asset.

Accordingly, the audit of deferred taxation assets is considered to be akey audit matter. Deferred tax assets are disclosed in note 16 to thefinancial statements.

Our procedures amongst others included:

We evaluated the assessments perormed by management with regardto future taxable income, and the realisation of the deferred taxation,by comparing their assessment to evidence obtained, such as cash flowforecasts and business plans;

We recalculated the arithmetical accuracy of the calculations inmanagements cash flow forecasts to determine that all formulascontained therein were applied accurately;

We perormed sensitivity analyses around the key assumptions appliedby management in their cash flow forecasts to determine the impactthat a reasonable expected change could have on the entities ability toutilise future taxable profits. The key assumptions considered includedrevenue growth, trading margins and cost assumptions;

We inspected minutes, managements’ taxation planning strategies andthe restructuring of the group to assess the completeness andaccuracy of the assumptions made by management concerning theutilisation of assessed losses on which deferred tax assets have beenrecognised;

We reviewed the conclusions on all taxation and legal opinionsobtained to suppor managements taxation planning strategies withreference to the relevant tax legislation;

We evaluated the completeness and accuracy of disclosure relating todeferred taxation to determine compliance with the requirements ofIAS 12: Income taxes

Impairment of assets  

The Group owns propery, plant and equipment to the value of R8.6billion (2018: R9.1 billion) and comprises 21.3% (2018: 26.2%) of total

Our procedures amongst others included:

assets in the statement of financial position. Management assess annuallywhether there is any indication that an asset may be impaired. For assetswhere such indication exists, management estimate the recoverableamount of the respective asset.

We focussed on this area due to various indicators of impairment beingidentified, both from external and internal sources of information, as wellas the judgemental nature of the assumptions and projections that areused in determining the recoverable amount of the cash generating unitsthat the respective assets belong to. Specific focus was placed on thegrowth rates applied to sales, costs, target trading margins, discount rateused and relating asset fair values less cost of disposal.

Accordingly, the audit of asset impairments which impact asset valuation,is a key audit matter. Impairments are disclosed in note 2, note 6 andnote 11.

We assessed the presence of indicators of impairment, through enquiryand inspection of external and internal sources of information;

We considered the methodology applied by management to assess theimpairment of the assets and evaluated the reasonableness thereof bycomparing to our understanding of the business;

We recalculated the arithmetical accuracy of the calculations inmanagements respective models to determine that all formulascontained therein were applied accurately;

We agreed the inputs in managements respective models to approvedbudgets and forecasts to determine the accuracy of the amounts usedas inputs into the models;

We evaluated the assumptions in managements cash flow forecasts,including forecasted sales, target trading margins along with growthrates in respect of key costs and expected future cost savings, discountrates, terminal growth rates and capital expenditure inputs used inmanagements model, against historical data and other external marketinformation;

We assessed the objectivity, competence and capabilities ofmanagement valuation expers with reference to their qualificationsand professional experience in the relevant industry, and the scope ofwork as agreed with management;

Our EY valuation specialists assessed the appropriateness of theprinciples and methodology applied by management valuation expersin the calculation of the fair value less cost of disposal; We perormedsensitivity analyses around key inputs used in the respective models todetermine the impact that a reasonable expected change could haveon the recoverable amount of assets;

We evaluated the completeness and accuracy of disclosure relating tothe impairment assessments and impairment of goodwill and indefiniteuseful life intangible assets, to confirm compliance with therequirements of IAS 36: Impairment of Assets.

Adoption of IFRS 16 – Leases  

IFRS 16, the accounting standard on leases became effective during the2019 financial year. As par of the adoption of the new leases standardthe Group recognised a right-of-use (ROU) asset of R8,530.0 million anda lease liability of R 10,060.6 million at the beginning of the financial year.

We focused on this area due to the number of real estate leases, valuesassociated to the respective rentals and the relating outcome whenapplying the principles of the standard and the various contractconsiderations applicable within the Group at the date of adoption. Thestandard required management to assess each contract to identifywhether they are or contains a lease. Once identified the lease and non-lease components are separated and the lease term, including thecommencement date of the lease, initial recognition of the lease andsubsequently measurement of the lease is determined in terms of therequirements of the standard. Management are also required to evaluatelease modifications and determine the appropriate presentation anddisclosures for the leases.

Accordingly, the adoption of IFRS 16 Leases was a key audit matter.Disclosure is included in note 3, note 11, note 22 and note 30.

Our procedures amongst others included:

We evaluated management’s prospective policies, processes andcontrols put in place to capture and process the respective activeleases across the group in light of the requirements of the accountingstandard.

We obtained a list of recurring vendor payments at adoption andduring the audit period and for a sample of the payments, evaluatedthe underlying contract to determine whether the contract was a leaseor contained a lease and was consequently captured and processed aspar of the adoption of the accounting standard;

We assessed the completeness of managements capturing andprocessing of active leases through the inspection of minutes of themeetings of relevant committees for evidence of new contracts ormodifications to existing contracts that might be leases or containleases or modifications of existing leases;

For a sample of leases:We reviewed the terms and conditions of the underlying contract andevaluated management’s identification of relevant lease to determinewhether the leases were correctly considered for adoption asrequired by the standard;

We recalculated and agreed the contract consideration (e.g., fixedpayments, variable payments based on an index or rate whereapplicable) in light of the underlying contract to determine whether

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assets in the statement of financial position. Management assess annuallywhether there is any indication that an asset may be impaired. For assetswhere such indication exists, management estimate the recoverableamount of the respective asset.

We focussed on this area due to various indicators of impairment beingidentified, both from external and internal sources of information, as wellas the judgemental nature of the assumptions and projections that areused in determining the recoverable amount of the cash generating unitsthat the respective assets belong to. Specific focus was placed on thegrowth rates applied to sales, costs, target trading margins, discount rateused and relating asset fair values less cost of disposal.

Accordingly, the audit of asset impairments which impact asset valuation,is a key audit matter. Impairments are disclosed in note 2, note 6 andnote 11.

We assessed the presence of indicators of impairment, through enquiryand inspection of external and internal sources of information;

We considered the methodology applied by management to assess theimpairment of the assets and evaluated the reasonableness thereof bycomparing to our understanding of the business;

We recalculated the arithmetical accuracy of the calculations inmanagements respective models to determine that all formulascontained therein were applied accurately;

We agreed the inputs in managements respective models to approvedbudgets and forecasts to determine the accuracy of the amounts usedas inputs into the models;

We evaluated the assumptions in managements cash flow forecasts,including forecasted sales, target trading margins along with growthrates in respect of key costs and expected future cost savings, discountrates, terminal growth rates and capital expenditure inputs used inmanagements model, against historical data and other external marketinformation;

We assessed the objectivity, competence and capabilities ofmanagement valuation expers with reference to their qualificationsand professional experience in the relevant industry, and the scope ofwork as agreed with management;

Our EY valuation specialists assessed the appropriateness of theprinciples and methodology applied by management valuation expersin the calculation of the fair value less cost of disposal; We perormedsensitivity analyses around key inputs used in the respective models todetermine the impact that a reasonable expected change could haveon the recoverable amount of assets;

We evaluated the completeness and accuracy of disclosure relating tothe impairment assessments and impairment of goodwill and indefiniteuseful life intangible assets, to confirm compliance with therequirements of IAS 36: Impairment of Assets.

Adoption of IFRS 16 – Leases  

IFRS 16, the accounting standard on leases became effective during the2019 financial year. As par of the adoption of the new leases standardthe Group recognised a right-of-use (ROU) asset of R8,530.0 million anda lease liability of R 10,060.6 million at the beginning of the financial year.

We focused on this area due to the number of real estate leases, valuesassociated to the respective rentals and the relating outcome whenapplying the principles of the standard and the various contractconsiderations applicable within the Group at the date of adoption. Thestandard required management to assess each contract to identifywhether they are or contains a lease. Once identified the lease and non-lease components are separated and the lease term, including thecommencement date of the lease, initial recognition of the lease andsubsequently measurement of the lease is determined in terms of therequirements of the standard. Management are also required to evaluatelease modifications and determine the appropriate presentation anddisclosures for the leases.

Accordingly, the adoption of IFRS 16 Leases was a key audit matter.Disclosure is included in note 3, note 11, note 22 and note 30.

Our procedures amongst others included:

We evaluated management’s prospective policies, processes andcontrols put in place to capture and process the respective activeleases across the group in light of the requirements of the accountingstandard.

We obtained a list of recurring vendor payments at adoption andduring the audit period and for a sample of the payments, evaluatedthe underlying contract to determine whether the contract was a leaseor contained a lease and was consequently captured and processed aspar of the adoption of the accounting standard;

We assessed the completeness of managements capturing andprocessing of active leases through the inspection of minutes of themeetings of relevant committees for evidence of new contracts ormodifications to existing contracts that might be leases or containleases or modifications of existing leases;

For a sample of leases:We reviewed the terms and conditions of the underlying contract andevaluated management’s identification of relevant lease to determinewhether the leases were correctly considered for adoption asrequired by the standard;

We recalculated and agreed the contract consideration (e.g., fixedpayments, variable payments based on an index or rate whereapplicable) in light of the underlying contract to determine whethermanagement has appropriately identified and applied the respectivecontract considerations;

We obtained management’s calculation of the lease liability and ROUasset, and perorm the following procedures to assess the inputs intothe lease application used:

We determined the completeness and accuracy of the leasepayments and discount rate used to calculate the lease liability byagreeing them to the underlying contractual terms;

We agreed the amounts calculated by management and assessed byus to the respective general ledger accounts; and

We evaluated the completeness and accuracy of disclosure to confirmcompliance with the requirements IFRS 16: Leases

 

Other Information

The Directors are responsible for the other information. The other information comprises the Directors’ Repor and the Audit CommitteeRepor as required by the Companies Act of South Africa, and the other sections of the Integrated Annual Repor. Other information does notinclude the consolidated and separate financial statements and our auditor’s repor thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an auditopinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, indoing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or ourknowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on our work we have perormed on the other information obtained prior to the date of this auditor’s repor, we conclude that there isa material misstatement of this other information, we are required to repor that fact. We have nothing to repor in this regard.

Responsibilities of Directors for the consolidated and separate annual financial statements

The Directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordancewith International Financial Reporing Standards and the requirements of the Companies Act of South Africa, and for such internal control asthe Directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the Directors are responsible for assessing the group and company’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unlessthe Directors either intend to liquidate the group and company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated and Separate annual financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate annual financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s repor that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, theycould reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate annualfinancial statements.

As par of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. Wealso:

Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error,design and perorm audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basisfor our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraudmay involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the group and company’s internal control.

management has appropriately identified and applied the respectivecontract considerations;

We obtained management’s calculation of the lease liability and ROUasset, and perorm the following procedures to assess the inputs intothe lease application used:

We determined the completeness and accuracy of the leasepayments and discount rate used to calculate the lease liability byagreeing them to the underlying contractual terms;

We agreed the amounts calculated by management and assessed byus to the respective general ledger accounts; and

We evaluated the completeness and accuracy of disclosure to confirmcompliance with the requirements IFRS 16: Leases

 

Other Information

The Directors are responsible for the other information. The other information comprises the Directors’ Repor and the Audit CommitteeRepor as required by the Companies Act of South Africa, and the other sections of the Integrated Annual Repor. Other information does notinclude the consolidated and separate financial statements and our auditor’s repor thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an auditopinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, indoing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or ourknowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on our work we have perormed on the other information obtained prior to the date of this auditor’s repor, we conclude that there isa material misstatement of this other information, we are required to repor that fact. We have nothing to repor in this regard.

Responsibilities of Directors for the consolidated and separate annual financial statements

The Directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordancewith International Financial Reporing Standards and the requirements of the Companies Act of South Africa, and for such internal control asthe Directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the Directors are responsible for assessing the group and company’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unlessthe Directors either intend to liquidate the group and company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated and Separate annual financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate annual financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s repor that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, theycould reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate annualfinancial statements.

As par of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. Wealso:

Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error,design and perorm audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basisfor our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraudmay involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the group and company’s internal control.

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management has appropriately identified and applied the respectivecontract considerations;

We obtained management’s calculation of the lease liability and ROUasset, and perorm the following procedures to assess the inputs intothe lease application used:

We determined the completeness and accuracy of the leasepayments and discount rate used to calculate the lease liability byagreeing them to the underlying contractual terms;

We agreed the amounts calculated by management and assessed byus to the respective general ledger accounts; and

We evaluated the completeness and accuracy of disclosure toconfirm compliance with the requirements IFRS 16: Leases

 

Other Information

The Directors are responsible for the other information. The other information comprises the Directors’ Repor and the Audit CommitteeRepor as required by the Companies Act of South Africa, and the other sections of the Integrated Annual Repor. Other information does notinclude the consolidated and separate financial statements and our auditor’s repor thereon.

Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an auditopinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, indoing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or ourknowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on our work we have perormed on the other information obtained prior to the date of this auditor’s repor, we conclude that there isa material misstatement of this other information, we are required to repor that fact. We have nothing to repor in this regard.

Responsibilities of Directors for the consolidated and separate annual financial statements

The Directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordancewith International Financial Reporing Standards and the requirements of the Companies Act of South Africa, and for such internal control asthe Directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from materialmisstatement, whether due to fraud or error.

In preparing the consolidated and separate financial statements, the Directors are responsible for assessing the group and company’s ability tocontinue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unlessthe Directors either intend to liquidate the group and company or to cease operations, or have no realistic alternative but to do so.

Auditor’s Responsibilities for the Audit of the Consolidated and Separate annual financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated and separate annual financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s repor that includes our opinion. Reasonableassurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a materialmisstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, theycould reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate annualfinancial statements.

As par of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. Wealso:

Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error,design and perorm audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basisfor our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraudmay involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on the effectiveness of the group and company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made bythe Directors.

Conclude on the appropriateness of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained,whether a material uncerainty exists related to events or conditions that may cast significant doubt on the group and company’s ability tocontinue as a going concern. If we conclude that a material uncerainty exists, we are required to draw attention in our auditor’s repor to therelated disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Ourconclusions are based on the audit evidence obtained up to the date of our auditor’s repor. However, future events or conditions may causethe group and/or the company to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, andwhether the consolidated and separate annual financial statements represent the underlying transactions and events in a manner thatachieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group toexpress an opinion on the consolidated annual financial statements. We are responsible for the direction, supervision and perormance of theGroup audit. We remain solely responsible for our audit opinion.

We communicate with the Directors, among other matters, the planned scope and timing of the audit and significant audit findings, includingany significant deficiencies in internal control that we identify during our audit.

We also provide the Directors with a statement that we have complied with relevant ethical requirements regarding independence, and tocommunicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and whereapplicable, related safeguards.

From the matters communicated with the Directors, we determine those matters that were of most significance in the audit of theconsolidated and separate financial statements of the current period and are therefore the key audit matters. We describe these matters inour auditor’s repor unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, wedetermine that a matter should not be communicated in our repor because the adverse consequences of doing so would reasonably beexpected to outweigh the public interest benefits of such communication.

Repor on Other Legal and Regulatory Requirements

In terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we repor that Ernst & Young Inc. hasbeen the auditor of Massmar Holdings Limited for eight years.

ERNST & YOUNG INC.

Roger HillenDirectorCharered Accountant (SA)Registered Auditor

Date: 02 April 2020

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

GROUP STATEMENT OF COMPREHENSIVE INCOMEFor the year ended 29 December 2019

                 December 2019   December 2018

Rm Notes   52 weeks   52 weeks

           

           

(Loss)/Profit for the year     (1,296.4)   868.7           Items that will not subsequently be re-classified to the IncomeStatement     8.1   13.3

Post-retirement medical aid actuarial profit 23   11.2   20.5

Less taxation relating to the post-retirement medical aid actuarialprofit

16  (3.1)

 (7.1)     

Fair value movement on financial assets measured through OCI     –   (0.1)Less taxation relating to financial assets measured through OCI     –   –           Items that will subsequently be re-classified to the IncomeStatement     (76.9)   90.6

Foreign currency translation reserve 21  (91.8)   85.6Less taxation relating to the foreign currency translation reserve 16  15.2   (9.9)Cash flow hedges – effective porion of changes in fair value 21  –   20.8Less taxation relating to the cash flow hedges 16  –   (5.9)Fair value movement on financial assets measured through OCI    (0.3)   –

Less taxation relating to financial assets measured through OCI    –   –

Total other comprehensive loss for the year, net of taxation     (68.8)   103.9Total comprehensive income for the year     (1,365.2)   972.6           Total comprehensive income attributable to:          – Owners of the parent     (1,376.3)   992.5

– Non-controlling interests     11.1   (19.9)

Total comprehensive income for the year     (1,365.2)   972.6

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

GROUP STATEMENT OF FINANCIAL POSITIONFor the year ended 29 December 2019

                

Rm   Notes   December 2019   December 2018  

ASSETS              

Non-current assets       21,747.2   14,165.8  

               

Propery, plant and equipment   11   8,585.9   9,109.5  Lease assets   11/30   8,283.1   537.7  Goodwill   12   2,598.2   2,599.2  Other intangible assets   13   1,267.3   1,057.1  Investments   14   127.0   102.0  Other financial assets   15   –   17.2  Deferred taxation   16   885.7   743.1  

               

Current assets       18,431.1   20,605.2  

               

Inventories   17   11,893.8   12,180.9  Other Financial assets   15   7.5   –  Trade, other receivables and prepayments   18   5,013.3   5,693.2  Taxation   36.3   224.7   361.3  Cash on hand and bank balances   36.8   1,291.8   2,369.8  

               

Non-current assets classified as held for sale   19   159.5   11.6  

               

Total assets       40,337.8   34,782.6  

               

EQUITY AND LIABILITIES              

               

               

Equity attributable to owners of the parent       4,785.5   6,514.0  Share capital   20   2.2   2.2  Share premium   20   209.8   139.1  Other reserves   21   763.7   729.6  Retained profit       3,809.8   5,643.1  Non-controlling interests       15.3   14.6  

Total equity       4,800.8   6,528.6  

               Non-current liabilities       11,121.2   3,694.5  

               

Interest-bearing borrowings   22   2,000.0   1,606.0  Lease liability   22/30   8,950.7   648.1  Interest-free borrowings   22   7.0   1,278.2  Post-retirement medical aid liability   23   83.8   85.5  Deferred taxation   16   79.7   76.7                 Current liabilities       24,415.8   24,559.5  

               

Trade and other payables   24   21,012.0   21,797.8  Provisions   25   105.0   127.3  Taxation   36.3   200.4   205.3  Interest-bearing borrowings   26   272.8   616.1  Debt facilities   26   1,300.0   1,744.0  Bank overdrafts   36.8   141.2   –  Lease liability   22/30   1,384.4   69.0  

               

Total equity and liabilities       40,337.8   34,782.6  

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

GROUP STATEMENT OF CASH FLOWSFor the year ended 29 December 2019

                     December 2019   December 2018

Rm   Notes   52 weeks   52 weeks

CASH FLOWS FROM OPERATING ACTIVITIES            

             

Cash inflow from trading activities   36.1   4,296.8   3,411.3Working capital movements   36.2   (82.0)   (545.8)Cash generated from operations       4,214.8   2,865.5

             

Finance costs paid       (1,776.0)   (508.0)Finance income received       61.3   25.1Dividends received       20.0   34.0Taxation paid   36.3   (191.1)   (324.6)Dividends paid       (162.4)   (750.0)             Net cash inflow from operating activities       2,166.6   1,342.0

             CASH FLOWS FROM INVESTING ACTIVITIES            

             

Investment to maintain operations   36.4   (580.3)   (772.4)Investment to expand operations   36.5   (791.5)   (833.6)Proceeds on disposal of propery, plant and equipment       7.9   20.4

Proceeds on disposal of non- current assets classified as held for sale   36.6   41.3   32.8

Other net investing activities       11.3   5.9             Net cash outflow from investing activities       (1,311.3)   (1,546.9)

             CASH FLOWS FROM FINANCING ACTIVITIES            

             

Increase/(Decrease) in non-current liabilities   36.7   600.0   (583.7)

(Decrease)/Increase in current liabilities   36.7   (2,613.4)   1,043.5Net acquisition of treasury shares       (48.4)   (221.1)             Net cash outflow/(inflow) from financing activities       (2,061.8)   238.7

             Net decrease/(increase) in cash and cash equivalents       (1,206.5)   33.8             Foreign exchange movements on cash and cash equivalents       (12.7)   29.9Cash and cash equivalents at the beginning of the year       2,369.8   2,306.1             Cash and cash equivalents at the end of the year   36.8   1,150.6   2,369.8

             

Please refer to note 22, note 26 and note 30 for additional detail regarding the cash flows and non-cash changes related to these financing activities.

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

GROUP STATEMENT OF CHANGES IN EQUITYFor the year ended 29 December 2019

 

                                                   Equity          

                    attributable     Non-    

                    to owners of     controlling    

Rm  

Sharecapital  

Sharepremium  

Otherreserves   Retained profit   the parent     interests   Total

                               

Balance as at December 2017     2.2     401.2     452.7     5,478.1     6,334.2       43.2     6,377.4Dividends declared (note 9)   –   –   –     (735.6)     (735.6)       (8.4)     (744.0)Total comprehensive income   –   –     103.9     888.6     992.5       (19.9)     972.6– Profit for the year   –   –   –     888.6     888.6       (19.9)     868.7– Other comprehensive profit/(loss) for theyear   –   –     103.9   –     103.9     –     103.9

Changes in non-controlling interests   –   –   –     0.3     0.3       (0.3)   –IFRS 2 charge and treasury shares aquired(note 20 and note 21)   –     (262.1)     173.0     11.7     (77.4)     –     (77.4)

Balance as at December 2018     2.2     139.1     729.6     5,643.1     6,514.0       14.6     6,528.6

Effect of adoption of new standards^   –   –   –     (227.1)     (227.1)     –     (227.1)

– IFRS 16   –   –   –     (227.1)     (227.1)     –     (227.1)

Balance as at December 2018 – Re-presented     2.2     139.1     729.6     5,416.0     6,286.9       14.6     6,301.5

Dividends declared (note 9)   –     174.3         (302.6)     (128.3)       (32.6)     (160.9)

Total comprehensive income   –   –     (68.8)     (1,307.5)     (1,376.3)       11.1     (1,365.2)

– Profit for the year   –   –   –     (1,307.5)     (1,307.5)       11.1     (1,296.4)– Other comprehensive profit/(loss) for theyear   –   –     (68.8)   –     (68.8)     –     (68.8)

Changes in non-controlling interests   –   –     0.5   –     0.5       22.2     22.7IFRS 2 charge and treasury shares aquired(note 20 and note 21)   –     (103.6)     102.4     3.9     2.7     –     2.7

Balance as at December 2019     2.2     209.8     763.7     3,809.8     4,785.5       15.3     4,800.8

                               

The non-controlling interests at year end comprise store managers’ holdings in the Masscash Division as well as a non-controlling shareholder’s holding in a real estate entity. In the current and prior financial year changes in non-controlling interests represent the acquisitions of non-controlling interest by the Masscash Division. In addition, the current yearincludes an acquisition by a non-controlling interest shareholder in a Group real estate entity.

Refer to note 30 for the adoption of the new standards.

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

1. Accounting policies

 

General

These consolidated Annual Financial Statements comprise Massmar Holdings Limited (the “Company“) and its subsidiaries (collectively the “Group“).

The Group operates retail stores in eleven operating formats in sub-Saharan Africa, aggregated into four reporable segments, focused on high-volume,low-margin, low-cost distribution of mainly branded consumer goods for cash.

The principal offering for each segment is as follows:

Massdiscounters – general merchandise discounter and food retailerMasswarehouse – warehouse clubMassbuild – home improvement retailer and building materials supplierMasscash – food wholesaler, retailer and buying association

The Group’s four divisions operate in two principal geographical areas, South Africa and the rest of Africa, and the Group’s geographic segments arerepored on this basis.

Basis of accounting

The Group Annual Financial Statements have been prepared on the historical cost basis, except for cerain financial instruments and non-current assetsheld for sale.

These Group Annual Financial Statements have been prepared in accordance with the framework concepts and the measurement and recognitionrequirements of International Financial Reporing Standards (IFRS), Interpretations issued by the International Accounting Standards Board, the SAICAFinancial Reporing Guides as issued by the Accounting Practices Committee, the Financial Pronouncements as issued by the Financial Reporing StandardsCouncil, the JSE Listing Requirements and the requirements of the Companies Act, 71 of 2008 of South Africa. The accounting policies are consistent in allmaterial respects with those applied in the previous financial year, except for the adoption of IFRS 16 refer to note 30. Please refer to the prior yearaccounting policies for the comparative numbers in this regard specifically relating to Leases. 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 and the entities it controls as at 29 December 2019.Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect thosereturns through its power over the investee. The Group considers all relevant facts and circumstances in assessing whether it has power over an investeeand re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements ofcontrol. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary.A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. Assets, liabilities, income andexpenses of a subsidiary acquired or disposed of during the year, are included in the Statement of Comprehensive Income, Statement of Financial Positionand the Statement of Cash Flows, from the date the Group gains control until the date the Group ceases to control the subsidiary.

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

Non-controlling interests consist of the amount of those interests at the date of the original business combination and the allocated share of changes inequity since the date of the combination. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in adeficit balance. The difference between any consideration paid and the relevant share of the net asset value acquired from non-controlling interests isrecorded directly in the Statement of Changes in Equity.

Propery, plant and equipment

Land and buildings held for use in the supply of goods or services, or for administrative purposes, are stated in the Consolidated Statement of FinancialPosition at acquisition cost, including any costs directly attributable to bringing the asset to the condition necessary for it to be capable of operating in themanner intended by the Group’s management, less any subsequent accumulated depreciation and subsequent accumulated impairment losses.

The cost of propery, plant and equipment meeting the definition of a qualifying asset in terms of IAS 23 Borrowing Costs includes borrowing costscapitalised in terms of the Group’s borrowing cost policy. Expenditure incurred on propery, plant and equipment, which will lead to future economicbenefits accruing to the Group, are capitalised. Repairs and maintenance not meeting this criterion are expensed as and when incurred.

Properies in the course of construction for the supply of goods or services, or for administrative purposes, are carried at cost, less any recognisedimpairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy.Such properies are classified to the appropriate categories of propery, plant and equipment when completed and ready for intended use. Depreciation ofthese assets, on the same basis as other propery assets, commences when the assets are ready for their intended use.

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Page 19: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

19

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Page 20: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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Page 24: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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Page 28: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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Page 29: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

29

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Page 30: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

4. Revenue                  

    December 2019   December 2018

Rm   52 weeks   52 weeks

         

Sales     93,660.0     90,941.6

Other income     179.7     231.0

– Change in fair value of financial assets carried at fair value through profit or loss     25.0     (31.1)

– Dividends from unlisted investments     20.0     34.0– Brokerage fees     38.2     34.5– Propery rentals     40.6     25.6– Retirement of aged gift cards     3.4     17.3– Insurance proceeds on business interruption     12.5     52.8– Prescribed liabilities     11.9     19.4

– Other     28.1     78.5

– Insurance proceeds on items of PP&E     3.4     8.0

      93,843.1     91,180.6

         Refer to note 39 for furher information on the disaggregation of revenue. Online sales are not currently a significant component of total sales and is therefore not disclosed separately. The utilisedperormance obligations outstanding from the prior year was R162.1 million and the remaining perormance obligations at year end in this regard is R151.6 million.

         Included in the sales number is the commission income the Group earns as an agent through the Shield arrangement, the value of which is R312.6 million in the 2019 financial year (2018: R324.9 million).Where the Group acts as an agent in a transaction and sales are recognised on a net basis, the contractual terms of the arrangement does not meet the requirements to allow for offsetting of the financialinstruments with the result that the related receivable and payable balances are disclosed on a gross basis. The Group’s perormance obligation in terms of the Shield arrangement is one which has thenature of a service where the perormance obligation of goods being delivered to a customer is highly interrelated and interdependent with the provision of the online platform, which allows customers toplace their orders directly with the suppliers to be delivered.

         

Other includes sundry income and other insignificant items.

Revenue from contracts with customers for the financial year end is R93.6 billion (2018: R90.9 billion).

1

2

1

2

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

8. Taxation                  

    December 2019   December 2018

Rm   52 weeks   52 weeks

         

CURRENT YEAR        South African normal taxation:        Current taxation   255.9   404.4Deferred taxation   (176.5)   (100.9)Foreign taxation:        Current taxation   47.0   49.9Deferred taxation   (10.3)   9.6

Withholding tax   30.9   37.2

    147.0   400.2         PRIOR YEAR (OVER)/UNDER PROVISION        South African normal taxation:        Current taxation   9.7   17.7Deferred taxation   47.5   (8.4)Foreign taxation:        Current taxation   2.0   (3.2)Deferred taxation   0.7   (6.9)

Withholding tax   (0.6)   –

    59.3   (0.8)         Taxation as reflected in the Income Statement   206.3   399.4

         

The withholding tax relates to interest and dividends paid by foreign controlled entities.

             December 2019   December 2018

%   52 weeks   52 weeks

         

The rate of taxation is reconciled as follows:        Standard corporate taxation rate   28.00   28.00Exempt and non-taxable income   3.92   (7.86)Disallowable expenditure   (19.89)   4.81Prior year over provision   (3.52)   (0.06)Assessed loss not utilised   (27.57)   6.97Withholding tax and foreign tax credits   (2.06)   0.84

Other   2.19   (1.12)

    (18.93)   31.58

         The decrease in the share price from R103.00 (2018) to R50.95 (2019) resulted in a significant decrease in the deferred tax asset (DTA) raised on the equity settled share scheme at a consolidated level. Fortax purposes, the deferred tax is raised at the share price as at the reporing period, based on the number of shares expected to vest. The decrease in the DTA resulted in an increase in disallowed expensesof R124 million (at rate). In addition, non-deductible interest of R19 million (at rate) and non-deductible depreciation on leasehold improvements of R6 million (at rate), increased disallowed expenses whencompared to the prior period.The derecognition of deferred tax assets (DTA) on tax losses resulted in an increase in the effective tax rate of R316 million (at rate). This was primarily as a result of the derecognition of the Fresh FoodDirect Proprietary Limited DTA as well as the DTAs previously raised for cerain entities in Ghana, Zambia and Nigeria.

‘Other’ includes such items as differences in foreign tax rates and profit on vesting of shares.

1

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

12. Goodwill                  Reconciliation of goodwill                 Rm   December 2019   December 2018

         

Balance at the beginning of the year     2,599.2     2,596.1Foreign exchange (loss)/gain     (1.0)     3.1      2,598.2     2,599.2

         

         Carrying amount of significant goodwill per operating segment                 Rm   December 2019   December 2018

         

Masscash     1,489.8     1,490.8Massbuild     897.7     897.7Masswarehouse – The Fruit Spot     173.9     173.9Other segmental goodwill, including Wumdrop     36.8     36.8

          Goodwill is assessed for impairment at a CGU level. This basis represents the lowest level at which management monitors goodwill. The recoverable amounts of the CGUs have been based onvalue in use.

The key assumptions for the value in use calculations are the discount rate, growth rates, gross margins as well expense growth forecasts. Management estimates discount rates using rates thatreflect current market assumptions of the time value of money and the risks specific to the CGUs. The growth rates are based on the retail industry growth forecasts, with the other keyassumptions within the models being interdependent, and following the known logical principles inherent within the markets in which the Group trades.

In the majority of the Group’s CGUs, to which goodwill is allocated, management believes that no reasonable possible change in any of the above key assumptions would cause the carrying valueof any cash generating unit to exceed its recoverable amount. Within the Masscash operating segment however the headroom between the CGU carrying amount and the CGU recoverableamount does vary between different CGUs. For the Free State region, the difference between the region’s carrying amount and recoverable amount per management’s value-in-use calculation isR138.4 million. If the discount rate used remains unchanged but growth rates are decreased to 5% and margin and expense growth are adjusted to the are adjusted to the average historical ratesachieved average historical rates achieved, the CGUs carrying amount will equal its recoverable amount.

Refer to note 2 for additional details regarding the significant judgements and estimates applied in perorming impairment testing.

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

15. Other financial assets                                          Rm               December 2019   December 2018

                     

Employee Share Trust Loans to the Executive Directors and other employees of Massmar Holdings Limited:   7.5   11.8

                     

Other loans:        Housing and staff loans   –   5.4

                7.5   17.2

                     

Non-current assets               7.5   –

Current assets               –   17.2

                7.5   17.2

                     

For more information on fair value disclosure, refer to note 37.

For more information on the Group’s credit risk management, refer to note 38. No interest is levied on the housing and staff loans. The Employee Share Trust Loans to Executive Directors and other employees of the Company are non-interest bearing and are secured by theunderlying ordinary shares in Massmar Holdings Limited. The loans are repayable 10 years after the grant date. Recourse is not limited to these shares and should shares sold to repay these loansbe insufficient to recover the balance outstanding, the unrecovered porion remains a debt due and payable. 105 448 (December 2018: 168 102) shares with a market value of R7 539 643(December 2018: R17 314 506) have been pledged. Employee share trust loan will be repayable on 31 May 2020.

   

Details of the Employee Share Trust loans to the Executive Directors, including previous directors and members of the Executive Committee of the Company:

                     

Rm       Hayward, GRC   Other employees   Total    

                     

December 2019                    

                     

Balance at the beginning of the year     7.5   4.3   11.8    Repayments     –   (4.3)   (4.3)    

Balance at the end of the year     7.5   –   7.5    

                     

December 2018                    

                     

Balance at the beginning of the year     11.9   5.7   17.6    Repayments     (4.4)   (1.4)   (5.8)    

Balance at the end of the year     7.5   4.3   11.8    

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49

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

20. Issued capital                                  

    Share capital   Share premium

Rm   December 2019   December 2018   December 2019   December 2018

                 

Authorised                

500 000 000 (December 2018: 500 000 000) ordinary shares of 1 cent each   5.0   5.0   –   –20 000 000 (December 2018: 20 000 000) non-redeemable cumulative non-paricipating preference shares of 1 cent each   0.2   0.2   –   –18 000 000 (December 2018: 18 000 000) ‘A’ converible redeemable non-cumulativeparicipating preference shares of 1 cent each   0.2   0.2   –   –4 000 000 (December 2018: 4 000 000) ‘B’ converible redeemable non-cumulativeparicipating preference shares of 1 cent each   –   –   –   –

                 

Issued                

219 138 809 (December 2018: 217 179 142) ordinary shares of 1 cent each   2.2   2.2   209.8   139.12 797 675 (December 2018: 2 797 675) ‘B’ converible redeemable non-cumulativeparicipating preference shares of 1 cent each   –   –   –   –

                 

        Number of   Share capital   Share premium

Ordinary shares       shares   Rm   Rm

Balance at December 2017       217,145,489   2.2   401.2

Shares issued in terms of the Massmar Black Scarce Skills Trust   33,653   –   –

Reclassification of share-based payment reserve within equity upon vesting       –       (293.3)

Ordinary shares issued – December 2018   217,179,142   2.2   107.9

Treasury shares       (1,177,645)   –   31.2

Ordinary shares issued excluding treasury shares – December 2018   216,001,497   2.2   139.1

                 

Balance at December 2018       217,179,142   2.2   139.1

Shares issued in terms of the scrip dividend declared   1,959,667   –   174.4

Reclassification of share-based payment reserve within equity upon vesting       –   –   (109.3)

Ordinary shares issued – December 2019       219,138,809   2.2   204.2

Treasury shares       (1,466,504)   –   5.5

Ordinary shares issued excluding treasury shares – December 2019   217,672,305   2.2   209.8

                 

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

                 

Non-redeemable cumulative non-paricipating preference shares        

                  The non-redeemable cumulative non-paricipating preference shares are unissued in the current year. It remains within the ambit of the Board of Directors to issue these shares as the needarises.

                 

‘A’ converible redeemable non-cumulative paricipating preference shares        

                  There are no ‘A’ converible redeemable non-cumulative paricipating preference shares in issue as the residual shares were automatically redeemed on the vesting of the Massmar ThuthukaniEmpowerment Trust scheme, in terms of the Trust Deed in the 2013 financial year.

                 

‘B’ converible redeemable non-cumulative paricipating preference shares   Number of   Share capital   Share premium        shares   Rm   Rm                 

Balance at December 2017       2,831,328   –   –

Shares convered to ordinary shares       (33,653)   –   –

Balance at December 2018       2,797,675   –   –

Shares convered to ordinary shares       –   –   –

Balance at December 2019       2,797,675.0   –   –

                 

The share capital value is less than R100 000. Please refer to note 9 for additional detail regarding the current year scrip dividend.

  B’ converible redeemable non-cumulative paricipating preference shares, which have a par value of 1 cent, are held in the Massmar Black Scarce Skills Trust. These shares carry one vote pershare, which are cast by the trustees, and do not carry the right to dividends. On election of the beneficiary, the shares will conver to ordinary shares on a one-for-one basis and will rank paripassu with all ordinary shares then in issue.

                 

Share options granted under the Massmar Holdings Limited Employee Share Trust    

1

1

                 

At December 2019, executives and senior employees have options of 3,583,071 (December 2018: 4,234,937) ordinary shares of which nil (December 2018: 134,782) are unvested. Share options granted under the Employee Share Incentive Schemes carry no rights to dividends and no voting rights. Additional information of the Employee Share Incentive Schemes can befound in note 27.

During the current financial year, 1.1 million shares (0.5% of average shares in issue) were bought in the market by the Massmar Holdings Limited Executive Share Trust at an average price ofR43.98 totalling R48.4 million.

During the prior financial year, 1.9 million shares (0.9% of average shares in issue) were bought in the market by the Massmar Holdings Limited Executive Share Trust at an average price ofR127.85 totalling R246.1 million.

The Directors have the authority, until the next annual general meeting, to issue the ordinary shares of the Company up to a maximum of 5% of the shares already issued.

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

24. Trade and other payables

 

                          Rm       December 2019   December 2018

             

Trade payables       17,764.3   18,698.2Operating lease liability – lease smoothing adjustment^   –   109.0Payroll accruals       496.2   493.0FEC liability (Not designated)       37.4   24.8Income received in advance       151.6   162.1Rebate payables including rebates and adverising owing to buying members   136.5   128.7Interest accrual on loans and borrowings       202.4   79.7Amounts due to Walmar       3.3   0.1Sundry payables and other accruals   2,220.3   2,102.2

        21,012.0   21,797.8

             

Refer to note 30 for the adoption of the new standards.

             

Trade payables do not attract interest.

  The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe, normally around 60 – 90 days, following industry norm. During the yearcredit days decreased by seven days to 74 days (December 2018: 81 days) due to the change in the mix of goods purchased. Settlement discounts received range between 1.0% to 5.0%.

  Sundry payables and other accruals comprises other sundry creditor accruals and VAT payables. Included in income received in advance is a gift card liability of R111.3 million (December 2018:R115.4 million).

 

For more information on the Group’s liquidity risk management, refer to note 38.

^

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019�������"c7�BMXc���M��c��������c�"�"��"�c�� ����cX���������c c cc cc cc cc cc ccc c cc cc cc c c cc cc�� c cc cc cc cc c ��������c !#$ c ��������c !#%c c cc cc cc cc c cc cB�&��'�c(&)�&c*�������� c +c cc ��X���������c�)��&,c��c)��&-c)./'���-���� c +c +X��������c0��c�'**(�&�c1&�&(�*2&�-c�'�, c +c cc ��3X��������c0��c*��-4�&-��&2&�-c2&,�.)(c)�,c.��-��5'-���� c cc6�6c cc3�8X��������c0��c�&�-�'.-'���9 c +c cc8�8��9:-c�0c�&-'��c)�,c�-:&� c cc cc cc cc c cc�6�;c cc���<c c cc cc cc cc c cc#!=>! c cc# ?>@c c cc cc cc cc cc ccc":&c7��'*c&�-)5(��:&,c-:&c�'**(�&�c1&�&(�*2&�-c�'�,c��c(��&cA�-:c-:&cC',9&2&�-c�0c-:&c�2*&-�-���c�**&)(c�'�Dc)-c-:&c-�2&c�0c-:&cE)(2)�Dc-�)��).-����c":&c*'�*��&c�0c-:&c0'�,c��c-�c)����--:&c7��'*F�c�'**(�&��Gc*)�D�.'()�(HcI().Jc.���2�.c2*�A&�2&�-c�'**(�&��Gc��c��,&�c-�c*��2�-&c)�,c5&�&0�-c0��2c-:&c9��A-:c�0c-:&��c5'���&��&��c":&c0'�,c:)�c��c0�K&,c'-�(��)-���c�&/'��&2&�-�*&�cH&)��c c cc cc cc cc cc ccc c cc cc cc cc cc cc���LN�OPOQROLNcLScT�LUOVOLNV cc cc ccc c cc cc cc cc cc cc�� c WT�NONY�QPQN��c Z[QNY�cONQ���L\NRONYVRQN]Q�] c �L\NRVT�LUO]�] c �L\NRV\ROPOV�] c_N\V�]cQ�L\NRV��U��V�] c ZPLVONYc�QPQN��c c c cc cc cc cc cc c��������c !#$ c c cc cc cc cc cc cB�&��'�c(&)�&c*�������� c cc ��c +c +c cc ��ac +c +X��������c0��c�'**(�&�c1&�&(�*2&�-c�'�, c cc ��3c +c +c cc ��3ac +c +X��������c0��c*��-4�&-��&2&�-c2&,�.)(c)�,c.��-��5'-���� c cc3�8c +c cc6�6c cc3�8ac +c cc6�6X��������c0��c�&�-�'.-'���9 c c cc8�8c +c +c cc���ac cc �8ac +��9:-c�0c�&-'�� c cc���<c +c cc����c cc<�8ac cc 6��ac cc�6�;c c c cc# ?>@c bc cc ?>?c cc�@!>$�c cc�#$>#�c cc#!=>!c c cc cc cc cc cc cc��������c !#% cc cc cc cc cc ccB�&��'�c(&)�&c*�������� c cc;� c +c cc ��c cc;� ac +c cc ��X���������c�)��&,c��c)./'���-���� c cc; ��c +c cc�� c cc����ac cc �8ac cc���X��������c0��c�'**(�&�c1&�&(�*2&�-c�'�, c cc;<��c +c +c cc�;�6ac +c cc ��3X��������c0��c*��-4�&-��&2&�-c2&,�.)(c)�,c.��-��5'-���� c cc;�;c +c cc3��c cc;�8ac +c cc3�8X��������c0��c�&�-�'.-'���9 c c +c +c cc ;�� c cc ����ac cc �;ac cc8�8��9:-c�0c�&-'�� c c +c cc3���c cc;3��c cc �;ac cc����ac cc���<B-:&� c cc � c +c +c +c cc � ac +c c c cc3;��c cc3���c cc 6���c cc 6;��ac cc<8��ac cc �6�;

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57

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019�������#c7�BMXc���M��c��������c�#�#��#�c�� ����c��������c�������c����������c c c cc ccc c c c c cc�� c c c !"!�$!%c&'() c !"!�$!%c&'(*c c c c cc c��+�,-.���-c���/c0���� c ����1c ���������-��2c+,3�����c��,�+�����c0��� c ��4c 1�5��-���2�c+,3�����c��,�+�����c#�,��c0��� c c c 6c ��489:!%!;:<$!=%>9?c$@%%@A>9?; c c c &C&D*c E(ED(F���cG�3�0����� c c c H4����c HIJJ��K@:=Lc>9:!%!;:<$!=%>9?c$@%%@A>9?; c c c (NOC&D*c &NPE'D(c c c cc ccQ!R>S�<:!%�cL@=9; cc ccc�������c���/c0����c3�-T����c�Gc��c�GG�U���cM�FcG�3�0��VcWM�Fc ���c-�00���YHc������+c�Vc����+��+cU��2���+cZ��/Hc�[��0��0�cG��c���/���c3�T���0c��+c������0c3��T�����c��\,���-�����c#U�c7��,Tc��,����c�U��c0���c��cG,�+c���c�G��3��c�]T�������c��cB3�����c�� 5c�U�c�������0c0���c-��,��+c��+c���c��G����3�+cG��c�cT����+c�Gc�cV�����c��������c��c��3,���+c+��0Vc��c�U�c�c-���U0VcM�Fc��ZB�c����cT0,���1c�����cT�����Hc��c��������cc��30,+�+c��c�U�c�� 5c-�+�,-.���-c���/c0����c���[�c���c�cG�]�+c���-c0���c�Gc������c-�00����c#U�c0���c���c��T�V��0�c��c���cG���0c�����0-���c��c����,��Vc�� ��c#U�c������0c+���+���c�Gc�U�c0����33,���+c��c4 c���3Uc�� �c��c�cG�]�+c��������c����c�Gc��I5Hc�U�c��������c���c��T�V��0�c-���U0V�c#U�c0���c���c��3,��+c�Vc��������,Tc3����.�,���V�U�T��cc#U�c����-��2c+,3�����c��,�+�����c0���c��T�������c3��Uc�����[��c��[����+c���Uc7��,Tc#����,�V�c��������c���c��3,���+c��c�cG�]�+c����c�Gc5�5cWF�3�-���c�� 5_cG�]�+c����c�Gc5�5YHc��c,���3,��+��+cU��c��cG�]�+c���-�c�Gc��T�V-����c#U�c����-��2c+,3�����c��,�+�����c��c�c��0���+cT��2Vc�Gc�U�c7��,T�cc#U�c��-���2�c+,3�����c��,�+�����c#�,��c0���c��T�������+c3��Uc�����[��c��[����+c���Uc7��,Tc#����,�V�c��������c���c��3,���+c��c�U�c7��,Tc���������c����c�U�3Uc��c�cG�]�+c����c�Gc5�5cWF�3�-����� 5_c5�5Yc�c#U�c0���cU�+c��cG�]�+c���-�c�Gc��T�V-���c��+c���c,���3,��+�c#U�c0���c���cG,00Vc��T��+c+,����c�U�c3,�����cG����3��0cV����c c c cc cc !$:c=">L>:>!; cc ccc��c�U�c��+c�Gc�U�c3,�����cG����3��0cV���c�U�c7��,TcU�+c��c�,�����+���c�[�����U�c+���cG�3�0��Vc�-�,�����c��c� c4��c-�00���c�����c��c�#�cZ��/�c#U�c+���cG�3�0��Vc�����c��������c��c�U�c��,�Uc�G��3��T��-�c0��+���c����c0���c��I1�c#U��c+���cG�3�0��VcG�3�0��Vc���c�+[��3�+c+,����c�U�c3,�����cG����3��0cV���c��c�U�ca��c�\,�[�0���c[�0,�c�GcM�Fc ��c-�00���cW� cJ1�c-�00���Y�c#U�c+���cG�3�0��Vc��c�����3,��+c�Vc�����.���,Tc3�����,���V�U�T��cc��c�U�c��+c�Gc�U�cT����cG����3��0cV���c�U�c7��,TcU�+c��c�,�����+���c�[�����U�c+���cG�3�0��Vc�-�,�����c��c�1��c-�00���c�����c��c��[����3cZ��/�c#U�c+���cG�3�0��Vc����c��������c��c�c����c�U�3Uc����,�b�3��+c��c�U�c+��0Vc����c����c+����-���+c�Vc�U�cZ��/��c�����,�Vc+��/c��c+���+���c+����c#U�c����c��c��c4�cF�3�-���c�� 5c���cI�I1�c#U�c+���cG�3�0��Vc���c��3,��+c�Vc�����.���,T3�����,���V�U�T��c��c��c��cF�3�-���c�� �c��c��0��3�c���c�,�����+���c��0���+c��c�U��c+���cG�3�0��V�cc��c�U�c��+c�Gc�U�cT����cG����3��0cV���c�U�c7��,TcU�+c��c�,�����+���c�[�����U�c+���cG�3�0��Vc�-�,�����c��c�I �c-�00���c�����c��c���+c���3U���cZ��/�c#U�c+���cG�3�0��Vc����c��������c��c�c����c�U�3U���c�,�b�3��+c��c�U�c+��0Vc����c����c+����-���+c�Vc�U�cZ��/��c�����,�Vc+��/c��c+���+���c+����c#U�c����c��c��c4�cF�3�-���c�� 5c���cI�I1�c#U�c+���cG�3�0��Vc���c��3,��+c�Vc�����.���,T3�����,���V�U�T��c��c��c��cF�3�-���c�� �c��c��0��3�c���c�,�����+���c��0���+c��c�U��c+���cG�3�0��V�cc��c�U�c��+c�Gc�U�cT����cG����3��0cV���c�U�c7��,TcU�+c��c�,�����+���c�[�����U�c+���cG�3�0��Vc�-�,�����c��c�1��c-�00���c�����c��cZ�XcX�������c#U�c+���cG�3�0��Vc����c��������c��c�c����c�U�3Uc����,�b�3��+c��c�U�c+��0Vc����c����c+����-���+c�Vc�U�cZ��/��c�����,�Vc+��/c��c+���+���c+����c#U�c����c��c��c4�cF�3�-���c�� 5c���cI�I1�c#U�c+���cG�3�0��Vc���c��3,��+c�Vc�����.���,T3�����,���V�U�T��c��c��c��cF�3�-���c�� �c��c��0��3�c���c�,�����+���c��0���+c��c�U��c+���cG�3�0��V�cc���c-���c��G��-�����c��c�U�c7��,T��c0�\,�+��Vc���/c��+c��������c����c���/c-�����-���Hc��G��c��c����c45�cc�++������0c��G��-�����c��c�U�cG���c[�0,�c�Gc����.3,�����c0����0������c3��c��cG�,�+c��c����c4I�

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58

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

27. Employee Share Incentive Schemes                                                          

                           

Massmar Holdings Limited Employee Share Trust

                             Massmar introduced a Share Incentive Scheme in the 2013 financial year referred to as the Employee Share Incentive Plan. Massmar Holdings Limited’s shareholders approved the scheme atthe Annual General Meeting held on 22 May 2013. The new scheme entails paricipation through a restricted share grant and a perormance share award, furher explained below. The first grantof restricted grants and perormance awards under the new scheme was made on 16 September 2013. The purpose of the new scheme is to replace the existing Employee Share Option Schemewhich had its last grant date on 1 May 2013. The Employee Share Option Scheme gave rise to an equity-settled share-based payment expense until the end of the December 2018 financial year.The final options of this scheme will expire in the 2023 financial year. Both Employee Share Incentive Schemes are administered through the Massmar Holdings Limited Employee Share Trust.

                             

Shares to satisfy awards and options

                             It is Massmar’s practice to satisfy grants, awards and options granted under the Employee Share Incentive Schemes through shares purchased in the market and held by the Massmar HoldingsLimited Employee Share Trust, which was established for the purpose of satisfying grants, awards and options under the Employee Share Incentive Schemes, and is funded by the Group.

                             

Employee Share Option Scheme        

                             Massmar granted share options entitling cerain employees within the Group to its shares under the Employee Share Option Scheme. The options were granted by Massmar in its own sharesresulting in them being accounted for as equity-settled share-based payments. Employees are required to be employed up to the date of vesting in order to receive the share options earned bythem. The share-based payment valuation was perormed by Alexander Forbes for all periods with respect to the share options.

                             

Vesting occurs over a five-year period as follows:        

– 25% two years after the offer date;        

– 50% three years after the offer date;        

– 75% four years after the offer date;        

– 100% five years after the offer date; and        

– expires ten years after the offer date.        

                             

                             

The following options granted to employees and Executive Directors in terms of the Employee Share Option Scheme have not yet been exercised:

                             

2019                            

Offer date   Expiry date  Exercise price

(R)  No of options atDecember 2018  

No of optionsforeited and

expired  No of options

exercised  No of options

December 2019    

                             

27 May 2009   26 May 2019   77.56   139,118   54,691   84,427   –    

1 September 2009   31 August 2019   79.15   6,929   –   6,929   –    

16 November 2009   15 November 2019   88.71   10,272   10,272   –   –    

1 May 2010   30 April 2020   110.00   8,781   –   –   8,781    

1 September 2010   31 August 2020   120.42   44,399   –   –   44,399    

1 September 2011   31 August 2021   153.84   1,794,584   233,767   –   1,560,817    

1 November 2011   31 October 2021   157.27   218,731   15,937   –   202,794    

1 March 2012   28 February 2022   174.88   247,566   84,807   –   162,759    

1 April 2012   31 March 2022   164.09   58,041   –   –   58,041    

16 May 2012   15 May 2022   159.62   213,042   –   –   213,042    

1 September 2012   31 August 2022   168.03   743,629   46,802   –   696,827    

15 October 2012   14 October 2022   167.06   295,193   –   –   295,193    

1 March 2013   28 February 2023   186.05   420,745   114,234   –   306,511    

1 May 2013   30 April 2023   187.53   33,907   –   –   33,907    

            4,234,937   560,510   91,356   3,583,071    

                             

                             

                             

2018                            

Offer date   Expiry date  Exercise price

(R)  No of options atDecember 2017  

No of optionsforeited and

expired  No of options

exercised  No of options

December 2018    

                             

1 April 2008   31 March 2018   66.91   38,205   –   38,205   –    

26 May 2008   25 May 2018   72.86   120,113   –   120,113   –    

1 September 2008   31 August 2018   79.86   61,471   –   61,471   –    

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59

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

27. Employee Share Incentive Schemes                                                          

                           

Massmar Holdings Limited Employee Share Trust

                             Massmar introduced a Share Incentive Scheme in the 2013 financial year referred to as the Employee Share Incentive Plan. Massmar Holdings Limited’s shareholders approved the scheme atthe Annual General Meeting held on 22 May 2013. The new scheme entails paricipation through a restricted share grant and a perormance share award, furher explained below. The first grantof restricted grants and perormance awards under the new scheme was made on 16 September 2013. The purpose of the new scheme is to replace the existing Employee Share Option Schemewhich had its last grant date on 1 May 2013. The Employee Share Option Scheme gave rise to an equity-settled share-based payment expense until the end of the December 2018 financial year.The final options of this scheme will expire in the 2023 financial year. Both Employee Share Incentive Schemes are administered through the Massmar Holdings Limited Employee Share Trust.

                             

Shares to satisfy awards and options

                             It is Massmar’s practice to satisfy grants, awards and options granted under the Employee Share Incentive Schemes through shares purchased in the market and held by the Massmar HoldingsLimited Employee Share Trust, which was established for the purpose of satisfying grants, awards and options under the Employee Share Incentive Schemes, and is funded by the Group.

                             

Employee Share Option Scheme        

                             Massmar granted share options entitling cerain employees within the Group to its shares under the Employee Share Option Scheme. The options were granted by Massmar in its own sharesresulting in them being accounted for as equity-settled share-based payments. Employees are required to be employed up to the date of vesting in order to receive the share options earned bythem. The share-based payment valuation was perormed by Alexander Forbes for all periods with respect to the share options.

                             

Vesting occurs over a five-year period as follows:        

– 25% two years after the offer date;        

– 50% three years after the offer date;        

– 75% four years after the offer date;        

– 100% five years after the offer date; and        

– expires ten years after the offer date.        

                             

                             

The following options granted to employees and Executive Directors in terms of the Employee Share Option Scheme have not yet been exercised:

                             

2019                            

Offer date   Expiry date  Exercise price

(R)  No of options atDecember 2018  

No of optionsforeited and

expired  No of options

exercised  No of options

December 2019    

                             

27 May 2009   26 May 2019   77.56   139,118   54,691   84,427   –    

1 September 2009   31 August 2019   79.15   6,929   –   6,929   –    

16 November 2009   15 November 2019   88.71   10,272   10,272   –   –    

1 May 2010   30 April 2020   110.00   8,781   –   –   8,781    

1 September 2010   31 August 2020   120.42   44,399   –   –   44,399    

1 September 2011   31 August 2021   153.84   1,794,584   233,767   –   1,560,817    

1 November 2011   31 October 2021   157.27   218,731   15,937   –   202,794    

1 March 2012   28 February 2022   174.88   247,566   84,807   –   162,759    

1 April 2012   31 March 2022   164.09   58,041   –   –   58,041    

16 May 2012   15 May 2022   159.62   213,042   –   –   213,042    

1 September 2012   31 August 2022   168.03   743,629   46,802   –   696,827    

15 October 2012   14 October 2022   167.06   295,193   –   –   295,193    

1 March 2013   28 February 2023   186.05   420,745   114,234   –   306,511    

1 May 2013   30 April 2023   187.53   33,907   –   –   33,907    

            4,234,937   560,510   91,356   3,583,071    

                             

                             

                             

2018                            

Offer date   Expiry date  Exercise price

(R)  No of options atDecember 2017  

No of optionsforeited and

expired  No of options

exercised  No of options

December 2018    

                             

1 April 2008   31 March 2018   66.91   38,205   –   38,205   –    

26 May 2008   25 May 2018   72.86   120,113   –   120,113   –    

1 September 2008   31 August 2018   79.86   61,471   –   61,471   –    

15 November 2008   14 November 2018   79.91   27,245   –   27,245   –    

1 March 2009   28 February 2019   70.71   5,258   –   5,258   –    

27 May 2009   26 May 2019   77.55   199,475   –   60,357   139,118    

1 September 2009   31 August 2019   79.15   9,367   –   2,438   6,929    

16 November 2009   15 November 2019   88.71   10,272   –   –   10,272    

1 March 2010   28 February 2020   90.49   22,057   –   22,057   –    

1 May 2010   30 April 2020   110.00   8,781   –   –   8,781    

1 September 2010   31 August 2020   120.42   64,261   –   19,862   44,399    

1 September 2011   31 August 2021   153.84   2,306,948   100,187   412,177   1,794,584    

1 November 2011   31 October 2021   157.27   294,560   28,962   46,867   218,731    

1 March 2012   28 February 2022   174.88   284,334   36,768   –   247,566    

1 April 2012   31 March 2022   164.09   58,041   –   –   58,041    

16 May 2012   15 May 2022   159.62   241,638   –   28,596   213,042    

1 September 2012   31 August 2022   168.03   854,133   65,405   45,099   743,629    

15 October 2012   14 October 2022   167.06   321,729   10,004   16,532   295,193    

1 March 2013   28 February 2023   186.05   505,059   84,314   –   420,745    

1 May 2013   30 April 2023   187.53   33,907   –   –   33,907    

                             

            5,466,854   325,640   906,277   4,234,937    

                             

                             

                             

                        December 2019   December 2018

Reconciliation of the number of shares options issued   000s   000s

                             

                             

Total shares and options available to the scheme     39,500   39,500

Shares and treasury shares issued to the scheme   (16,493)   (16,493)

Remaining capacity for issue in terms of the JSE practice   23,007   23,007

                             

Opening balance of shares and options issued   4,403   5,715

Shares and options sold by employees and Executive Directors   (152)   (986)

Shares repurchased from/ foreited by employees and options lapsed/ foreited   (561)   (326)

Closing balance of shares and options issued   3,689   4,403

                             The closing balance includes 105,448 (December 2018: 168,102) shares and 3,583,071 (December 2018: 4,234,931) options. Shares and options previously issued to employees who thensubsequently left the Group are excluded from the figures above.

                             Once the options have vested they may be exercised at any time, up to ten years, from the offer date. Once exercised, the relevant shares can be sold at the discretion of the paricipants. Interms of the scheme rules, share trust loans have been raised on offers made to Executive Directors and other employees. Refer to note 15 on Employee Share Trust loans to Executive Directorsand other employees.

                             

Movement in the year                    

The following options granted to employees and Executive Directors in terms of the Employee Share Option Scheme have not yet been exercised:

   

   

                December 2019   December 2018

                Number of shareoptions

 

Weightedaverage exercise

price   Number of shareoptions

 Weighted average

exercise price

                  Rand     Rand

                             

Outstanding at the beginning of the year   4,234,937   159   5,466,854   154.24

Exercised during the year       (91,356)   77.70   (906,277)   125.47

Foreited or expired during the year       (560,510)   156.20   (325,640)   168.12

Outstanding at the end of the year       3,583,071   161.90   4,234,937   159.33

                     

Exercisable at the end of the year 3,583,071       4,234,937    

                             In December 2019, the weighted average share price at the date of exercise for share options exercised during the year was R77.70. The options outstanding at the end of the year had a weightedaverage remaining contractual life of 2.2 years. No options were granted in the current financial year.

                             In December 2018, the weighted average share price at the date of exercise for share options exercised during the year was R125.47. The options outstanding at the end of the year had aweighted average remaining contractual life of 3.1 years. No options were granted in the current financial year.

                             

Fair value of share options granted during the year

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60

                             There were no grants issued during the current financial year.                                                                  Employee Share Incentive Plan        

                             Massmar granted restricted share grants and perormance share awards entitling cerain employees within the Group to fully-paid shares under the Employee Share Incentive Plan. The grantsand awards were granted by Massmar in its own shares resulting in the grants and awards being treated as equity-settled share-based payments. The Employee Share Incentive Plan is split intotwo incentive structures, mainly, restricted share grants and perormance share awards. Restricted share grants require the employee to remain employed at the date of vesting in order toreceive the shares earned by them. In determining the spot price at grant date its fair market value is the volume weighted average price of a share on the Johannesburg Stock Exchange (JSE)over the ten trading days immediately prior to the day in question. Perormance share awards are subject to non-market conditions in years one, two and three based 50% on Group Return ofInvestment (ROI) and 50% on Group nominal sales against the budgeted equivalent for that year. The share-based payment valuation was perormed using a valuation system acquired by theGroup with the necessary model inputs having been determined by management. Management derived these inputs through consultation with various financial institutions, and they arerepresentative of the market data available for Massmar Holdings Limited’s share at the reporing date. Vesting occurs over a five-year period for restricted share grants and over a three-yearperiod for perormance share awards as follows:

                             

       Restricted share

grants  Perormanceshare awards                

– Three years after the offer date   33%   100%                – Four years after the offer date   33%   N/A                – Five years after the offer date   33%   N/A                

                             

                             

The following grants and awards granted to employees and Executive Directors in terms of the Employee Share Incentive Plan have not yet been exercised:

                December 2019   December 2018

Restricted share grants              

Number of sharegrants and

awards   Vesting Period  Number of share

grants and awards   Vesting Period

15 September 2014               –   2018 to 2019   –   –

16 March 2015               6,227   2018 to 2020   163,264   2018 to 2019

15 September 2015               163,918   2018 to 2020   28,339   2018 to 2020

16 September 2016               387,190   2019 to 2021   385,989   2018 to 2020

18 April 2017               2,974   2020 to 2022   692,089   2019 to 2021

15 September 2017               824,445   2020 to 2022   25,275   2020 to 2022

14 September 2018               1,308,794   2021 to 2023   965,337   2020 to 2022

13 September 2019               2,745,462   2022 to 2024   1,480,672   2021 to 2023Perormance shareawards                            

18 March 2016               –   2019   –   2018

18 April 2017               781,175   2020   972,130   2019

13 April 2018               675,171   2021   1,195,001   2020

12 April 2019               1,842,657   2022   1,067,154   2021

Total awards               8,738,013       6,975,250    

Exercisable at the end of the year           –       –    

                             

Movement in the Year                            

                December 2019   December 2018

               Number of share

grants andawards

 

Weightedaverage exercise

price   Number of sharegrants and awards

 Weighted average

exercise price

                  Rand     Rand                             

Outstanding at the beginning of the year   6,975,250   –   6,733,071   –

Granted during the year   4,792,392   –   2,614,914   –

Vested during the year   (1,536,413)   –   (1,540,033)   –

Foreited or expired during the year   (1,493,216)   –   (832,702)   –

Outstanding at the end of the year   8,738,013   –   6,975,250   –

Exercisable at the end of the year   –       –                                 

The estimated fair values of the restricted share grants at grant date was R80.08 (December 2018: R102.83) and the perormance share awards was R115.05 (December 2018: R132.53).

       

These fair values were calculated using the Lattice Model. The inputs into the model at grant date were as follows:        

Restricted share grants (13 September 2019)       December 2019   December 2018

10 day volume weighted average share price (Rand)         45.9   103.3

Expected volatility                       54.16%-66.72%   28.87%-33.95%

Expected life                       2.75 – 4.25 years   2.75 – 4.25 years

Risk-free rate                       6.59%-6.87%   7.88%-8.19%

15 November 2008   14 November 2018   79.91   27,245   –   27,245   –    

1 March 2009   28 February 2019   70.71   5,258   –   5,258   –    

27 May 2009   26 May 2019   77.55   199,475   –   60,357   139,118    

1 September 2009   31 August 2019   79.15   9,367   –   2,438   6,929    

16 November 2009   15 November 2019   88.71   10,272   –   –   10,272    

1 March 2010   28 February 2020   90.49   22,057   –   22,057   –    

1 May 2010   30 April 2020   110.00   8,781   –   –   8,781    

1 September 2010   31 August 2020   120.42   64,261   –   19,862   44,399    

1 September 2011   31 August 2021   153.84   2,306,948   100,187   412,177   1,794,584    

1 November 2011   31 October 2021   157.27   294,560   28,962   46,867   218,731    

1 March 2012   28 February 2022   174.88   284,334   36,768   –   247,566    

1 April 2012   31 March 2022   164.09   58,041   –   –   58,041    

16 May 2012   15 May 2022   159.62   241,638   –   28,596   213,042    

1 September 2012   31 August 2022   168.03   854,133   65,405   45,099   743,629    

15 October 2012   14 October 2022   167.06   321,729   10,004   16,532   295,193    

1 March 2013   28 February 2023   186.05   505,059   84,314   –   420,745    

1 May 2013   30 April 2023   187.53   33,907   –   –   33,907    

                             

            5,466,854   325,640   906,277   4,234,937    

                             

                             

                             

                        December 2019   December 2018

Reconciliation of the number of shares options issued   000s   000s

                             

                             

Total shares and options available to the scheme     39,500   39,500

Shares and treasury shares issued to the scheme   (16,493)   (16,493)

Remaining capacity for issue in terms of the JSE practice   23,007   23,007

                             

Opening balance of shares and options issued   4,403   5,715

Shares and options sold by employees and Executive Directors   (152)   (986)

Shares repurchased from/ foreited by employees and options lapsed/ foreited   (561)   (326)

Closing balance of shares and options issued   3,689   4,403

                             The closing balance includes 105,448 (December 2018: 168,102) shares and 3,583,071 (December 2018: 4,234,931) options. Shares and options previously issued to employees who thensubsequently left the Group are excluded from the figures above.

                             Once the options have vested they may be exercised at any time, up to ten years, from the offer date. Once exercised, the relevant shares can be sold at the discretion of the paricipants. Interms of the scheme rules, share trust loans have been raised on offers made to Executive Directors and other employees. Refer to note 15 on Employee Share Trust loans to Executive Directorsand other employees.

                             

Movement in the year                    

The following options granted to employees and Executive Directors in terms of the Employee Share Option Scheme have not yet been exercised:

   

   

                December 2019   December 2018

                Number of shareoptions

 

Weightedaverage exercise

price   Number of shareoptions

 Weighted average

exercise price

                  Rand     Rand

                             

Outstanding at the beginning of the year   4,234,937   159   5,466,854   154.24

Exercised during the year       (91,356)   77.70   (906,277)   125.47

Foreited or expired during the year       (560,510)   156.20   (325,640)   168.12

Outstanding at the end of the year       3,583,071   161.90   4,234,937   159.33

                     

Exercisable at the end of the year 3,583,071       4,234,937    

                             In December 2019, the weighted average share price at the date of exercise for share options exercised during the year was R77.70. The options outstanding at the end of the year had a weightedaverage remaining contractual life of 2.2 years. No options were granted in the current financial year.

                             In December 2018, the weighted average share price at the date of exercise for share options exercised during the year was R125.47. The options outstanding at the end of the year had aweighted average remaining contractual life of 3.1 years. No options were granted in the current financial year.

                             

Fair value of share options granted during the year

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Expected dividend yield                       0.00%   3.44%

Perormance share awards and restricted share grants (12 April 2019)            

10 day volume weighted average share price (Rand)       80.0   164.2

Expected volatility                       32.97%   39.34%

Expected life                       2.25 years   2.25 years

Risk-free rate                       7.18%   6.93%

Expected dividend yield                       3.34%   3.22%

Exercise price                       –   –

                             Expected volatility was determined by calculating the historical volatility of the Company’s share price over the number of previous years corresponding with the share awards vesting period. Theexpected 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. The risk-freerate used was the swap rate over the vesting period of the share grants and awards.

                             

Massmar Black Scarce Skills Trust

                             The Black Scarce Skills Trust is a share-scheme used to attract and retain African, Coloured and Indian employees. The Executive Committee of each of the Divisions and the MassmarRemuneration Committee submit their nominations to the Black Scarce Skills Trust trustees for approval, upon which allocations are made bi-annually in April and October of each year. Abeneficiary can only receive one allocation.

                             

Vesting occurs over a five-year period as follows:        

– 25% two years after the offer date;        

– 50% three years after the offer date;        

– 75% four years after the offer date;        

– 100% five years after the offer date; and        

– expires five years after the offer date.        

                             

The following options granted to eligible employees in terms of the Massmar Black Scarce Skills Trust have not yet been exercised:

                             

Offer date   Expiry date  Exercise price

(R)  No of options

opening balance  

No of optionsforeited and

expired  No of options

exercised  New options

granted  No of options

closing balance

                             

December 2019                            

1 April 2014   30 March 2019   136.69   131,377   131,377   –   –   –

1 October 2014   30 September 2019   120.29   294,131   294,131   –   –   –

            425,508   425,508   –   –   –

                             

December 2018                      

1 April 2013   30 March 2018   189.13   91,625   91,625   –   –   –

1 October 2013   30 September 2018   170.31   633,976   633,976   –   –   –

1 April 2014   30 March 2019   136.69   212,776   8,136   73,263   –   131,377

1 October 2014   30 September 2019   120.29   370,899   –   76,768   –   294,131

            1,309,276   733,737   150,031   –   425,508

                             

                        December 2019   December 2018

                        000s   000s

Reconciliation of the number of options issued        

Opening balance of share options   425   1,309

New share options offered to employees   –   –

Share options sold by employees   –   (150)

Share options repurchased from/foreited by employees and options lapsed/foreited   (425)   (734)

Closing balance of share options   –   425

Number of options exercisable   –   –

                             

In the current financial year no options were exercised.

In the year ending December 2018, 150,031 options were exercised. The options outstanding at the end of the year had a weighted average remaining contractual life of 0.6 years.

                             

                             

Expense recognised in Profit or Loss      

The expense recognised for employee services received during the year on equity-settled share-based payment transactions is shown in the following table:

                             

Rm                       December 2019   December 2018

                             

Expense arising from Employee Share Option Scheme   0.2   (5.3)

Expense arising from Employee Share Incentive Plan   127.8   195.9

Expense arising from Black Scarce Skills Trust   –   4.0

Total expense arising from equity-settled share-based payment transactions   128.0   194.6

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62

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64

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

30. Adjustments recognised on adoption of IFRS 16                          The Group has adopted IFRS 16 ‘Leases’ using the modified retrospective approach, by recognising the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance ofequity at 31 December 2018.IFRS 16 has had a significant impact for the Group, given the number of stores that are leased. IFRS 16 had no impact on the accounting of previously existing finance leases. It has howeverimpacted most leases that were previously recorded as operating leases under IAS 17, where only the occupancy charge was recorded in the Income Statement. IFRS 16 now requires leases to berecognised in the Statement of Financial Position in the form of a capitalised right-of-use asset and corresponding liability. Changes to the Income Statement result in occupancy costs beingreplaced by an amorisation of the right-of-use asset and lease finance costs on the liability.

In applying IFRS 16 for the first time, the Group has used the following expedients permitted by the standard:

a. Modified retrospective adoption – no comparatives required to be disclosed

b. Combine lease and non-lease components

c. Exemption of shor-term leases and leases for low value assets

d. Porfolio approach applied to classes of leases that have similar characteristics

e. Interest rate based on remaining lease term for existing leases at transition date

For leases previously classified as finance leases the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the rightof use asset and the lease liability at the date of initial recognition. The measurement principles of IFRS 16 are only applied after this date. Remeasurements to lease liabilities were recognised asadjustments to the related right-of-use assets immediately after the date of initial recognition.

           

Rm           December 2019

             

             

Net lease commitments as at 30 December 2018                         Real Estate                         Shor-term            Year 1           2,343.8Years 2 to 5           7,807.2Subsequent to year 5           6,102.7            16,253.7

Long-term            

Year 1           5.0Years 2 to 20           212.8Years 21 to 50           2,209.8Subsequent to year 50           12,719.4            15,147.0Non-real estate            Year 1           52.1Years 2 to 5           68.3Subsequent to year 5           –            120.4

             

Lease commitments disclosed as at 30 December 2018           31,521.1

             Discounted using the lessees’ incremental borrowing rate of at the date of initial application           (21,051.4)

Add: Finance lease liabilities recognised as at 30 December 2018           396.2(Less): low-value leases recognised on a straight-line basis as expense           (88.2)             

Lease liability recognised as at adoption date           10,777.7

             Of which are:            Non-current lease liabilities           9,598.3Current liabilities           1,179.4

            10,777.7

             All line items on the Group Statement of Financial Position impacted by the adoption of IFRS 16 are as follows:                   

    December 2018

(Audited)

 IFRS 16 at adoption

adjustment

 2019

OpeningBalance

(Adjusted)       

             Non-current assets            Lease assets   537.7   8,530.0   9,067.7             Current assets            

1

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65

Trade, other receivables and prepayments   5,693.2   (118.1)   5,575.1             Total assets   6,230.9   8,411.9   14,642.8

             Equity attributable to owners of the parent            Retained profit   5,643.1   (227.1)   5,416.0             Non-current liabilities            Lease liability   648.1   8,950.2   9,598.3Interest-free borrowings   1,278.2   (1,276.3)   1.9             Current liabilities            Trade and other payables   21,797.8   (145.3)   21,652.5Lease liability   69.0   1,110.4   1,179.4             Total equity and liabilities   29,436.2   8,411.9   37,848.1

             The associated right-of-use assets for propery leases were measured on a modified retrospectively basis as if the new rules had always been applied. Right-of-use assets were measured at theamount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payment as well as any lease smoothing and onerous lease balances relating to that lease as at 30December 2018.

The adoption of IFRS 16 and the related change in accounting policy affected a number of line items on the Statement of Financial Position.

             

The net impact to retained earnings was an amount of R227.1 million representing the day-one impairment of cerain right-of-use assets on adoption date.

              Leases on properies are normally contracted for periods of between 3 and 12 years with renewal options averaging a furher 3 to 10 years. Rental comprises minimum monthly payments and insome cases, contingent payments based on turnover levels. Turnover rentals, where applicable, average 1.1% of turnover. Rental escalations vary, but are between 0% and 10% p.a.

     The long-term lease of land relates to a 99-year lease arrangement that was entered into in 1994 for the Makro Woodmead Store. The basic rental escalation is set at 7.5%. The present value ofthe minimum lease payments was R251.9 million as at 30 December 2018. This was the only finance lease included in the 2018 net lease commitments disclosure.

1

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

30. Adjustments recognised on adoption of IFRS 16                          The Group has adopted IFRS 16 ‘Leases’ using the modified retrospective approach, by recognising the cumulative effect of initially applying IFRS 16 as an adjustment to the opening balance ofequity at 31 December 2018.IFRS 16 has had a significant impact for the Group, given the number of stores that are leased. IFRS 16 had no impact on the accounting of previously existing finance leases. It has howeverimpacted most leases that were previously recorded as operating leases under IAS 17, where only the occupancy charge was recorded in the Income Statement. IFRS 16 now requires leases to berecognised in the Statement of Financial Position in the form of a capitalised right-of-use asset and corresponding liability. Changes to the Income Statement result in occupancy costs beingreplaced by an amorisation of the right-of-use asset and lease finance costs on the liability.

In applying IFRS 16 for the first time, the Group has used the following expedients permitted by the standard:

a. Modified retrospective adoption – no comparatives required to be disclosed

b. Combine lease and non-lease components

c. Exemption of shor-term leases and leases for low value assets

d. Porfolio approach applied to classes of leases that have similar characteristics

e. Interest rate based on remaining lease term for existing leases at transition date

For leases previously classified as finance leases the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the rightof use asset and the lease liability at the date of initial recognition. The measurement principles of IFRS 16 are only applied after this date. Remeasurements to lease liabilities were recognised asadjustments to the related right-of-use assets immediately after the date of initial recognition.

           

Rm           December 2019

             

             

Net lease commitments as at 30 December 2018                         Real Estate                         Shor-term            Year 1           2,343.8Years 2 to 5           7,807.2Subsequent to year 5           6,102.7            16,253.7

Long-term            

Year 1           5.0Years 2 to 20           212.8Years 21 to 50           2,209.8Subsequent to year 50           12,719.4            15,147.0Non-real estate            Year 1           52.1Years 2 to 5           68.3Subsequent to year 5           –            120.4

             

Lease commitments disclosed as at 30 December 2018           31,521.1

             Discounted using the lessees’ incremental borrowing rate of at the date of initial application           (21,051.4)

Add: Finance lease liabilities recognised as at 30 December 2018           396.2(Less): low-value leases recognised on a straight-line basis as expense           (88.2)             

Lease liability recognised as at adoption date           10,777.7

             Of which are:            Non-current lease liabilities           9,598.3Current liabilities           1,179.4

            10,777.7

             All line items on the Group Statement of Financial Position impacted by the adoption of IFRS 16 are as follows:                   

    December 2018

(Audited)

 IFRS 16 at adoption

adjustment

 2019

OpeningBalance

(Adjusted)       

             Non-current assets            Lease assets   537.7   8,530.0   9,067.7             Current assets            

1

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69

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

34. Interests of Directors in the Company’s share scheme                                          Details of Directors’ shares and share options per Director:

    Grant dates  Subscription price

(R)  Number of

shares/share options  

Gain onsale/exercise (R

000’s)   Expiry date

M Abdool-Samad                    

Employee Share Incentive Plan (note 27)                  

Balance at December 2018           –        

Restricted share grants   13-Sep-19   –   47,474   –   13-Sep-22

Restricted share grants   13-Sep-19   –   47,474   –   13-Sep-23

Restricted share grants   13-Sep-19   –   47,492   –   13-Sep-24

Balance at December 2019           142,440        

                     

GRC Hayward                    

Employee Share Option Scheme (note 27)                  Balance at December 2018           375,977        Options exercised/ shares sold           –        Balance at December 2019           375,977        Comprising: Shares 27-May-09   77.56   105,448   –   –  Options 1-Sep-11   153.84   120,987   –   1-Sep-21  Options 16-May-12   159.62   149,542   –   16-May-22                     

Employee Share Incentive Plan (note 27)                  

Balance at December 2018           169,458        Perormance shares vested   18-Mar-16   –   (27,157)   –   18-Mar-19

Perormance share award foreitures*   18-Mar-16   –   (7,637)   –   18-Mar-19

Perormance share award foreitures*   18-Apr-17   –   (7,981)   –   18-Apr-20

Perormance share award foreitures*   13-Apr-18   –   (7,316)   –   13-Apr-21

Restricted share grants   15-Sep-14   –   (3,838)   –   15-Sep-19

Restricted share grants   15-Sep-15   –   (4,732)   –   15-Sep-19

Restricted share grants   16-Sep-16   –   (4,650)   –   16-Sep-19

Balance at December 2019       –   106,147   –    

Comprising: Perormance share awards 18-Apr-17   –   27,811   –   17-Apr-20

Perormance share awards 13-Apr-18   –   28,834   –   12-Apr-21

Restricted share grants   15-Sep-15   –   4,734   –   15-Sep-20

Restricted share grants   16-Sep-16   –   4,650   –   16-Sep-20

Restricted share grants   16-Sep-16   –   4,653   –   16-Sep-21

Restricted share grants   15-Sep-17   –   5,345   –   15-Sep-20

Restricted share grants   15-Sep-17   –   5,345   –   15-Sep-21

Restricted share grants   15-Sep-17   –   5,348   –   15-Sep-22

Restricted share grants   14-Sep-18   –   6,475   –   14-Sep-21

Restricted share grants   14-Sep-18   –   6,475   –   14-Sep-22

Restricted share grants   14-Sep-18   –   6,477   –   14-Sep-23

                     

                     

JJM van Lierop                    

Employee Share Incentive Plan (note 27)                  Balance at December 2018           150,706        

Perormance shares vested   18-Mar-16   –   (26,782)   –   18-Mar-19

Perormance share award foreitures*   18-Mar-16   –   (7,532)   –   18-Mar-19

Perormance shares vested   18-Apr-17   –   (11,439)   –   18-Apr-20

Perormance share award foreitures*   18-Apr-17   –   (16,482)   –   18-Apr-20

Perormance shares vested   13-Apr-18   –   (3,262)   –   13-Apr-21

Perormance share award foreitures*   13-Apr-18   –   (21,660)   –   13-Apr-21

Restricted share grants   16-Mar-15   –   (15,889)   –   16-Mar-18

Restricted share grants   15-Sep-15   –   (8,235)   –   15-Sep-18

Restricted share grants   16-Sep-16   –   (11,578)   –   16-Sep-19

Restricted share grants   15-Sep-17   –   (12,086)   –   15-Sep-20

Restricted share grants   14-Sep-18   –   (15,761)   –   14-Sep-21

Balance at December 2019           –                                                  

The Directors’ interest in the Company’s shares and options held at reporing date can be found in the Directors’ Repor. At the date of approval of the Group Annual Financial Statements, M Slape held 0 shares and 0 share options/grants/awards, M Abdool-Samad held 0 shares and 142,440 shareoptions/grants/awards, GRC Hayward held 230,389 shares and 376,676 share options/grants/awards and JJM van Lierop held 0 shares and 0 share options/grants/awards. There were no otherchanges in the interests held by the Directors in the Company’s shares after the reporing date up to the date of approval.

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71

MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

36. Notes to the Statement of Cash Flows                      

      December 2019   December 2018

Rm Notes   52 weeks   52 weeks

36.1 Cash inflow from trading activities          

(Loss)/Profit before taxation     (1,090.1)   1,268.1

Adjusted for:          

Depreciation, amorisation and impairment     3,301.7   1,156.0

Net (profit)/loss on disposal of tangible and intangible assets     (2.5)   9.5

Finance costs     1,860.4   648.8

Finance income     (61.3)   (25.1)

Dividends from unlisted investments     (20.0)   (34.0)

Share-based payment expense     128.0   194.6

Unrealised foreign exchange profit     109.8   11.8

Other non-cash movements     70.8   181.6

      4,296.8   3,411.3

           36.2 Working capital movements          

Decrease/(Increase) in inventories     143.4   (1,024.6)

Decrease/(Increase) trade receivables and prepayments     586.0   (575.1)

Increase/(Decrease) in trade payables     (793.4)   1,226.3

Decrease in provisions     (18.0)   (172.4)

      (82.0)   (545.8)

           36.3 Taxation paid          

Normal taxation:          

Amounts receivable from tax authorities at the beginning of the year     156.0   337.4

Amounts receivable to tax authorities at the end of the year     (24.3)   (156.0)

Taxation recognised in the Income Statement     (344.9)   (506.0)

Foreign exchange movement     22.1   –

      (191.1)   (324.6)

           36.4 Investment to maintain operations          

Land and buildings/leasehold improvements     (39.3)   (103.7)

Vehicles     (45.4)   (64.8)

Fixtures, fittings, plant and equipment     (154.1)   (295.7)

Computer hardware     (87.4)   (138.9)

Computer software     (254.1)   (169.3)

      (580.3)   (772.4)

36.5 Investment to expand operations          

Land and buildings/leasehold improvements     (177.2)   (191.6)

Vehicles     (0.7)   (15.7)

Fixtures, fittings, plant and equipment     (266.8)   (291.9)

Computer hardware     (147.0)   (72.9)

Computer software     (199.9)   (261.5)

      (791.5)   (833.6)

           

36.6 Proceeds on disposal of assets classified as held for sale     41.3   32.8

           

36.7 Analysis of cash flows from financing activities          

Non-current – interest-bearing borrowings          

– Medium-term bank loans     600.0   (583.6)

Non-current liabilities – interest-free borrowings          

– Loans to non-controlling interests     –   (0.1)

Increase/(Decrease) in non-current liabilities     600.0   (583.7)

           

Other current liabilities          

– Medium-term bank loans     (600.0)   (621.3)

– Debt facilities     (452.4)   1,744.0– Repayments of lease obligations     (1,551.2)   (79.2)

– Other Interest-bearing borrowings     (9.8)   –

(Decrease)/Increase in current liabilities     (2,613.4)   1,043.5

           Net (outflow)/inflow arising from financing activities relating to non-current and currentliabilities     (2,013.4)   459.8

           

36.8 Cash and cash equivalents at the end of the year          

Cash on hand and bank balances     1,291.8   2,369.8

Bank overdrafts     (141.2)   –

Cash and cash equivalents at the end of the year     1,150.6   2,369.8

           

           

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g :?79BC<>g = g = g 879A8<9gg gg ggg g gg gg gg gg gg gg gg gg gg ggg g gg gg gg gg gg gg gg gg gg ggY5H5ZL5Jg9B8C g g[KE1EHK13KE40JIZ5E0gS14]g3/_g=]5aKEaKE40JIZ5E0g[KE1EHK13g144504Z514IJ5g101KJgb13I50]J/Ia]gcJ/K0/Jg3/44 g [KE1EHK133K1LK3K0K54Z514IJ5g101Z/JdK45H/40 g [KE1EHK13144504Z514IJ5101Z/JdK45H/40 g [KE1EHK13144504Z514IJ510g1KJb13I50]J/Ia]eSf gD/EGKE1EHK13KE40JIZ5E04g gg g gg�Z g gg g g g g g gg g gg g gg����.� g g ggg gg gg gg gg g ggg gg ggD/EGHIJJ5E0g144504 g g gg g g gg gg gg gg gg gg g ggP'�#F'�� g#2��g2�;gF��\#�F�� g g � g � g �g �g � g � g � $ ���g gg g gg���;M\ g g � g � g �g �g � g � g � �����g gg g gg!�"F'g\��2��\F�g2��F�� g g � g � g �g �g � g � g � �����g gg g ggT��F���F��� g g �����g �g �����g �g � g ���g � g gg g gg!�"F'g�\�2�Q\2g2��F�� g g ����g �g �g �g ����g �g �g gg g ggRF�F''F;g�2*2�\�� g g �g �g �g �g � g � g � ���g gg g ggSIJJ5E0g144504 g g gg gg gg gg gg gg gg gg g ggT��F���'\F� g g �g �g �g �g � g � g �� �)��� g gg g gg�'2;F g��"F'g'FQF\�2F�g2�;#'F#2��F��� g g � �$ �)g �g ��� g �g � � �� g � g �)� g gg g gg�g�'2;Fg'FQF\�2F� g g � $�)� g �g �g �g � $�)� g � g � g gg g gg�g!�"F'g2QQ�����g'FQF\�2Fg2�;#'F#2��F��� g g � $����g �g �g �g � $���� g � g �)� g gg g gg�g%&(g2��F� g g ��� g �g ��� g �g � g � g � g gg g gg�2*2�\�� g g �g �g �g �g � g � g �$���g gg g gg(2�"g��g"2�;g2�;g2�+g22�QF�g g � �$��)g �g �g �g � �$��) g � g � g gg g gg,��-Q�''F��g2��F��gQ2��\�\F;g2�g g �g �g �g �g � g � g ���$ g gg g g

Page 76: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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g�g�'2;Fg'FQF\�2F� g � �����g �g �g �g � ����� g � g �gg gg gg�g�F2�Fg'FQF\�2F� g\�Q�;\��g'F2�F�g2�;2;�F'�\�\��g�'��g��\��g�F�F'� g � ���� g �g �g �g � ���� g � g �gg gg gg�g!�"F'g2QQ�����g'FQF\�2Fg2�;g#'F#2��F���g $����g �g �g �g $���� g � g ��$� gg gg gg�g%&(g2��F� g �)��g �g �)��g �g � g � g �gg gg gg�2*2�\�� g �g �g �g �g � g � g �� ��gg gg gg(2�"g��g"2�;g2�;g2�+g22�QF� g � ����)g �g �g �g � ����) g � g �gg gg gg,��-Q�''F��g2��F��gQ2��\�\F;g2�g"F;g��'g�2F g �g �g �g �g � g � g �����gg gg ggg g g gg gg gg gg gg gg ggg gg gg./013g144504 g 6789:<9 g = g 8>?<@g =g >7A6@<@g B<C g :?798?<6gg gg ggg g g gg gg gg gg gg gg ggg gg ggD/EGHIJJ5E0g3K1LK3K0K54 g g gg g g gg gg gg gg ggg gg gg,��-Q�''F��g\2\\�\F�g�g\��F'F��-F2'\���''�M\��� g �� �����g �g �g �� �����g � g � g �gg gg gg�gNF;\��-�F'�g2�+g�2�� g � �����g �g �g � �����g � g � g �gg gg gg�gOF2�Fg\2\\�� g ) �����g �g �g ) �����g � g � g �gg gg gg,��-Q�''F��g\2\\�\F�g�g\��F'F��-�'FF�''�M\��� g ���g �g �g ���g � g � g ���gg gg gg�gO�2��g��g���-Q���'�\��g\��F'F��� g ���g �g �g ���g � g � g �gg gg gg�g!�"F'g���-Q�''F��g\��F'F��-�'FFg�''�M\���g �g �g �g �g � g � g ���gg gg ggP'��\�\��� g �g �g �g �g � g � g )��)gg gg ggRF�F''F;g�2*2�\�� g �g �g �g �g � g � g ����gg gg ggSIJJ5E0g3K1LK3K0K54 g gg gg gg gg gg gg ggg gg gg�'2;Fg2�;g��"F'g#2�2F� g �� �� �)g �g ��� g �� �����g � g � g )����gg gg gg�g�'2;Fg#2�2F� g �� �$ ��g �g �g �� �$ ��g � g � g �gg gg gg�g%&(g\2\\�� g ��� g �g ��� g �g � g � g �gg gg gg�gT�Q��Fg'FQF\�F;g\�g2;�2�QF g �g �g �g �g � g � g ����$gg gg gg�g�F2�Fg#2�2F�g\�Q�;\��g'F2�F�g2�;2;�F'�\�\��g�M\��g��g��\��g�F�F'� g ��$��g �g �g ��$��g � g � g �gg gg gg�gT��F'F��g2QQ'�2 g ���� g �g �g ���� g � g � g �gg gg gg�gU������g;�Fg��gV2�2'� g ���g �g �g ���g � g � g �gg gg gg�gW��;'�g#2�2F�g2�;g��"F'g2QQ'�2� g � �����g �g �g � �����g � g � g $$��$gg gg ggP'��\�\��� g �g �g �g �g � g � g �����gg gg gg!�"F'gQ�''F��g\2\\�\F� g � �����g �g �g � �����g � g � g �gg gg gg�g�F2�F;g#2'��g�2�� g $��g �g �g $��g � g � g �gg gg gg�gNF;\��-�F'�g2�+g�2�� g �$$��g �g �g �$$��g � g � g �gg gg gg�gRF�g�2Q\\�\F� g � �����g gg gg � �����g gg gg ggg gg gg�gOF2�Fg\2\\�� g � �) � g �g �g � �) � g � g � g �gg gg gg�2*2�\�� g �g �g �g �g � g � g ���� gg gg ggX2�+g��F';'2��� g � ���g �g �g � ���g � g � g �gg gg ggg g g gg gg gg gg gg gg ggg gg gg./013g3K1LK3K0K54 g :?79?><C g = g :@<? g :?79BC<>g = g = g 879A8<9gg gg ggg g gg gg gg gg gg gg gg gg gg ggg g gg gg gg gg gg gg gg gg gg ggY5H5ZL5Jg9B8C g g[KE1EHK13KE40JIZ5E0gS14]g3/_g=]5aKEaKE40JIZ5E0g[KE1EHK13g144504Z514IJ5g101KJgb13I50]J/Ia]gcJ/K0/Jg3/44 g [KE1EHK133K1LK3K0K54Z514IJ5g101Z/JdK45H/40 g [KE1EHK13144504Z514IJ5101Z/JdK45H/40 g [KE1EHK13144504Z514IJ510g1KJb13I50]J/Ia]eSf gD/EGKE1EHK13KE40JIZ5E04g gg g gg�Z g gg g g g g g gg g gg g gg����.� g g ggg gg gg gg gg g ggg gg ggD/EGHIJJ5E0g144504 g g gg g g gg gg gg gg gg gg g ggP'�#F'�� g#2��g2�;gF��\#�F�� g g � g � g �g �g � g � g � $ ���g gg g gg���;M\ g g � g � g �g �g � g � g � �����g gg g gg!�"F'g\��2��\F�g2��F�� g g � g � g �g �g � g � g � �����g gg g ggT��F���F��� g g �����g �g �����g �g � g ���g � g gg g gg!�"F'g�\�2�Q\2g2��F�� g g ����g �g �g �g ����g �g �g gg g ggRF�F''F;g�2*2�\�� g g �g �g �g �g � g � g � ���g gg g ggSIJJ5E0g144504 g g gg gg gg gg gg gg gg gg g ggT��F���'\F� g g �g �g �g �g � g � g �� �)��� g gg g gg�'2;F g��"F'g'FQF\�2F�g2�;#'F#2��F��� g g � �$ �)g �g ��� g �g � � �� g � g �)� g gg g gg�g�'2;Fg'FQF\�2F� g g � $�)� g �g �g �g � $�)� g � g � g gg g gg�g!�"F'g2QQ�����g'FQF\�2Fg2�;#'F#2��F��� g g � $����g �g �g �g � $���� g � g �)� g gg g gg�g%&(g2��F� g g ��� g �g ��� g �g � g � g � g gg g gg�2*2�\�� g g �g �g �g �g � g � g �$���g gg g gg(2�"g��g"2�;g2�;g2�+g22�QF�g g � �$��)g �g �g �g � �$��) g � g � g gg g gg,��-Q�''F��g2��F��gQ2��\�\F;g2�g g �g �g �g �g � g � g ���$ g gg g g

  Non-current assets classified as held for sale   –   –   –   –   –   –   159.5                                                     

  Total assets   6,123.2   –   154.7   –   5,967.7   0.8   34,214.6          

                                             Non-current liabilities                                        

 Non-current liabilities – interest-bearingborrowings   10,950.7   –   –   10,950.7   –   –   –          

  – Medium-term bank loans   2,000.0   –   –   2,000.0   –   –   –            – Lease liability   8,950.7   –   –   8,950.7   –   –   –          

 Non-current liabilities – interest-freeborrowings   1.9   –   –   1.9   –   –   5.1          

  – Loans to non-controlling interests   1.9   –   –   1.9   –   –   –            – Other non-current interest-free borrowings   –   –   –   –   –   –   5.1            Provisions   –   –   –   –   –   –   83.8            Deferred taxation   –   –   –   –   –   –   79.7            Current liabilities                                        Trade and other payables   20,194.8   –   37.4   20,157.5   –   –   817.2            – Trade payables   17,764.3   –   –   17,764.3   –   –   –            – FEC liability   37.4   –   37.4   –   –   –   –            – Income received in advance   –   –   –   –   –   –   151.6          

 – Rebate payables including rebates andadverising owing to buying members   136.5   –   –   136.5   –   –   –          

  – Interest accrual   202.4   –   –   202.4   –   –   –            – Amounts due to Walmar   3.3   –   –   3.3   –   –   –            – Sundry payables and other accruals   2,051.0   –   –   2,051.0   –   –   665.6            Provisions   –   –   –   –   –   –   105.0            Other current liabilities   2,957.2   –   –   2,957.2   –   –   –            – Related pary loans   6.3   –   –   6.3   –   –   –            – Medium-term bank loans   266.5   –   –   266.5   –   –   –            – Debt facilities   1,300.0   –   –   1,300.0   –   –   –            – Lease liability   1,384.4   –   –   1,384.4   –   –   –            Taxation   –   –   –   –   –   –   200.4            Bank overdrafts   141.2   –   –   141.2   –   –   –                                                     

  Total liabilities   34,245.8   –   37.4   34,208.5   –   –   1,291.2          

                                                                                      

  December 2018    Financialinstrument   Cash flow –

hedginginstrument

 

Financial assetsmeasured at

fair valuethrough profit

or loss

 

Financialliabilities

measured atamorised

cost

 

Financialassets

measuredat

amorisedcost

 

Financialassets

measuredat fairvalue

throughOCI

 

Non-financialinstruments          

  Rm                              

  ASSETS                                          Non-current assets                                          Propery, plant and equipment     –   –   –   –   –   –   9,647.2            Goodwill     –   –   –   –   –   –   2,599.2            Other intangibles assets     –   –   –   –   –   –   1,057.1            Investments     102.0   –   100.9   –   –   1.1   –            Other financial assets     17.2   –   –   –   17.2   –   –          

  Deferred taxation     –   –   –   –   –   –   743.1          

  Current assets                                          Inventories     –   –   –   –   –   –   12,180.9          

 Trade, other receivables andprepayments     5,264.8   –   23.4   –   5,241.4   –   428.4          

  – Trade receivables     2,608.4   –   –   –   2,608.4   –   –          

 – Other accounts receivable andprepayments     2,633.0   –   –   –   2,633.0   –   428.4          

  – FEC asset     23.4   –   23.4   –   –   –   –            Taxation     –   –   –   –   –   –   361.3            Cash on hand and bank balances     2,369.8   –   –   –   2,369.8   –   –          

 Non-current assets classified asheld for sale     –   –   –   –   –   –   11.6          

                                           

  Total assets     7,753.8   –   124.3   –   7,628.4   1.1   27,028.8          

                                             Non-current liabilities                                        

 Non-current liabilities –interest-bearing borrowings     2,254.1   –   –   2,254.1   –   –   –          

  – Medium-term bank loans     1,675.0   –   –   1,675.0   –   –   –          

  – Capitalised finance lease     579.1   –   –   579.1   –   –   –          

 Non-current liabilities –interest-free borrowings     1.9   –   –   1.9   –   –   1,276.3          

 – Loans to non-controllinginterests     1.9   –   –   1.9   –   –   –          

  – Other non-current interest-     –   –   –   –   –   –   27.4          

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Page 77: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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Page 79: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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Page 80: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2019

41. Events after the reporing date              During the post balance-sheet period the Group announced the commencement of a potential store closure consultation process in terms of section 189and section 189A of the Labour Relations Act 66 of 1995, as amended; with organised labour and other relevant stakeholders. A total of 34 DionWired andMasscash stores and approximately 1,440 employees are affected by this process.

After an extensive consultation process with the affected employees; organised labour and other relevant stakeholders under the guidance of theCommission for Conciliation, Mediation and Arbitration and all options/alternatives in respect of the potential closure of the affected stores having beenexhausted, the Group announced on 19 March 2020 that a decision to close all of the non-perorming stores had been taken. The affected 23 Dion WiredStores ceased trading on 19 March 2020. A decision to cease trade in relation to the 11 affected non-perorming Masscash stores has yet to be determinedby management. The retrenchment costs is estimated to be R66.8 million.

Furhermore, the re-organisation of the operating model was also announced. The current four divisions will be re-organised into two business units:Massmar Wholesale and Massmar Retail.

The Group’s top priority during the global outbreak of the coronavirus (COVID-19) is the health and safety of our customers and our associates. Themeasures the Group has implemented to stem the spread of the disease and to look after the health and wellbeing of our customers and associates include:developing various in-store safety measures to enhance cleaning and hygiene protocols as well as to enable safe social distancing, providing pregnantassociates across the Group with paid COVID-19 special leave, liaising closely with suppliers to secure high demand products for our customers, andrestricting all international and domestic travel for non-essential purposes. We are especially concerned with ensuring that products remain affordable andavailable for customers. The Group is also parnering with Food Forward (previously known as Food Bank) to provide COVID-19 related food aid tovulnerable groups across the country, including the elderly, orphans and the chronically ill.

While the effects of the global outbreak of the COVID-19 virus on our business are continually being reassessed, the full impact of the 21-day nationwidelockdown for the period from 27 March 2020 to 16 April 2020 announced on 23 March 2020 remains unknown. As an essential retailer, a number of theGroup’s formats will continue to trade during the South African lockdown, however restrictions have been placed on the goods that may be sold. TheMassbuild operating segment will not trade in South Africa during the lockdown period however all our African store formats will continue to trade subjectto local restrictions. The high level of uncerainty, due to the unpredictable outcomes of this disease, complicates the estimation of the financial effects ofthe outbreak and as a result it could materially impact the results of the Group negatively and the assumptions applied in our assessment of provisions andimpairment considerations.

As a result of the lockdown, the Group has reassessed its ability to continue to operate over the foreseeable future. The Group is confident that throughthe actions that have been taken, including engagement with various stakeholders such as lenders and shareholders, as well as the cost saving initiativeswhich have been implemented since the second half of 2019, combined with the Group’s liquidity position, will allow Massmar to navigate through thisdifficult 21 day trading environment. Specifically, the Group has assessed that it currently has sufficient borrowing facilities in place to allow it to continueto pay expenses and trade creditors throughout the lock down period. Should the lockdown be extended beyond the 21 days announced by the President,the impact would be felt throughout the South African economy. Under continued lockdown restrictions, the Group would have to reassess the impact onsales, liquidity and available facilities. Management has also stared conversations with banks to obtain extended banking facilities should the need arise.

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MASSMART COMPANY ANNUAL FINANCIAL STATEMENTS 2019MASSMART COMPANY ANNUAL FINANCIAL STATEMENTS 2019

9. Issued capital                          

      Share capital   Share premium

Rm     December 2019  December

2018   December 2019   December 2018                   

Authorised                  

500,000,000 (December 2018: 500,000,000) ordinary shares of 1 cent each   5.0   5.0   –   –20,000,000 (December 2018: 20,000,000) non-redeemable cumulative non-paricipatingpreference shares of 1 cent each   0.2   0.2   –   –18,000,000 (December 2018: 18,000,000) ‘A’ converible redeemable non-cumulativeparicipating preference shares of 1 cent each   0.2   0.2   –   –4,000,000 (December 2018: 4,000,000) ‘B’ converible redeemable non-cumulativeparicipating preference shares of 1 cent each   –   –   –   –

                   

Issued                  

219,138,809 (December 2018: 217,179,142 ) ordinary shares of 1 cent each   2.2   2.2   1,700.7   1,520.92,797,675 (December 2018:2,797,675) ‘B’ converible redeemable non-cumulativeparicipating preference shares of 1 cent each   –   –   –   –

                   

          Number of   Share capital   Share premium

          shares   Rm   RmOrdinary shares                                     

Balance at December 2017         217,145,489   2.2   1,580.0

Shares issued in terms of the Massmar Black Scarce Skills Trust       33,653   –   –

Ordinary shares issued – December 2018         217,179,142   2.2   1,580.0

Treasury shares         (1,177,645)   –   (59.1)

Ordinary shares issued excluding treasury shares – December 2018       216,001,497   2.2   1,520.9

                   

Balance at December 2018         217,179,142   2.2   1,520.9

Shares issued in terms of the scrip dividend declared       1,959,667   –   174.3

Ordinary shares issued – December 2019         219,138,809   2.2   1,695.2

Treasury shares         (1,466,504)   –   5.5

Ordinary shares issued excluding treasury shares – December 2019       217,672,305   2.2   1,700.7

                   

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

                   

Non-redeemable cumulative non-paricipating preference shares            

                    The non-redeemable cumulative non-paricipating preference shares are unissued in the current year. It remains within the ambit of the Board of Directors to issuethese shares as the need arises.    

                   

‘A’ converible redeemable non-cumulative paricipating preference shares            

                   

There are no ‘A’ converible redeemable non-cumulative paricipating preference shares in issue as the residual shares were automatically redeemed on the vesting ofthe Massmar Thuthukani Empowerment Trust scheme, in terms of the Trust Deed in the 2013 financial year.

   

        

                   

‘B’ converible redeemable non-cumulative paricipating preference shares                               

Balance at December 2017         2,831,328   –   –

Shares convered to ordinary shares       (33,653)   –   –

Balance at December 2018         2,797,675   –   –

Shares convered to ordinary shares       –   –   –

Balance at December 2019         2,797,675   –   –

                    B’ converible redeemable non-cumulative paricipating preference shares, which have a par value of 1 cent, are held in the Massmar Black Scarce Skills Trust. These shares carry one vote pershare, which are cast by the trustees, and do not carry the right to dividends. On election of the beneficiary, the shares will conver to ordinary shares on a one-for-one basis and will rank paripassu with all ordinary shares then in issue.

                   

                   Share options granted under the Massmar Holdings Limited Employee Share Trust                       

At December 2019, executives and senior employees have options of 3,583,071 (December 2018: 4,234,937) ordinary shares of which nil (December 2018: 134,782) are unvested.

1

Share options granted under the Employee Share Incentive Schemes carry no rights to dividends and no voting rights. Additional information of the Employee Share Incentive Schemes can befound in note 27 of the Group Financial Statements.

During the current financial year, 1.1 million shares (0.5% of average shares in issue) were bought in the market by the Massmar Holdings Limited Executive Share Trust at an average price ofR43.98 totalling R48.4 million.

During the prior financial year, 1.9 million shares (0.9% of average shares in issue) were bought in the market by the Massmar Holdings Limited Executive Share Trust at an average price ofR127.85 totalling R246.1 million.

The Directors have the authority, until the next annual general meeting, to issue the ordinary shares of the Company up to a maximum of 5% of the shares already issued.

                   

                   

The share capital value is less than R100,000.          1

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MASSMART COMPANY ANNUAL FINANCIAL STATEMENTS 2019MASSMART COMPANY ANNUAL FINANCIAL STATEMENTS 2019

13. Notes to the statement of cash flows                 December 2019   December 2018

Rm     52 weeks   52 weeks

           13.1 Cash (outflow)/inflow from trading activities        Profit before taxation   1,327.5   1,180.6Adjustment for:        Depreciation   0.7   0.6Reversal of loan impairment   –   –Investment impairment   0.1   7.4Finance costs   –   0.9Finance income   (22.0)   (9.7)Dividends received   (1,317.0)   (1,160.2)Share-based payment expense   7.7   6.7Treasury share acquisitions   –   (53.7)Other non-cash movements   0.1   2.4

    (2.9)   (25.0)

13.2 Working capital movements        Decrease in trade and other receivables   8.2   15.7Increase/(decrease) in trade and other payables   1.8   (31.7)Decrease in amounts owing by subsidiaries   122.2   –

    132.2   (16.0)

13.3 Dividends paid        Shareholder for dividends   –   (0.8)

Dividends declared to shareholders   (128.4)   (735.6)

      (128.4)   (736.4)

13.4 Taxation paid        Amounts receivable/ (owing) at the beginning of the year   2.1   (16.9)Current tax   (6.0)   (4.1)Amounts owing/ (receivable) at the end of the year   0.1   (2.1)

    (3.8)   (23.1)

          Other non-cash movements includes foreign exchange movements and other reserve movements.

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                           Financial risk management

                           The Company does not trade in financial instruments, but in the ordinary course of business operations, the Company is exposed to a variety of financial risks arising from the use of financialinstruments. These risks include:

– market risk (comprising interest rate risk and currency risk);

– liquidity risk; and

– credit risk.The Company 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 reporing structures. The Executive Committee is responsible for risk management activities within the Company.

                           

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 Company is primarilyexposed to include interest rate risk and currency risk. Market risk is managed by identifying and quantifying risks on the basis of current and future expectations and ensuring that all tradingoccurs within defined parameters. This involves the review and implementation of methodologies to reduce risk exposure. The reporing on the state of the risk and risk practices to executivemanagement is par 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 Company’s exposure tomarket risk or the manner in which it manages and measures the risk since the prior period.

                           Interest rate risk management    

                           

The Company is exposed to interest rate risk because of its floating rate loan receivable from Massmar Management and Finance Proprietary Limited.

                           

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

                           

December 2019  Subject to interest rate

movement  Non-interest

bearing   Total

Rm            Fixed   Floating        

                           

Non-current assets   –   –   0.8   0.8– Other financial assets   –   –   0.8   0.8Current assets   –   398.8   9.3   408.1– Trade and other receivables   –   –   –   –– Other financial assets   –   –   7.5   7.5– Amounts owing by subsidiaries   –   398.8   1.8   400.6                           

Total assets   –   398.8   10.1   408.9

                           Current liabilities   –   –   20.2   20.2– Trade and other payables   –   –   0.7   0.7– Amount owing to subsidiary company   –   –   19.5   19.5                           

Total liabilities   –   –   20.2   20.2

                           

December 2018  Subject to interest rate

movement  Non-interest

bearing   Total

Rm            Fixed   Floating        

                           

Non-current assets   –   –   8.5   8.5– Other financial assets   –   –   8.5   8.5Current assets   –   –   3,440.3   3,440.3– Trade and other receivables   –   –   8.2   8.2– Amounts owing by subsidiaries   –   –   3,432.1   3,432.1                           

Total assets   –   –   3,448.8   3,448.8

                           Current liabilities   –   39.0   1.4   40.4– Trade and other payables   –   –   1.4   1.4– Amount owing to subsidiary company   –   39.0   –   39.0                           

Total liabilities   –   39.0   0.8   39.8

                                                      Interest rate sensitivity    The Company 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 averageinterest rate for the Company for the year was 8.8% (December 2018: 8.3%). If the SA Prime interest rate increased or decreased by 100 basis points (December 2018: increased or decreasedby 100 basis points) at year end, the profit for the year would have increased or decreased by R2.5 million respectively (December 2018: increased or decreased by R0.1 million respectively).

                           

                           Currency risk management

                           

All liabilities are South African Rand (ZAR) denominated. Foreign-denominated assets are not covered by forward exchange contracts.

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Page 111: Massmart Group and Company Annual Financial Statements€¦ · 3 MASSMAR F A 2019 PREFERENCE SHARES Balance at December 2017 2,831,328 Conver ed dorinary shares (33,653) Balance at

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