Annual Report – Edcon

Transcription

Annual Report
Edcon Holdings Limited
For the 52 weeks ended 28 March 2015
EDCON ANNUAL REPORT 2015
Index
Page
Business
3
Shareholders and Management
4
Summary Historical and Pro Forma Financial and Other Data
4
Management’s Discussion and Analysis of Audited Consolidated Results
5
Risk Factors
17
Audited Consolidated and Company Annual Financial Statements
31
Corporate Information
170
This annual report includes forward looking statements. All statements other than statements of historical facts
contained in this annual report, including, without limitation, those regarding our future financial position and
results of operations, our strategy, plans, objectives, goals, targets and future developments in the markets in
which we participate or are seeking to participate, and any statements preceded by, followed by or that include
the words “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “forecast”, “aim”, “intend”, “will”, “may”,
“plan”, “should” or similar expressions or the negative thereof, are forward-looking statements. Any statements
contained herein regarding industry outlook, our expectations regarding future performance, liquidity and capital
resources and other non-historical statements in this discussion are forward looking statements. Such forwardlooking statements involve known and unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements, or industry results, to be materially different from any future results,
performance or achievements expressed or implied by such forward-looking statements. Such forward-looking
statements are based on numerous assumptions regarding our present and future business strategies and the
environment in which we will operate in the future. Our actual results may differ materially from these contained or
implied by any forward looking statements.
2
BUSINESS
Edcon Holdings Limited (“the Group” or “Edcon” or “we” or “us”) is Southern Africa’s largest non-food retailer, with a
market share of the Southern African clothing and footwear (C&F) market roughly twice that of its nearest listed
competitor. We have been in operation for more than 80 years and have expanded our footprint to 1,500 stores as
at 28 March 2015, including 200 stores in 8 countries outside of South Africa. We operate under four principal
operating divisions comprising nine key store chains as well as mono-branded stores throughout southern Africa.
x
x
x
x
Our Edgars division, which consists of department stores targeted at middle-to-upper-income customers,
includes store chains Edgars, Edgars Active, Edgars Shoe Gallery, Boardmans and Red Square as well as our
mono-branded stores, and accounted for 50.6% of total retail sales in the 52-week period ended 28 March
2015. We had 533 stores in our Edgars division (including mono-branded stores) and an average retail space
of 809 thousand square meters for the financial year 2015.
Our Discount division, which consists of discount stores selling value merchandise targeted at lower- to middleincome customers, includes store chains Jet, Legit and Jet Mart, and accounted for 39.2% of total retail sales
in the 52-week period ended 28 March 2015. We had 719 stores in our Discount division and an average retail
space of 633 thousand square meters for the financial year 2015.
We are also a leading retailer of books and magazines in South Africa under our CNA division, which
accounted for 7.3% of total retail sales in the 52-week period ended 28 March 2015. As at 28 March 2015 we
had 195 stores in our CNA division and an average retail space of 84 thousand square meters for the financial
year 2015.
Our business in Zimbabwe is independently managed and reported. It accounted for 2.9% of total retail sales
reported in the 52-week period ended 28 March 2015. As at 28 March 2015 we reported 53 stores and an
average retail space of 39 thousand square meters for the 52-week period.
We have secured exclusive rights to a number of international brands in South Africa, including Topshop, Tom
Tailor, Mac, Lipsy, Bobbi Brown, Lucky Brand, Dune, TM Lewin, Salsa, Jigsaw, Calvin Klein, Khiels, Victoria
Secrets Beauty and Accessories, Vince Camuto, River Island, Doc Martens, Jo Malone and Gosh. Most of these
brands are new to South Africa and are available on an exclusive basis in our Edgars stores as well as being rolled
out in mono-branded stores. We also hold a controlling stake in companies holding the exclusive rights to
Accessorize, La Senza and Inglot. As at 28 March 2015, we had a total of 78 mono-branded stores. The results of
both the shop-in-shop and stand-alone stores are included in the Edgars division.
We also sell mobile phones, related accessories and airtime across all of our divisions, which accounted for 10.8%
of our total retail sales in the 52-week period ended 28 March 2015. Our popular retail store chains allow us to
serve a wide cross-section of South African society. We also offer credit and insurance products to the Group’s
customers via our strategic partnerships, have a manufacturing business called Celrose and have the largest retail
loyalty programme in Southern Africa with over 12 million customers.
Although our retail businesses are divided into three principal divisions, excluding operations in Zimbabwe, we
maintain seven operating segments as detailed in note 2 of the consolidated financial statements on page 71 of
this report. See “Notes to the Consolidated Financial Statements of Edcon Holdings Limited – Operating Segment
Report”.
3
SHAREHOLDERS AND MANAGEMENT
Shareholders
Edcon’s shareholders are described in the directors’ report of the consolidated financial statements on page 38 of
this report. See “Audited Consolidated and Company Annual Financial Statements of Edcon Holdings Limited –
Directors Report - Shareholding”.
Directors and management
Edcon has a unitary board structure comprising three executive directors, four non-executive directors and four
independent non-executive directors. Our board has delegated authority for the day-to-day affairs of each of our
divisions to our executive managers comprising the group chief executive officer, the chief financial officer, the chief
operating officer and the chief executives of the Edgars and Discount divisions.
The members of the board and the executive management committee are described in the directors’ report of the
consolidated financial statements on pages 38 and 39 of this report. See “Audited Consolidated and Company
Annual Financial Statements of Edcon Holdings Limited – Directors’ Report”.
In advance of the CEO, Mr Jurgen Schreiber's, employment contract coming to an end in April 2016, the chairman
began succession discussions together with him. A search for a successor CEO is well underway and further
announcements in this regard will be made in due course. Mr Schreiber will move to a new role as Vice Chairman
of Edcon Holdings Limited from 15 August 2015 as part of a smooth transition and an active commitment to support
the company towards its next phase of growth. The board would like to thank Jurgen greatly for his efforts and
significant contributions during his tenure as CEO and for steering the company through a period of tremendous
strategic change.
The following non-executive board changes have taken place during the current financial year:
x RB Daniels joined as a non-executive director effective 7 June 2014;
x MS Levin resigned as a non-executive director effective 31 March 2015; and
x M Osthoff joined as a non-executive director effective 1 April 2015.
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA
The following historical financial data relates to the audited consolidated financial statements for the 52-week
period ended 28 March 2015, the 52-week period ended 29 March 2014 and the 52-week period ended 30 March
2013 which appear elsewhere in this annual report. These consolidated financial statements have been audited by
Deloitte & Touche. Unless the context requires otherwise, references in this notice to “financial year 2015” (or
“FY2015”) and “financial year 2014” (or “FY2014”) and “financial year 2013” (or “FY2013”) shall mean the 52-week
period ended 28 March 2015, the 52-week period ended 29 March 2014 and the 52-week period ended 30 March
2013 respectively.
Throughout these reports Edgars refers to the Edgars division, which comprises Edgars, Red Square, Boardmans,
Edgars Active, Edgars Shoe Gallery and the mono-branded stores while Discount refers to the Discount division,
which comprises Jet, Jet Mart and Legit as well as Discom prior to the conversion/closure of these stores.
The summary historical and pro forma financial and other data are detailed in the next entitled section
“Management’s discussion and analysis of audited consolidated results”.
4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF AUDITED CONSOLIDATED RESULTS
Highlights
Pertaining to the 52-week period ended 28 March 2015 compared to the prior comparative period

Retail sales up 2.0% to R27,510 million
Retail cash sales growth of 11.0%
Retail credit sales decline 8.0%
Pro forma adjusted EBITDA up 1.4% to R2,725 million
Increase in average space of 4.9%
Ongoing working capital improvements
Introduction
The Edcon group continued to see a pleasing cash sales performance for the year, with cash sales up 11.0%,
following the implementation of key strategic changes in the prior financial year. Margins also improved with the
gross profit margin expanding 0.7% points to 37.2%; whilst pro forma adjusted EBITDA increased 1.4% with
consecutive quarterly improvements. The sound performance in cash sales is evidence that the changes
implemented have been well received by our customers while margin improvements are testament to sound
management of controllable metrics.
However, negative credit sales growth of 8.0% across all the divisions continues to delay meaningful growth of the
business. While Edcon did explore measures to enable the company to compete more effectively on credit, these
have yet to yield a positive outcome. In addition the retail market continues to be impacted by a consumer under
pressure in a tough economic environment.
Group retail sales grew 2.0% to R27,510 million based on a similar overall performance within both the Discount
and Edgars division while CNA sales continued to decline. Group cash sales grew a sound 11.0% which was
substantially eroded by an 8.0% decline in credit sales. Credit sales contributed 42.7% of total sales, down from
47.3% in the previous year. Comparative store sales declined by 1.6%. Group gross profit margins increased from
36.5% to 37.2% due to better pricing architecture, improved buying, lower clearance activity and increased margin
generated through our expansion outside of South Africa. Sound cost management enabled a turnaround in pro
forma adjusted EBITDA which increased 1.4% to R2,725 million year on year following a decline of 2.6% in the
prior financial year. Total capital investments over the year were R1,037 million, and average space increased
4.9% year on year.
The Edgars division, which includes mono-branded stores, increased total sales 1.8%, with cash sales growth of
13.6% and a decline in credit sales of 8.2%. Comparable store sales reduced 2.6% due mainly to the decline in
credit sales. The 0.9% points increase in gross profit margin in the Edgars division from 38.6% to 39.5% was due to
improved pricing and sourcing. Edgars’ average space increased 6.6%, including the rollout of mono-branded
stores.
The Discount division increased sales 2.5%, with cash sales growth of 10.0% and a decline in credit sales of 8.5%.
Comparable store sales decreased 0.3%. Gross profit margin increased a further 0.8% points from 34.1% to
34.9%. Discount’s average space increased 3.9%, driven by expansion outside of South Africa.
Sales from operations outside of South Africa increased 10.9% and the group expanded its footprint into Ghana
during the year, opening two Jet and one Edgars store in Accra.
Working capital efforts implemented early in the financial year, with the assistance of Alix Partners, have yielded
positive results with cashflow from working capital improving from utilising R114 million in financial year 2014 to
generating R573 million in financial year 2015, a turnaround of R687 million.
We have entered into discussions with our bank lenders as well as certain 2019 noteholders regarding potential
capital structure initiatives, including new debt financings and/or transactions involving our existing debt. The
company has retained Houlihan Lokey and Goldman Sachs to assist with the assessment and implementation of
5
these potential initiatives. These discussions are proceeding constructively, but there can be no assurance at this
time that they will be successful. We will update all stakeholders in due course.
6
Trading review
Key operational data
Retail sales
growth (%)
Edgars
Discount
CNA
(2)
Zimbabwe
Total
FY2013
Actual
4.1
(0.3)
0.7
(3.8)
1.9
FY2014
Actual
2.7
7.4
3.2
28.9
5.1
FY2015
Actual
1.8
2.5
(5.6)
23.7
2.0
FY2013
(1)
LFL
(1.1)
2.1
2.4
(5.9)
0.3
FY2014
(1)
LFL
(2.7)
3.2
3.1
27.4
0.5
FY2015
(1)
LFL
(2.6)
(0.3)
(7.5)
20.8
(1.6)
(1) Like-for-like sales (same store sales).
(2) On a constant currency basis retail sales growth is 13.0% and LFL growth is 10.4% in FY2015.
Gross profit margin (%)
Edgars
Discount
CNA
Zimbabwe
Total
(1)
FY2013
39.7
33.0
32.4
49.1
36.7
FY2014
38.6
34.1
31.1
48.6
36.5
FY2015
39.5
34.9
30.5
45.9
37.2
pts change
0.9
0.8
(0.6)
(2.7)
0.7
FY2013
FY2014
FY2015
pts change
1 273
1 419
3 915
9 000
1 403
1 492
3 789
11 000
1 500
1 565
3 496
12 000
(1) FY2015 % change on FY2014.
Other
Total number of stores
Average retail space (‘000 sqm)
Customer accounts (‘000s)
(3)
Thank U cards (‘000s)
(2)
(1)
6.9
4.9
(7.7)
9.1
(2) Customer accounts includes Zimbabwe customer credit accounts of 138,555 FY2013, 142,796 FY2014 and 168,763 FY2015.
(3) Thank U card numbers are rounded down to closest million.
Our retail business comprises three principal retail divisions discussed below.
Edgars
The Edgars division grew retail sales 1.8% negatively impacted by an 8.2% decline in credit sales. Credit sales
contribution reduced from 54.3% of total sales in the prior year to 48.9% of total sales. Cash sales increased 13.6%
over the same period. There was a strong performance in the specialty and mono-branded stores. Average space
increased 6.6% to 809 thousand square meters when compared to the 2014 financial year. During the year 19 new
Edgars Active stores (including one conversion), 17 new Edgars stores, four Boardmans, one Edgars Shoe Gallery,
one Red Square, one Cosmetics Emporium, one Edgars Sales store and 29 new mono-branded stores were
opened. During the same period there were 18 closures (seven Edgars, four Edgars Active, four Boardmans and
three mono-branded stores) bringing the total number of stores in the Edgars division to 533, including monobranded stores.
Same-store sales were 2.6% lower when compared to financial year 2014. All specialty chain stores, including
mono-branded stores, achieved strong positive same-store sales growth.
Gross margin was 39.5% for the financial year 2015 up from 38.6% for the financial year 2014 due to pricing
changes, improved sourcing and lower clearance.
7
Discount
The Discount division’s sales increased 2.5%, negatively impacted by an 8.5% decline in credit sales. Credit sales
contribution reduced from 40.7% of total sales in the prior year to 36.4% of total sales. Cash sales increased 10.0%
over the same period. Same-store sales were marginally lower by 0.3%. Sales performance was supported by a
solid performance in ladieswear, footwear and menswear.
Average space increased 3.9% to 633 thousand square meters when compared to the 2014 financial year. During
the year 34 Jet stores, two new Jet Marts and 20 new Legit stores were opened while 22 stores were closed or
converted (10 Jet, six Jet Marts, one Jet Shoes and five Legit stores) bringing the total number of stores in the
Discount division to 719.
The gross profit margin increased from 34.1% for financial year 2014 to 34.9% for financial year 2015, as higher
input costs were well managed within the Discount division and strategies to improve buying and pricing
architecture continued to deliver results.
CNA
CNA sales decreased 5.6% primarily due to the reduction in space in a challenging market segment. Same store
sales decreased 7.5% as trading densities dropped. The continued right-sizing of existing stores resulted in a
reduction in average space of 4.5% from the prior comparative period, to 84 thousand square meters. During the
year 13 new stores were opened and nine were closed, bringing the total number of CNA stores to 195. Gross
margin decreased from 31.1% for financial year 2014 to 30.5% for financial year 2015 due to mainly to the mix
variance with an increased contribution from digital sales.
African expansion
The total number of Edcon group stores outside of South Africa increased by 31 from 169 at the end of financial
year 2014 to 200 at the end of financial year 2015. The sales from these stores increased 10.9% (7.3% excluding
Zimbabwe) due mainly to an increase in the number of stores, as currency depreciation negatively impacted
results. These sales contributed 11.8% (8.9% excluding Zimbabwe) of retail sales for the financial year 2015, up
from 10.9% (8.7% excluding Zimbabwe) in the prior comparative period. Growth from stores outside of South Africa
remains an important part of the future of the group and Edcon has increased its focus in this regard and opened
up three stores in Ghana in November 2014.
Credit and financial services
Edcon, excluding Edgars Zimbabwe, ended the financial year 2015 with 319 thousand fewer credit customers than
financial year 2014. On a twelve month rolling basis, credit sales decreased from 46.3% in the prior comparative
period to 42.3% of total retail sales as our credit partner continues to extend credit on a conservative basis.
Consequently, we are testing an in-house National Credit Act compliant 2nd look credit solution. Initial results for
the book performance are good and indicate the potential for a strategic second look partner to supplement the
Absa funded credit proposition. We continue to explore further second-look options.
Currently R369 million of the net trade receivables book is classified as “held-for-sale”. These trade receivables
accounts relate only to non-South African jurisdictions not sold to Absa including Botswana, Lesotho, Swaziland
and the remaining Namibian book. The R473 million held in trade accounts receivable, separate from those
classified as “held-for-sale”, relates primarily to the Zimbabwean book, which was never part of the sale to Absa
and is separately managed and funded, as well as the in-house South African trade receivables book with a net
value of R76 million.
During June 2015, the Group entered discussions with Accenture. Subject to certain conditions being filled, the
Group intends to outsource existing consumer credit services excluding those carried out by Edgars Stores Limited
in Zimbabwe which is separately managed. The arrangement will increase the operational efficiencies of the Group
and result in an approximate R200 million service cost reduction in the initial two year period of the arrangement.
8
Share of profits from the insurance business increased 1.1% over the prior comparative period, to R747 million for
the financial year 2015. The pace of insurance growth was again impacted by the lower number of credit customers
as store credit remains a prerequisite for a policy.
9
Financial review
Summary financial information
Rm
Total revenues
Retail sales
Gross profit
Gross profit margin (%)
(2,3)
Pro forma adjusted EBITDA
Capital expenditure
Net debt including cash and derivatives
Net debt/pro forma adjusted EBITDA
(4)
(inc cost savings)
FY2013
27 210
25 670
9 431
36.7
2 760
837
19 655
FY2014
28 784
26 974
9 842
36.5
2 687
1 349
22 678
FY2015
29 415
27 510
10 245
37.2
2 725
1 037
23 962
6.7
7.6
7.6
(1)
% change
2.2
2.0
4.1
0.7pts
1.4
(23.1)
5.7
(1)
FY2015 % change on FY2014.
(2)
See table below which reconciles trading profit/loss to EBITDA, adjusted EBITDA and Pro forma adjusted EBITDA.
(3)
Pro forma adjusted EBITDA is adjusted for net income derived from 100% of the trade receivables including finance charges revenue, bad debts and provisions and
including a pro forma fee earned by Edcon.
(4)
Included in the Pro Forma Adjusted EBITDA for FY2015 are cost savings for (a) corporate and operation overhead reductions of R356 million (b) renegotiated contracts of
R17 million. Net debt has been adjusted by trade receivables still to be sold of R1,134 million in FY2013, R618 million in FY2014 and R369 million in FY2015.
Revenues
Total revenues increased 2.2% which is commensurate with the growth in retail sales and marginally boosted by
the administration fee paid by Absa and manufacturing income.
Retail gross profit
Gross profit was 4.1% higher and gross profit margin increased 70 basis points. Margin improvements in both the
Discount and Edgars divisions were partially offset by declining margins in the CNA division.
The following table reconciles trading profit to adjusted EBITDA and Pro forma adjusted EBITDA:
(6)
Rm
FY2013
FY2014
FY2015
% change
Trading profit
1 357
1 299
1 235
(4.9)
Depreciation and amortisation
1 056
1 137
1 079
(1)
Net asset write off
22
11
37
Profit/(loss) from discontinued
(2)
operations
351
(86)
15
(3)
Non-recurring costs
545
266
360
Adjusted EBITDA
3 331
2 627
2 726
3.8
Net (loss)/income from previous card
(4)
programme
(738)
29
(23)
Net income from new card
(5)
167
31
22
programme
2 760
2 687
2 725
1.4
(1)
Relates to assets written off in connection with store conversions, net of related proceeds.
(2)
The results of discontinued operations are included before tax.
(3)
Relates to FY2013 costs relating to the sale of the trade receivables book of R516 million, transitional costs of R83 million, refinancing costs of R87 million and income on
the sale of Master card of R141 million; FY2014 costs relating to the sale of the trade receivables book of R116 million, restructure costs of R93 million and post retirement
liability buyout of R57 million and FY2015 costs relating to the sale of the trade receivables book of R73 million, restructure costs of R69 million, post retirement liability
buyout credit of R23 million, once-off lease adjustment of R49 million, onerous lease charges of R137 million and R55 million related to various strategic initiatives.
(4)
Net income derived from 100% of the trade receivables including finance charges revenue, bad debts and provisions.
(5)
Pro forma fee earned by Edcon under the new arrangement with Absa, based on 100% of the trade receivables book.
(6)
10
Costs
Rm
Store costs
(2)
Other operating costs
Store card credit administration
(3)
costs
(4)
Non-recurring costs
FY2013
5 076
3 651
FY2014
5 700
3 791
FY2015
6 277
3 804
231
545
556
266
441
360
(1)
(2)
Other operating costs as per consolidated financial statements, before costs in notes (3) and (4) below.
(3)
Relates to costs associated with the administration of the store credit card funded by Absa or Edcon and not in discontinued operations.
(4)
(1)
% change
10.1
0.3
(20.7)
35.3
Relates to FY2013 costs relating to the sale of the trade receivables book of R516 million, transitional costs of R83 million, refinancing costs of R87 million and income on
the sale of Master card of R141 million; FY2014 costs relating to the sale of the trade receivables book of R116 million, restructure costs of R93 million and post retirement
liability buyout of R57 million and FY2015 costs relating to the sale of the trade receivables book of R73 million, restructure costs of R69 million, post retirement liability
buyout credit of R23 million, once-off lease adjustment of R49 million, onerous lease charges of R137 million and R55 million related to various strategic initiatives.
Total store costs increased by R577 million, or 10.1%, from R5,700 million in 2014 financial year to R6,277 million
in 2015 financial year, mainly due to new space and contractual lease escalations, resulting in rental that increased
by 12.0%. Manpower costs remained flat as productivity improvements were maintained following staff
restructuring within the stores early in the year. Rental and manpower costs constituted 59.6% of total store costs.
Other operating costs, excluding non-recurring and non-comparable costs associated with administrating the trade
accounts receivable book, increased by R13 million, or 0.3%, from R3,791 million in financial year 2014 to R3,804
million in the financial year 2015. Income from Absa for administering the book in financial year 2015 of R763
million is included in other income.
Depreciation and amortisation
The depreciation and amortisation charge for financial year 2015 decreased by 5.1% to R1,079 million mainly due
to certain intangible assets, which were raised following the acquisition by Bain in 2007, now being fully amortised.
Foreign exchange management
Edcon applies a strategy of hedging all committed foreign denominated orders, the impact of which appears above
the trading profit line. These forward contracts absorb some of the impact of currency volatility on input prices.
Rm
Derivative (losses)/gains
Foreign exchange gains/(losses)
Net movement gains/(losses)
FY2013
(897)
(1 108)
(2 005)
FY2014
603
(2 458)
(1 855)
FY2015
(601)
998
397
(1)
% change
121.4
Edcon manages its foreign exchange risk on liabilities on an ongoing basis. At the end of financial year 2015, 73%
of the total gross debt is hedged by virtue of it being denominated in ZAR or through hedging with foreign currency
call options, whilst 27%, relating to the fixed rate senior notes maturing in 2019 and 10% of the fixed rate senior
secured notes maturing in 2018, is unhedged. The ZAR appreciated by 9.8% against the EUR from EUR:R14.54 to
EUR:R13.12.
Net financing costs
Rm
Finance income
Financing costs
Net financing costs
FY2013
115
(3 144)
(3 029)
FY2014
40
(2 668)
(2 628)
FY2015
33
(3 414)
(3 381)
(1)
% change
(17.5)
28.0
28.7
11
Net financing costs increased by R753 million, or 28.7%, from R2,628 million in financial year 2014 to R3,381
million in financial year 2015. This increase is primarily as a result of higher effective interest rates, relating mainly
to the fixed rate senior notes maturing in 2019, as well as marginally higher levels of debt when compared to the
prior comparative period.
Cash flow
Operating cash inflow before changes in working capital decreased by R38 million from R2,540 million in financial
year 2014 to R2,502 million in financial year 2015 mainly due to costs increasing slightly faster than sales. Working
capital showed an inflow R573 million in financial year 2015, compared to an outflow of R114 million in financial
year 2014 due to:
(i)
The proceeds from the sales of the trade accounts receivable books of R356 million in financial year 2015
compared to R575 million in financial year 2014;
(ii)
A net increase in trade receivables of R181 million in financial year 2015 compared to a net decrease of
R39 million in financial year 2014;
(iii)
An increase in other receivables and prepayments of R79 million in financial year 2015 compared to an
increase of R306 million in 2014 financial year;
(iv)
A decrease in inventory of R81 million in financial year 2015 compared to an increase of R635 million in
financial year 2014 mainly due to the working capital initiatives; and
(v)
An increase in trade and other payables of R396 million in financial year 2015 compared to an increase of
R220 million in financial year 2014 due to the working capital initiatives.
Consequently, operating activities generated cash of R3,075 million, R649 million higher than the R2,426 million in
the prior comparative period.
Capital expenditure
Rm
Edgars
Expansion
Refurbishment
Discount
Expansion
Refurbishment
CNA
Edgars Zimbabwe
IT
Other corporate capex
FY2013
302
94
208
238
52
186
41
18
189
49
837
FY2014
873
271
602
212
110
102
16
32
194
22
1 349
FY2015
577
270
307
180
89
91
14
33
223
10
1 037
(1)
% change
(23.1)
Capital expenditure decreased by R312 million to R1,037 million for the financial year 2015, from R1,349 million in
the financial year 2014. In the financial year 2015, 142 new stores were opened which, combined with store
refurbishments, resulted in investments in stores of R771 million (excluding Edgars Zimbabwe), compared to the
financial year 2014 where we opened 138 new stores (excluding 8 conversions) resulting in an investment in stores
of R1,101 million (excluding Edgars Zimbabwe). Edcon invested R223 million in information systems infrastructure
in the financial year 2015 compared to R194 million in the financial year 2014.
The Group spent approximately R14 million less than the previous estimate of R1,051 million on capital
expenditure in fiscal year 2015. The company has planned to normalise capital expenditure to around R600 for
fiscal year 2016.
12
Net debt, liquidity and capital resources
The primary source of short-term liquidity is cash on hand and the revolving credit facility. The amount of cash on
hand and the outstanding balance on the revolving credit facility are influenced by a number of factors, including
retail sales, working capital levels, supplier payment terms, timing of payment for capital expenditure projects, debt
service obligations and tax payment requirements. Working capital requirements fluctuate during each month,
depending on when suppliers are paid and when sales are generated, and throughout the year depending on the
seasonal build-up of net working capital.
(1)
Rm
Super senior secured
(2)
ZAR Revolving credit facility
ZAR Floating rate notes due 4 Apr 16
Senior secured
ZAR term loan due 16 May 17
EUR floating rate notes due 15 Mar 14
EUR fixed rate note due 1 Mar 18
USD fixed rate note due 1 Mar 18
Deferred option premium
Lease liabilities
Senior
EUR fixed rate notes due 30 Jun 19
EUR floating rate notes due 15 Jun 15
(3)
Other loans
Gross debt
Derivatives
Cash and cash equivalents
Net debt
(1)
(2)
(3)
J+625bps
J+700bps
E+325bps
9.5%
9.5%
13.375%
E+550bps
FY2013
FY2014
FY2015
1 456
1 010
1 210
1 010
2 865
1 005
4 008
4 083
8 691
2 603
1 102
273
7 881
2 981
1 076
364
5 948
5 381
173
25 018
(1 930)
(410)
22 678
254
25 890
(640)
(1 288)
23 962
4 543
6 933
2 245
305
313
4 406
182
21 393
(1 028)
(710)
19 655
FX rates at end FY2013 were R9.16:$ and R11.78:€; R10.56:$ and R14.54:€ at end FY2014 and were R12.04:$ and R13.12:€ at end FY2015.
The total limit under the super senior revolving credit facility is R3,717 million which matures on 31 December 2016. The maximum utilisation of the revolving
credit facility during Q4:FY15 was R2,906 million. At the end of the period R465 million (FY2014: R446 million) of the facilities were indirectly utilised, mainly for
guarantees and LC’s.
The portion of this debt relating to Zimbabwe was R182 million in FY2013, R170 million in FY2014 and R234 million in FY2015.
At the end of the financial year cash and cash equivalents were R1,288 million (R410 million in FY2014) and there
was R387 million (R2,311 million in FY2014) available for borrowing under the revolving credit facility. Edcon has
considered the upcoming maturities in the next 12 months which include the super senior secured notes of R1 010
million maturing on 4 April 2016 and the deferred option premiums of R1 076 million, due largely in December 2015
and March 2016. Edcon anticipate repayments required will be met out of cash on hand, revolving credit
borrowings, operating cash flows or from alternative forms of capital raising such as non-core asset sales or
permitted borrowings.
Further, Edcon has obtained advice provided by international investment banks on the ability to refinance
upcoming maturities in light of the available capacity in the senior part of the capital structure. There can be no
assurance that Edcon could raise new funding or sell non-core assets or complete discussions with our bank
lenders or 2019 noteholders on favorable terms, or at all; in such a scenario, our liquidity position could become
constrained.
13
Events after the reporting period
Super Senior Liquidity Facility
On 19 June 2015, the Group signed a Commitment Letter for a Term loan facility with Goldman Sachs Lending
Partners LLC for R1 billion available to be utilised in EUR or ZAR currency for general corporate and working
capital purposes of the Group including the exchange, repurchase or redemption of any indebtedness of the Group.
The Super Senior Liquidity Facility (“the SSLF”) will rank pari passu with the Revolving Credit facility and the Super
Senior Secured notes due 4 April 2016. The SSLF has an initial termination date of 30 September 2016 subject to
the exercise of the Extension Option which allows the Group to extend the termination date by a period of up to and
including the earlier of:
(i) six months following the initial termination date and;
(ii) the termination date in respect of the revolving credit facility.
The SSLF shall accrue PIK interest monthly at the applicable JIBAR/EURIBOR with a 0% floor plus a margin of 9%
and is secured by substantially all the assets of Edcon Holdings Limited and its subsidiaries. The SSLF is subject to
the preparation, execution and delivery of the Facility Documents by no later than 17 August 2015.
Financial Market Risk
Foreign currency risk
We are exposed to the exchange rate movement of the rand, our operating currency, against other currencies in
respect of the merchandise we import. A substantial portion of our indebtedness is denominated in euro and U.S.
dollars. Future foreign exchange rate fluctuations may affect our ability to service our foreign-currency denominated
indebtedness, including payments in euro and U.S. dollars on the Existing 2018 Notes, Existing 2019 Notes, the
New Super Senior PIK Notes and the New 2019 Senior PIK Notes being issued. Historically, our policy has been to
cover all foreign-denominated import liabilities using forward exchange contracts. We partially hedge our exposure
to the rate movement of the rand against the euro and [U.S. dollar] in relation to the principal through a mix of
options, forwards and swaps. We have fully hedged the interest coupons of the Existing 2018 Notes up to March
2016 and the Existing 2019 Notes up to December 2015. Specifically, as of March 28, 2015, 24% of our debt
consists of unhedged euro-denominated debt, while 27% and 12% of our debt consists of, respectively, hedged
euro-denominated debt and hedged U.S. dollar-denominated debt. Our remaining debt is denominated in rand.
Interest rate risk
As a result of the significant inter-seasonal and intra-month swings in working capital in our business, our shortterm net debt can fluctuate significantly. Therefore, our treasury actively monitors our interest rate exposure. We
use swaps, options and forwards to manage our interest rate risk against any unexpected fluctuations in the
interest rate. We also actively manage our fixed and floating rate interest-bearing debt and our cash and cash
equivalents mix as part of this exposure management process. In order to hedge the specific interest rate exposure
of our existing borrowings and anticipated peak additional borrowings, we make use of interest rate derivatives
within approved policy limits which require approval of the group chief executive officer and, in some cases, the
Board, depending on the size of the derivative. Our Existing 2018 Notes and our Existing 2019 Notes are both fixed
rate notes. We are unhedged with respect to our rand borrowings. Specifically, as of March 28, 2015, 36% of our
debt consists of unhedged rand-denominated debt. See our audited consolidated financial statements included
elsewhere in this Offering Memorandum.
Counterparty risk
Counterparty risk for deposits with financial institutions is managed by clearly defined bank mandates and
delegation of authority. We carefully assess the creditworthiness of financial counterparties on an ongoing basis.
Exposure limits are managed and monitored by our treasury department.
14
Scheduled repayments of our obligations
The following table summarises as of 28 March 2015, (i) the contractual obligations, commercial commitments and
principal payments we are committed to make under our debt obligations, leases and other agreements and
(ii) their maturities.
Commitments due by year
Total
Less than
1–3
3–5
More
R million
1 year
years
years
than
5 years
3 717
3 717
1 010
1 010
10 709
10 709
Senior Secured Term Loan
4 161
4 161
2019 Senior Fixed Rate Notes (net of
(2)
derivatives)
5 577
Revolving Credit Facility
(1)
Super Senior Secured Notes
2018 Senior Secured Fixed Rate
(2)
Notes
Deferred Option Premium
Interest on Senior Secured Term Loan
Interest on 2019 Senior Fixed Rate
(3)
Notes (net of derivatives)
Finance lease
1 154
156
125
31
3 157
1 088
2 069
1 571
551
1 020
3 874
890
2 238
746
562
78
140
137
207
275
180
95
11 661
2 212
3 672
2 666
3 111
(4)
Other credit facilities
Leases
(5)
(4)(6)(8)
Medical aid
155
(7)
Total debt obligations
5 577
1 154
Interest on Super Senior Secured
Notes
Interest on 2018 Senior Secured Fixed
(3)
Rate Notes (net of derivatives)
-
47 739
155
6 278
28 862
9 126
3 473
(1)
As at 28 March 2015 R2 865 million of this revolving credit facility was utilised for seasonal working capital requirements.
(2)
Presented at the hedged rate of principal for the respective bonds. In terms of the group’s total exposure to foreign currency on its principal debt obligations, 90% of the
2018 notes are hedged while we are unhedged on the 2019 notes. The balance of unhedged principal is reflected at the ruling rate of exchange at the reporting date. Refer
to note 36.2 of the consolidated financial statements for hedging strategy.
(3)
Presented at the hedged rate of interest up to the maturity of the derivative contracts, which occur between March 2015 and December 2015. Thereafter, interest is based
on the floating interest and exchange rates at the reporting date. Refer to note 36.2 of the consolidated financial statements for hedging strategy.
(4)
Leases include property and computer equipment lease commitments.
(5)
Other credit facilities include loans, and overdraft facilities, inclusive of interest, that are held by subsidiary companies of Edcon Limited.
(6)
Our consolidated financial statements present our lease obligations in categories different from the categories we use in this table. Therefore, we have straight-lined our
lease obligations to present them for the periods we use in this table.
(7)
(8)
We assume that there are no medical aid obligations that will become due and payable prior to five years.
The property leases into which we enter have an average initial lease term of ten years for our Edgars chain and five years for our other chains, with lease terms typically
including four options to extend the lease for periods of five years each. The leases generally give us the right to sublet the leased premises and assign our rights under
the lease to our affiliate companies. Rental payments are generally made on a monthly basis and rent is increased at an agreed percentage rate (typically 7%)
compounded annually.
15
Critical accounting policies and use of estimates
In preparing the financial statements in accordance with IFRS, management is required to make estimates,
assumptions and judgements that affect reported income, expenses, assets, liabilities and disclosure of contingent
assets and liabilities. Assessing available information and the application of judgement are necessary elements in
making estimates. Actual results in the future could differ from such estimates, and such differences may be
material to the financial statements. Estimates and their underlying assumptions are reviewed on an on-going
basis. Any revisions to estimates resulting from these reviews are recognised in the period in which such estimates
are revised.
Significant estimates, assumptions and judgements made at the reporting date relate to:
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
assumptions around going concern (note 1.3);
credit risk valuation adjustments in determining the fair value of derivative instruments to reflect nonperformance risk (note 1.11.4);
fair value measurements and valuation processes of financial instruments (note 1.2, 1.11 and 36.8);
provision for impairment of receivables (note 1.11.1);
derecognition of financial instruments (note 1.11.1 and 1.11.2);
allowances for slow-moving inventory (note 1.12);
residual values, useful lives and depreciation methods for property, fixtures, equipment and vehicles (note
1.15);
fair value measurements and valuation processes in respect of land and buildings (note 1.2, 1.15.2 and
3);
impairment of all non-financial assets including goodwill and intangibles with indefinite lives (note 1.4,
1.15.5, 1.26 and 5);
measurement of pension fund and medical aid obligations i.e. key actuarial assumptions (note 1.20,
30.3.6 and 30.5.4);
operating leases (note 1.13);
current and deferred tax (note 1.17);
discontinued operations (note 1.16 and 12);
loyalty points deferred revenue (note 1.24.2);
classification of financial assets and financial liabilities into categories (note 1.11.1 and 1.11.2);
put option obligation (note 1.11.2 and 22); and
onerous leases (note 1.24.3 and 21.3).
16
Risks Relating to Our Business and Industry
If our cash provided by operating and financing activities continues to be insufficient to fund our cash
requirements, we will face substantial near-term liquidity problems.
As of the end of fiscal year 2015, the headroom under our revolving credit facilities decreased to approximately
R387 million from R2,311 million at the beginning of the year, and we used a substantial amount of cash in our
operating activities during fiscal year 2015.. Our cash uses are currently projected in 2015 to exceed our cash
provided by operating activities and we have very limited availability under our Existing Super Senior Revolving
Credit Facility. Our cash uses (outside of operating activities) are primarily capital expenditures and interest
expense. Our financing costs are substantial, and amounted to R3,414 million during fiscal year 2015. Our
working capital requirements and cash provided by operating activities can vary greatly from quarter to quarter and
from year to year, depending in part on the level, variability and timing of our sales and general market conditions.
If our cash requirements exceed the cash provided by our operating activities, then we would look to our cash
balance to satisfy those needs, which will likely not be sufficient in the near term and our Existing Super Senior
Revolving Credit Facility is substantially fully drawn. Current credit and capital market conditions combined with
our recent history of operating losses and negative cash flows, as well as projected industry and macroeconomic
conditions in South Africa, may restrict our ability to access capital markets in the near term and any such access
would likely be at an increased cost and under more restrictive terms and conditions than the ones of our current
debt. Further, such constraints may also affect our agreements and payment terms with venders. We may face
further liquidity pressure if our suppliers require us to pay up front or upon delivery of products.
Absent access to additional liquidity from credit markets, which remain severely constrained, or other sources of
external financial support, including accommodations from key customers, we expect that we would need to raise a
substantial amount of additional funding, which we are permitted to do on a super senior basis, There can be no
assurance that we could raise funding or sell assets on favorable terms, or at all As a result, our liquidity position,
which is severely constrained, could decline further.
We may be required to sell assets or cease operations to improve our short-term liquidity and service our
cash payments, even though such asset sales may impair our ability to operate our business and compete
effectively, which may depress the long-term value of our business, and such measures may be
unsuccessful or only temporarily successful in improving our liquidity position.
We have substantial indebtedness and our 2019 Senior Fixed Rate Notes currently have interest that is cash-pay
and is substantial. Our liquidity continues to be adversely affected by the recent and ongoing adverse economic
and industry conditions. We are currently assessing our options to improve the capital structure. Should these not
materialise, or not be successful, we would revisit the options we have previously considered, including asset
disposals, sale-and-leasebacks, additional financing, sales of business lines and other measures to raise cash.
However, such measures may either be unsuccessful or only temporarily successful in improving our liquidity
situation. Such measures could also harm our long-term prospects and undermine our future potential for growth
and profitability. Ultimately, however, no assurance can be given that such measures would be effective, and we
may be required to pursue a restructuring through insolvency proceedings, which would involve significant
uncertainties, potential delays and risks of extended, multi-jurisdictional litigation for us and our creditors.
A long and protracted process of engaging with capital providers could adversely impact our management
and otherwise adversely affect our business.
A protracted process of engaging with our capital providers could disrupt our business and would divert the
attention of our management from operation of our business and implementation of our business plan, and may
also cause some of our members of management to leave our company. If we fail to agree on a way forward with
capital providers on a timely basis, any alternative we pursue, including a South African business rescue may take
substantial time to consummate. A protracted business rescue process would also likely result in a large amount of
negative publicity, which would harm our brand. It is also likely that such a prolonged financial restructuring or
bankruptcy proceeding would cause many of our suppliers to ship product to us only on terms that are unfavorable
to us, or not at all. If we are unable to obtain inventory on customary terms, we would likely not be able to continue
as a viable business.
17
Continued unfavorable macroeconomic factors may decrease consumer demand for our retail goods.
Macroeconomic factors such as interest rates, consumer indebtedness and employment levels affect consumer
demand for our goods. South African households are still considered to be financially fragile, exacerbated by the
recent slowdown in unsecured lending, following strong growth in credit in the recent past. Moreover, South
Africans at the lower end of the socioeconomic spectrum have continued to feel the impact of the global economic
downturn more severely due to low employment growth coupled with wage strikes, power outages and significant
increases in electricity, food and property rates and taxes in South Africa. Consumer demand has, however, been
supported in part by an expanding middle class, increasing social grants since 2002 and a lower fuel price,
although the latter has been partially offset by a weaker exchange rate. The expansion of the provision of social
grants has also slowed more recently, impacting lower-end consumer spending. Consumer indebtedness,
persistently high unemployment, strike action, limited power infrastructure, a leveling off of social grants and lower
consumer confidence have had and could continue to have a material adverse effect on our retail sales and results
of operations.
Our results are also impacted by other macroeconomic factors, such as the prevailing economic climate, levels of
unemployment, real disposable income, salaries and wage rates, including any increase as a result of payroll cost
inflation or governmental action to increase minimum wages or contributions to pension provisions, the availability
of consumer credit and consumer perception of economic conditions. In June 2014, rating agency Standard and
Poor (S&P) downgraded South Africa’s sovereign rating to BBB- from BBB, having previously downgraded it in
January 2013 from BBB+. In June 2014 Fitch also downgraded the country’s rating outlook to negative following a
downgrade to BBB in January 2013. Moody’s, which in September 2012 downgraded the country’s rating from A3
to Baa1 and reaffirmed that rating during 2014. Economic growth performance and prospects have deteriorated in
South Africa over the past few years, affecting public finances and exacerbating social and political tensions. The
national government net debt continues to rise. The substantial portion of our revenues are generated from our
South African stores, and the general slowdown in South African GDP growth and the uncertain economic outlook
has and will likely continue to adversely affect consumer spending habits, which may reduce our retail sales and
adversely impact our results of operations.
Moreover, many of the items we sell, particularly higher margin fashion and homeware products, represent
discretionary purchases, meaning that we may experience a decline in retail sales that is proportionally greater
than the level of general economic decline. Therefore, continued unfavorable economic conditions in South Africa
could have a material adverse effect on our financial condition and results of operations.
Our credit sales could further decline due to a reduction in the availability of credit under our existing
consumer credit programs, changes in the terms of our private label store card program, including any
future regulatory requirements, or other factors.
We maintain Edgars and Jet private label store card programs, and through an arrangement with Absa, Absa
extends credit to our customers in South Africa and a large portion of our customers in Namibia. Absa issues our
private label store cards to our customers and we receive a net fee for providing certain IT and administrative
services with respect to the program. During fiscal year 2015, purchases completed with our private label store
cards accounted for 42.7% of our retail sales, down from 47.3% in the prior comparative period. The continued
inability or unwillingness of Absa to provide support for our private label store card program may continue to result
in a decrease in store card sales to our customers, which could negatively impact our overall sales given
customers’ reduced purchasing capacity. As the credit provider with the ultimate exposure to the credit risks of our
cardholders, Absa has discretion to turn down store card applicants upon an assessment of each applicant’s credit
risks and in light of Absa’s screening and credit requirements. Furthermore, changes in local regulation governing
store card business practices, including marketing, underwriting, pricing and billing that may come into effect in the
future or tightening of credit from a deterioration of the economic situation in South Africa, could place additional
restrictions on consumer credit programs, including limiting the types of promotional credit offerings that may be
offered to consumers. These changes could make it even more difficult for Absa to extend credit to our customers,
which could also have a material adverse effect on our results of operations.
18
In addition to our strategic partnership with Absa, we continue to explore measures to address the credit sales
decline, including testing an in-house National Credit Act compliant second-look credit solution, as well as seeking
out a second-look credit provider to supplement the Absa funded credit proposition. However, efforts to secure a
third party second-look credit provider have stagnated in light of negative publicity about uncertainty around our
capital structure. If our credit sales do not improve, which also depends on a successful cooperation with a
second-look credit provider, this would also have a material adverse effect on our results of operations.
We face the risk of adverse changes in our supplier relationships.
While we believe that our relationships with our suppliers are good, and that our size and consequent purchasing
needs make us an important partner to many of our suppliers, they may nonetheless modify the terms of our
relationships due to general economic conditions or otherwise. We do not have long-term arrangements with most
of our suppliers to guarantee availability of merchandise, particular payment terms or the extension of credit limits.
Instead, most of these arrangements are short-term in nature, typically on standard 60-day payment terms. We
have recently experienced increased pressure from suppliers as a result of recent news reports surrounding the
sustainability of our capital structure. In some cases, the banks through which our suppliers factor our receivables
have been messaging to suppliers that they should reduce their exposure to Edcon. Should any of our current
suppliers decide to terminate or substantially curtail their relationship with us over concerns that we may not be
able to pay for supplies, we may not be able to find alternative suppliers, and our retail sales, results of operations
and liquidity may be adversely affected. If our current suppliers were to stop selling merchandise to us on
acceptable terms, including as a result of our financial condition, we may be unable to procure the same
merchandise from other suppliers in a timely and efficient manner and on acceptable terms, or at all. A significant
unfavorable change in our relationships with key suppliers could adversely impact our business, and could mean
that we cannot supply merchandise in our stores on an acceptable basis. In addition, any significant change in the
terms that we have with our key suppliers including, payment terms, return policies, the discount or margin on
products could adversely affect our financial condition and liquidity. For example, if our suppliers do not extend
trade credit to us and require payment on demand, we would have a significant liquidity crisis and would not likely
be able to find alternative financing to fund our trade payables. If several material suppliers ceased to extend trade
credit, and we could not access other means of paying for necessary supplies, we would likely not be able to
continue to do business as a going concern and could file for a South African Business Rescue proceeding. Many
of our suppliers rely on credit insurers to guarantee our payment of trade payables with respect to the merchandise
those suppliers provide to us. We do not have a direct relationship with these credit insurers, but if they perceive
our financial condition as weak, they may require us to post collateral or guarantees to continue to provide credit
insurance, or may cease providing credit insurance entirely. Recent news reports regarding challenges with our
capital structure may lead credit insurers to take steps, such as those described above, to mitigate perceived risks
associated with exposure to us. In the absence of factoring, these suppliers reduce credit lines, ask for shorter
terms, or seek cash on delivery or payment in advance. There can be no assurance that commencing the
Exchange Offer will alleviate supplier or credit insurer concerns about doing business with us.
Our business could be adversely affected by disruptions in our supply chain.
Any significant disruption or other adverse event affecting our relationship with any of our major suppliers could
have a material adverse effect on the results of our financial condition and our operations. If we need to replace
any of our major suppliers, we may face risks and costs associated with a transfer of operations. In addition, a
failure to replace any of our major suppliers on commercially reasonable terms, or at all, could have a material
adverse effect on our financial condition and results of our operations.
The concentration of our suppliers will increase as we proceed with our ongoing strategy to reduce the number of
our suppliers. Our ongoing strategy to expand our supplier base in markets such as Mauritius, Bangladesh,
Madagascar and various countries in sub-Saharan Africa places us at risk if merchandise is in short supply in those
locations. In addition, such suppliers may be unwilling to provide us with merchandise if we do not place orders at
an internationally competitive order level or at a level competitive with large-volume customers. In the event that
one or more of our major suppliers chooses to cease providing us with merchandise or experiences operational
difficulties, and we are unable to secure alternative sources in a timely manner or on commercially beneficial terms,
we may experience inventory shortages or other adverse effects on our business. If our suppliers are unable or
unwilling to continue providing us with merchandise under our presently agreed terms, including as a result of our
19
significantly increased leverage, or if we are unable to obtain goods from our suppliers at prices that will allow our
merchandise to be competitively priced, there could be a material adverse effect on our retail sales, results of
operations and liquidity.
The cost and availability of our supplies are dependent on many factors, including:
x
the base price of raw material costs, such as cotton and wool, as well as the cost of individual
product components;
x
freight costs; and
x
rebates and discounts earned from suppliers.
Moreover, we purchase a portion of our products in markets outside of South Africa, principally in Asia, and the
number of our foreign suppliers may increase as we proceed with our strategy to partner with suppliers in low-cost
countries. We face a variety of risks generally associated with doing business in foreign markets and importing
merchandise from these regions, including:
x
currency risks;
x
political instability;
x
increased security requirements applicable to foreign goods;
x
the imposition of duties and taxes, other charges and restrictions on imports;
x
risks related to our suppliers’ labor practices, environmental matters or other issues in the foreign
countries or factories in which our merchandise is manufactured;
x
delays in shipping; and
x
increased costs of transportation.
In addition, the ongoing challenging economic environment could have a number of adverse effects on our supply
chain. The inability of suppliers to access liquidity, or the insolvency of suppliers, could lead to delivery delays or
failures.
Any of these risks, in isolation or in combination, could adversely affect our reputation, financial condition and
results of operations. New initiatives may be proposed that may have an impact on the trading status of certain
countries and may include retaliatory duties or other trade sanctions which, if enacted, could increase the cost of
products purchased from suppliers in such countries or restrict the importation of products from such countries. The
future performance of our business will partly depend on our foreign suppliers and may be adversely affected by
the factors listed above, all of which are beyond our control.
We are dependent upon certain major suppliers for our private-label merchandise.
We do not manufacture our own merchandise but instead work closely with a number of suppliers. During fiscal
year 2015, our largest supplier of our private-label apparel accounted for 4.7% of our total purchases, and our
largest five suppliers accounted for 17.0% of such purchases. We depend on our suppliers to ship merchandise on
time and within our quality standards. The loss of one or more of our major suppliers, particularly at critical times
during the year, could have a material adverse effect on our results of operations or financial condition.
We may not be able to accurately predict or fulfill customer preferences or demand.
A large portion of our sales are from fashion-related products, which are subject to volatile and rapidly changing
customer tastes. The availability of new products and changes in customer preferences make it more difficult to
predict sales demand accurately. As a multi-product retailer, our success depends, in part, on our ability to
effectively predict and respond to quickly changing consumer demands and preferences and to translate market
trends into attractive product offerings. Our ability to anticipate and effectively respond to changing customer
preferences and tastes depends, in part, on our ability to attract and retain key personnel in our buying, design,
merchandising, marketing and other functions. Competition for such personnel is intense, and we may not be able
to attract and retain a sufficient number of qualified personnel in future periods.
Furthermore, some of our products are manufactured offshore. Accordingly, in some instances we must enter into
contracts for the purchase and manufacture of merchandise well in advance of the applicable selling season. The
long lead times between ordering and delivery make it more important to accurately predict, and more difficult to
fulfill, the demand for items.
20
There can be no assurance that our orders will match actual demand. If we are unable to successfully predict or
respond to sales demand or to changing styles or trends, our sales will be lower and we may be forced to rely on
additional markdowns or promotional sales to dispose of excess or slow-moving inventory or we may experience
inventory shortfalls on popular products, any of which could have a material adverse effect on our financial
condition and results of operations. In addition, a number of other factors, including changes in personnel in the
buying and merchandising function, could adversely affect product availability.
Our business is affected by foreign currency fluctuations.
We realize a majority of our revenue, and incur a significant portion of our costs and expenses, in rand. We
purchase approximately 8% of our products directly from markets outside of South Africa denominated in a foreign
currency, principally in Asia, and the number of our foreign suppliers may increase as we proceed with our strategy
to partner with suppliers in countries with low production costs. A part of our costs incurred through indirect
suppliers, who denominate their costs in rand but are exposed to foreign currency fluctuation. The cost of foreignsourced products is affected by the fluctuation of the relevant local currency against the rand or, if priced in other
currencies, the price of the merchandise in currencies other than the rand. Although we hedge 100% of all
committed orders, changes in the value of the rand relative to foreign currencies may increase our cost of goods
sold and, if we are unable to pass such cost increases on to our customers, decrease our gross margins, our sales
and ultimately our earnings.
In addition, a substantial portion of our indebtedness, including our outstanding Existing 2018 EUR Notes and our
Existing 2019 Notes are denominated in euro and our Existing 2018 USD Notes are denominated in U.S. dollars.
The New 2019 Notes and the New Super Senior PIK Notes will be euro-dominated. In recent years, the value of
the rand as measured against the euro and the U.S. dollar has fluctuated considerably. Although we currently have
hedging arrangements in place with respect to these notes, and we expect to continue to manage hedging on an
ongoing basis, currency fluctuations in the future may affect our ability to service our foreign currency denominated
indebtedness, including payments in euro on the Existing 2018 EUR Notes, Existing 2019 Notes, the New Super
Senior PIK Notes and the New 2019 Senior PIK Notes and payments in U.S. dollars on the Existing 2018 USD
Notes.
Over the past nine months, the value of the rand, and other emerging market currencies, has declined in relation to
the U.S. dollar and appreciated marginally against the euro. The rand has fallen from an exchange rate of R10.56
to the U.S. dollar on March 29, 2014 to R11.60 to the U.S. dollar on December 27, 2014 and improved marginally
from R14.54 to the euro on March 29, 2014 to R14.12 to the euro on December 27, 2014. Weakness of the rand
may adversely affect our profitability as we purchase significant quantities of merchandise denominated in foreign
currency.
We cannot assure you that we will be able to manage our currency risks effectively or that any volatility in currency
exchange rates will not have a material adverse effect on our financial condition or results of operations or on our
ability to make principal and interest payments on our indebtedness.
We use hedges as part of our hedging strategy, which may obligate us to make significant payments.
As part of the hedging strategy that we implemented for the Existing 2019 Notes and the Existing 2018 Notes, we
elected to hedge our interest rate and currency risk from such notes with credit-based hedges. In connection with
the Exchange Offer, we intend to extend the date on which we are obligated to make payments under these
hedges and elevate them to super senior status with respect to the proceeds of a Collateral enforcement. If these
hedges were to terminate, our current payments due under these hedges would be significant. If we were to
default in making payments under the Existing 2019 Notes or the Existing 2018 Notes, or if certain other credit
events were to occur in relation to us, and a credit-linked hedge of interest rate or currency risk in respect of such
notes were to terminate or be closed out as a result, then, in relation to the mark-to-market value (“MTM”) that
would normally be payable by one party to the other on a termination or close-out of an equivalent hedge that was
not credit-linked, either (a) we will be limited, where such MTM would otherwise be payable to us, in claiming
against our hedge counterparty in respect of such termination or close-out to an amount equal to the product of (i)
such MTM and (ii) the credit recovery rate for holders of the Existing 2016 Super Senior ZAR Notes, the Existing
21
2018 Notes and the Existing 2019 Notes (if applicable), such credit recovery rate being determined within a
reasonable period after such termination or close-out by reference to a market auction process or market
quotations for such notes, or (b) no MTM payment in respect of such termination or close-out will be due from
either party, depending on the particular type of credit-linked hedge into which we enter.
If we are unable to renew or replace our store leases or enter into leases for new stores on favorable terms,
or if any of our current leases are terminated prior to the expiry of its stated term and we cannot find
suitable alternate locations, our growth and profitability could be harmed.
We lease all of our store locations. We typically occupy our stores under operating leases with terms of between
five and ten years, with options to renew for additional multi-year periods thereafter. In the future, we may not be
able to negotiate favorable lease terms. In addition, many of our lease agreements have defined escalating rent
provisions over the initial term and any extensions. Our inability to renew the lease agreements in relation to our
stores or to meet the requirement for higher rental payments may cause our occupancy costs to be higher in future
years or may force us to close stores in desirable locations. Some of our leases have early cancellation clauses,
which permit the lease to be terminated by us or the landlord if certain sales levels are not met in specific periods or
if the shopping center in which the relevant store is located does not meet specified occupancy standards. In
addition to future minimum lease payments, some of our store leases provide for additional rental payments based
on a percentage of net sales, or percentage of rent, if sales at the respective stores exceed specified levels, as well
as the payment of common area maintenance charges, real property insurance and real estate taxes. As we
expand our store base, our lease expense and our cash outlays for rent under the lease terms will increase. An
adverse change in the terms of our store lease agreement or our inability to satisfy the requirements under these
agreements may have a material adverse effect on the results of our operations, profitability and financial condition.
In addition, if we are unable to renew existing leases or lease suitable alternative locations, or enter into leases for
new stores on favorable terms, our growth and our profitability may be significantly harmed.
We depend on cash flow from operations to pay our lease expenses. If our business does not generate sufficient
cash flow from operating activities to fund these expenses, we may not be able to service our lease expenses,
which could materially harm our business. If an existing or future store is not profitable, and we decide to close it,
we may nonetheless be committed to perform our obligations under the applicable lease including, amongst other
things, paying the base rent for the balance of the lease term. Moreover, even if a lease has an early cancellation
clause, we may not satisfy the contractual requirements for early cancellation under that lease. Our inability to enter
into new leases or renew existing leases on terms acceptable to us or be released from our obligations under
leases for stores that we close could materially adversely affect us.
Any negative impact on the reputation of, and value associated with, our brand names could adversely
affect our business.
Our brand names represent an important asset of our business. Maintaining the reputation of, and value associated
with, our brand names are essential to the success of our business. Significant negative publicity (including with
respect to our liquidity position), widespread product recalls or other events could also cause damage to our brand
names. We rely on marketing to strengthen our brand names, but our marketing initiatives may prove to be
ineffective. Substantial erosion in the reputation of, or value associated with, our brand names could have a
material adverse effect on our financial condition and results of operations. Similarly, any erosion in the reputation
of a third-party brand for which we have exclusive license agreements in South Africa could have a material
adverse effect on our financial condition and results of operations.
Our business could suffer as a result of weak retail sales during peak selling seasons.
Our business is subject to seasonal peaks. Historically, our most important trading periods in terms of retail sales,
operating results and cash flow have been the Easter and Christmas seasons, with approximately one third of our
retail sales occurring in April, November and December combined, for our fiscal year 2015. We incur significant
additional expenses in advance of the Easter and Christmas seasons in anticipation of higher retail sales during
those periods, including the cost of additional inventory, advertising and hiring additional employees. In previous
years, our investment in working capital has peaked in early- to mid-March, October and November and has fallen
significantly in April and January. If, for any reason, retail sales during our peak seasons are significantly lower than
22
we expect, we may be unable to adjust our expenses in a timely fashion and may be left with a substantial amount
of unsold inventory, especially in seasonal merchandise that is difficult to liquidate. In that event, we may be forced
to rely on significant markdowns or promotional sales to dispose of excess inventory, which could have a material
adverse effect on our financial condition and results of operations. At the same time, if we fail to purchase a
sufficient quantity of merchandise, we may not have an adequate supply of products to meet consumer demand,
which may cause us to lose retail sales.
Our business can be adversely affected by unseasonal weather conditions.
Our results are affected by periods of abnormal or unseasonal weather conditions. For example, periods of warm
weather in the winter could render a portion of our inventory incompatible with such unseasonal conditions.
Adverse weather conditions early in the season could lead to a slowdown in retail sales at full price followed by
more extensive markdowns at the end of the season. Prolonged unseasonal weather conditions during one of our
peak trading seasons could adversely affect our turnover and, in turn, our financial condition and results of
operations. In addition, extreme weather conditions, such as floods, may make it difficult for our employees and
customers to travel to our stores.
The sector in which our business operates is highly competitive.
The retail market in the markets in which we operate is highly competitive, particularly with respect to product
selection and quality, store location and design, price, customer service, credit availability and advertising. We
compete at national and local levels with a wide variety of retailers of varying sizes and covering different product
lines across all geographic markets in which we operate. For example, in the Edgars division, we compete directly
with Woolworths, Truworths and Foschini. In the Discount division, we compete with Mr. Price, Ackermans and
PEP. In addition, the South African retail sector has experienced a consolidation of market formats as retail
companies diversify in other sectors of the retail market. Our credit and financial services business faces
competition from other retail companies, such as Truworths and Foschini, which offer financial services to their
customers. Increased competition from our existing competitors or new entrants to the market could result in lower
prices and margins or a decrease in our market share, any of which could have a material adverse effect on our
financial condition and results of operations. In addition, international competitors have entered our market,
creating increased competition, as in the case of Cotton On, Zara and, through its acquisition stake in Massmart,
Wal-Mart. More retailers are expected to enter the market, including H&M, in the current calendar year.
We face a variety of competitive challenges including:
x
x
x
x
x
x
anticipating and quickly responding to changing consumer demands;
maintaining favorable brand recognition and effectively marketing our products to consumers in
several diverse market segments;
developing innovative fashion products in styles that appeal to consumers of varying age groups and
tastes;
sourcing and distributing merchandise efficiently;
competitively pricing our products; and
responding to changes in consumer behavior resulting from changes in the economic conditions and
consumer spending patterns.
Actions taken by our competitors, as well as actions taken by us to maintain our competitiveness and reputation,
can and will continue to place pressure on our pricing strategy, margins and profitability, and could have a material
adverse effect on our financial condition and results of operations. Some of our competitors may have greater
financial resources, greater purchasing economies of scale and/or lower cost bases, any of which may give them a
competitive advantage over us. Our competitors also may merge or form strategic partnerships, which could cause
significant additional competition for us.
We may not be able to obtain the capital required to implement our business plan, which may force us to
limit the scope of our operations and adversely impact our revenues.
In connection with implementing our business plans, we have significantly reduced our capital needs in the medium
term, for example by streamlining our operations and store management. However we still may not have sufficient
23
capital to fund our future operations without additional capital investments. Our capital needs will depend on
numerous factors, including our profitability, our ability to secure financing, our ability to generate revenues and our
ability to attract and retain customers. We cannot assure you that we will be able to obtain capital in the future to
meet our needs. If we cannot obtain additional funding, we may be required to limit the implementation our
business plan, limit our marketing efforts and decrease or eliminate our intended capital expenditures. Note that on
30 September 2014 Standard & Poor’s (“S&P”) downgraded Edcon’s corporate issuer rating from B- to CCC+, its
Existing 2018 Notes debt rating from B to B- and the Existing 2019 Notes debt rating from CCC to CCC-. On 21
January 2014, Moody’s downgraded Edcon’s corporate issuer rating from B3 to Caa1, its Existing 2018 Notes debt
rating from B3 to Caa1 and the Existing 2019 Notes debt rating from Caa2 to Caa3.
Our growth depends in part on our ability to open and operate new stores profitably.
One of our business strategies is to expand our base of retail stores. For fiscal year 2016, we plan to spend
approximately R600 million, with approximately 81% of that used to maintain and increase our store footprint. In
addition to ongoing store openings in South Africa, we opened our first stores in Zambia in November 2011, in
Mozambique in December 2012 and in Ghana in November 2014. Should we be unable to implement this strategy,
our ability to increase our sales, profitability and cash flow could be impaired. Although the anticipated growth in
new space is expected to decrease, to the extent that we are unable to open and operate new stores profitably, our
sales growth would come only from increases in same-store sales. We may be unable to implement our strategy if
we cannot identify suitable sites for additional stores, negotiate acceptable leases, access sufficient capital to
support store growth, or hire and train a sufficient number of qualified employees. This could be exacerbated by our
intention to decrease our level of capital expenditure in the coming years.
We rely on our key personnel and we face strong competition to attract and retain qualified managers and
employees.
We are highly dependent on our key personnel who have extensive experience in, and knowledge of, our industry.
In addition, our business faces significant and increasing competition for qualified management and skilled
employees. We have instituted a number of programs to improve the recruitment and retention of managers and
employees, and we invest substantially in their training and professional development. However, these programs
may prove unsuccessful and, in conditions of constrained supply of skilled employees, there is a risk that our welltrained managers and employees will accept employment with our competitors. The loss of the service of our key
personnel or our failure to recruit, train and retain skilled managers and employees could have a material adverse
effect on our retail sales, results of operations and liquidity.
We have recently announced that, on August 15, 2015, our CEO, Mr. Jürgen Schreiber, will move to a new role as
Vice Chairman of Edcon Holdings Limited, and a new CEO will take his place. A search for a successor CEO is
well underway, with several candidates currently under consideration. Further announcements with respect to this
transition will be made in due course.
We depend heavily on our IT systems to operate our business.
We rely to a significant degree on the efficient and uninterrupted operation of our various computer and
communications systems to operate and monitor all aspects of our retail business and our credit and financial
services business, including, in respect of our retail business, sales, warehousing, distribution, purchasing,
inventory control, and merchandise planning and replenishment. Any significant breakdown or other significant
disruption to the operations of our primary sites for all of our computer and communications systems could
significantly affect our ability to manage our IT systems, which in turn could have a material adverse effect on our
financial condition and results of operations. We expect to spend approximately R100 million in fiscal year 2016 on
our IT projects including the upgrade and development of our online sales websites. If we cannot generate
sufficient cash to fund our upgrade plans, we may be required to delay or discontinue the implementation of our
plans, which could have a material adverse effect on our financial condition and results of operations.
24
A continued reduction in the availability or failure to maintain the full functionality and integrity of our IT
systems that are used to manage our private label store card program underwritten by Absa could have an
adverse effect on our financial condition and results of operations.
Our IT and telecommunications systems are used to manage our private label store card program underwritten by
Absa. The failure of these systems, or the termination of a third-party software license or service agreement on
which any of these systems is based, could interrupt the operation of our private label store card program. Because
our IT and telecommunications systems interface depend on third-party systems, we could experience service
denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions. If
sustained or repeated, system failures or service denials could result in a deterioration of Absa’s ability to process
new credit applications, collect payments and provide customer service, thereby compromising our ability to
support our private label store card program effectively, which may result in damage to our reputation and/or result
in a loss of customer business, any of which could have a material adverse effect on our financial condition and
results of operations.
We could experience labor disputes that could disrupt our business.
Most of our store and warehouse employees are represented by trade unions and covered by collective bargaining
or similar agreements that are subject to periodic renegotiation. Although we negotiated a new a two-year collective
bargaining agreement in May 2015 with the South African Commercial, Catering and Allied Workers Union (the
“SACCAWU”), the biggest trade union active amongst our employees, current and future collective bargaining
negotiations may not prove successful and could result in the disruption of our operations. Such current and future
collective bargaining negotiations may result in an increase in our labor costs. In addition, our employees could join
in national labor strikes, boycotts or other collective actions. Any work stoppages and labor disruptions or any
increase in our labor costs could materially adversely affect our retail sales, results of operations and financial
condition.
Labor disputes and other workforce-related issues have been prevalent in certain industries in South Africa. Labor
disputes affecting our suppliers or social unrest in South Africa generally may also negatively impact our business,
by disrupting our supply chain or causing a reduction in the spending capacity of our customers. We have had no
recent labor disputes which have resulted in material stoppages.
We are subject to complaints, claims and legal actions that could affect us.
We are party to various complaints, claims and legal actions in the ordinary course of our business. These
complaints, claims and legal actions, even if successfully disposed of without direct adverse financial effect, could
have a material adverse effect on our reputation and divert our financial and management resources from more
beneficial uses. If we were to be found liable under any such claims, our results of operations could be adversely
affected.
Changes in tax regulations may have an adverse effect on our results of operations and financial
condition.
Changes in tax regulations have had and may in the future have negative effects on our business, financial
condition, results of operations and prospects. Uncertainties exist with respect to the interpretation of complex tax
regulations, changes in tax laws and the amount and timing of taxable income. Such uncertainties with respect to
tax regulations may hinder our ability to effectively plan for the future and to implement our business plan. Our tax
and similar payments, as well as customs duties and foreign currency payments, are subject to audits by the tax
authorities and, should any irregularities be identified, interest and monetary penalties could be imposed on us. In
addition, some transactions with our subsidiaries may also be challenged for tax reasons.
Compliance with privacy and information laws and requirements could be costly, and a breach of
information security or privacy could adversely affect our business.
We are subject to privacy and information laws and requirements governing our use of identifiable data relating to
customers, employees and others. At present, data protection in South Africa is regulated under the newly enacted
25
Protection of Personal Information Act, 2013 (the ”POPI Act”).The right to privacy is a fundamental right that is
protected both under of South Africa’s common law and under section 14 of the Constitution of the Republic of
South Africa, which provides individuals with the right to have their private or personal information protected against
disclosure by other persons. In order to give effect to the constitutional right to privacy, the POPI Act was
promulgated into law on 26 November 2013. Certain provisions of the POPI Act took effect on 11 April 2014, and
the remaining provisions will commence on a date to be determined by the President by proclamation in the
Government Gazette. The POPI Act allows for a one-year transition period from the commencement date to be
determined by the President. Once fully in effect, the POPI Act will affect the Issuer and its operations, particularly
in relation to the manner in which it uses, records and transfers information.
The POPI Act aims to bring South Africa in line with international data protection law, including that of the European
Union, by introducing measures to ensure that the processing of personal information (of both natural and juristic
persons) is safeguarded. The POPI Act introduces eight “Information Protection Conditions” which regulate the
processing (both automated and non-automated) of personal information. These include the collection, receipt,
recording, organization, collation, storage, updating or modification, retrieval, alteration, consultation or use, the
dissemination by means of transmission, distribution or making available in any other form, and the merging,
linking, as well as the restriction, degradation, erasure or destruction of information. The POPI Act also regulates
the transfer and storage of information outside of South Africa as well as the use of personal information for direct
marketing. In addition, the Act establishes an information regulator which is empowered to monitor and enforce
compliance with its provisions. A failure to comply with the POPI Act, once the relevant provisions come into effect,
will be an offence and may also attract financial penalties for the Issuer.
Compliance with such laws and requirements may require us to make necessary systems changes and implement
new administrative processes. If a data security breach occurs, our reputation could be damaged and we could
experience lost sales, fines or lawsuits.
We may be unable to protect our trademarks and other intellectual property or may otherwise have our
brand names harmed.
We believe that our registered trademarks and other intellectual property have significant value and are important
to the marketing of our products and business. While we intend to take appropriate action to protect our intellectual
property rights, we may not be able to sufficiently prevent third parties from using our intellectual property without
our authorization. The use of our intellectual property by others could reduce or eliminate any competitive
advantage we have developed, causing us to lose sales or otherwise harm the reputation of our brands names. In
addition, we may be subject to claims of breaches of intellectual property rights from third parties, which may result
in legal proceedings and negative publicity.
Maintenance of our competitive position is partially dependent on our ability to license well-recognized
international apparel brands.
Although we own many of our own private-label brands, we also rely on our ability to attract, retain and maintain
good relationships with apparel brand licensors that have strong, well-recognized brands and trademarks, such as
Nike, Adidas, Guess, Playtex, Puma, Levis, Mango, Forever New, Tom Tailor, Lipsy, TM Lewin, Topshop and
Topman and River Island. Our license agreements are generally for an initial term of five years, subject to renewal,
and there can be no assurance that we will be able to renew these licenses. Furthermore, many of our license
agreements require minimum royalty payments, and if we are unable to generate sufficient sales and profitability to
cover these minimum royalty requirements, we may be required to make additional payments to the licensors that
could have a material adverse effect on our business and results of operations. These relationships with licensors
may be affected by our current or future liquidity status. In addition, because certain of our license agreements are
non-exclusive, new or existing competitors may obtain licenses with overlapping product or geographic terms,
resulting in increased competition for a particular market.
26
The growth of our business is in part dependent on our relationships with Absa as well as with Hollard
Insurance, our insurance joint operation partner, and we may enter into additional joint venture
relationships. If we were to lose these relationships, or the benefits we derive from these relationships
were to diminish, our growth rates and our business would be harmed.
We rely on certain commercial and corporate partners to help drive our net revenues and profitability growth rates.
In November 2012, for example, we entered into a long-term strategic relationship with Absa to continue to provide
our customers with access to credit under our private label store card program. Absa provides critical services,
such as credit underwriting and funding of the book, and we earn an administration fee for our front-facing services
and maintenance of the credit book. In addition, we offer our customers Edgars and Jet branded insurance
products through our business arrangement formed with Hollard Insurance. Hollard Insurance underwrites all
insurance products and provides the insurance business with actuarial and compliance support. We also earn a fee
for use of our brands in marketing the insurance products. We have considered entering into joint venture
relationships with certain other parties in connection with sales of our assets to raise liquidity, and will monitor any
such opportunities that arise in the future in order to improve liquidity.
If our relationships with these partners were to be damaged or lost, or the benefits we derive from these
relationships were to be diminished, whether by our own actions, the actions of one or more governmental entities,
the actions of our competitor or the actions of Absa or Hollard Insurance themselves, our growth rates and our
business would be harmed. Furthermore, if these partners are unable to continue operations or perform obligations
under their respective contractual arrangements with us, we may be required to identify new commercial and
corporate partners which may divert management resources from other matters and otherwise interrupt our sales
cycle. Moreover, we may be unsuccessful in finding replacement partners, which could have a material adverse
effect on our profitability and operations.
An adverse change in economic, political and social conditions in South Africa or regionally may adversely
affect economic conditions generally and demand for our products specifically, and cause our revenue,
profitability and cash flow to decline.
We generated 88% of our retail sales in South Africa in fiscal year 2015. Economic, political and social conditions in
South Africa have a significant direct impact on our business. South Africa has relatively high levels of
unemployment, poverty and crime, and a relatively low level of education. These problems, in part, have hindered
investments in South Africa, prompted the emigration of skilled workers and negatively affected economic growth.
Although it is difficult to predict the effect of these problems on South African businesses or the South African
government’s efforts to solve them, these problems, or the policy prescriptions enacted, may adversely affect
economic conditions generally and demand for our products specifically. Government policies aimed at alleviating
and redressing the disadvantages and lack of services suffered by the majority of citizens under previous South
African governments may also have an adverse effect on economic conditions and our operations. There has also
been economic, political and social instability in the countries surrounding South Africa, which may negatively affect
South African economic, political or social conditions. An adverse change in the economic, political or social
conditions in South Africa as well as regional instability may have a material adverse effect on our profitability,
financial condition and results of operations.
More recently, xenophobic attacks on foreigners in South Africa, and consequently negative South African
sentiment in countries in the rest of Africa, may have a negative material adverse effect on our profitability, financial
condition and results of operations.
There are risks associated with an investment in emerging markets such as South Africa, including:
x
adverse changes in economic and governmental policy;
x
relatively low levels of disposable consumer income;
x
relatively high levels of crime, including the risk of robberies of cash in transit;
x
unpredictable changes in the legal and regulatory environment;
x
relatively high levels of corruption;
x
the inconsistent application of existing laws and regulations; and
x
relatively slow or insufficient legal remedies.
27
Since 1999, during the years of GDP growth, the SARB has focused on controlling inflation as its primary monetary
policy. Since the global economic downturn in 2008, the SARB has adjusted its focus on inflation in favor of growthoriented monetary policies, although growth has slowed somewhat in recent years. Year-on-year inflation is
currently within the target range of 3% to 6%, with inflation for April 2015 recorded at 4.5%. Although inflation has
reduced to within target range in the short term, there is a risk that the inflation outlook in South Africa may
destabilize South Africa’s macroeconomic performance. This may be impacted by global and local circumstances
including the strength of the South African currency, which continues to be volatile.
An adverse change in economic, political or social conditions in South Africa or neighboring countries or emerging
markets generally may adversely affect the value of the rand, economic conditions in South Africa generally or
demand for our products specifically, which may have a material adverse effect on our profitability, financial
condition and results of operations. In addition, any such adverse change may negatively affect investor sentiment
towards South Africa or emerging markets generally, which may have a material adverse effect on the market value
and liquidity of the New Super Senior PIK Notes and the New 2019 Senior PIK Notes.
Our results may be adversely affected by increases in energy costs.
Energy costs in South Africa have increased dramatically in the past. These fluctuations may result in an increase
in our transportation costs for distribution, utility costs for our retail stores and costs to purchase products from our
suppliers. For example, in October 2014 Eskom Holdings SOC Ltd. (“Eskom”), the supplier of 95% of South Africa’s
electricity, got permission from the regulator to increase charges by an average 13% starting April 2015. While we
do not expect those increases to have a material adverse effect on our business, future rises in energy costs could
adversely affect consumer spending and demand for our products and could increase our operating costs, both of
which could have a material adverse effect on our financial condition and results of operations.
We are indirectly owned and controlled by investment funds advised by Bain Capital, and their interests as
equity holders may conflict with yours as a Holder.
We are indirectly owned and controlled by investment funds advised by Bain Capital. The interests of our equity
holders may not in all cases be aligned with your interests. For example, if we encounter financial difficulties or are
unable to pay our debts as they mature, the interests of our equity holders might conflict with those of the Holders.
In addition, our equity holders may have an interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity investments, even though such transactions might
involve risks to Holders. Furthermore, such investment funds or their affiliates may in the future own businesses
that directly or indirectly compete with us. They also may pursue acquisition opportunities that may be
complementary to our business, and as a result, those acquisition opportunities may not be available to us.
Disruptions or breakdowns in South African infrastructure could disrupt our business.
Our operations rely on the continued ability of South African infrastructure to support our business activities.
Disruptions in the provision of basic services such as transport, water and electricity impact our ability to reach our
customers and our customers’ ability to shop in our stores. For example, the strikes at rail and other transportation
providers in the past have delayed the transportation of our merchandise. The rapid growth of the population and
economy of South Africa has placed pressure on the existing infrastructure of the country. For example, over the
last few year significant power shortages by Eskom, the state-owned electricity provider have resulted in rolling
load shedding. This results in planned power outages during which time all power to a particular suburb or area is
switched off for up to several hours, depending on the level of load shedding required. Stage 1 to 3 load shedding
is well understood in the country and information on these outages is made available on short notice based on
unplanned or planned maintenance requirements as well as unplanned shortages. These arrangements have been
implemented to prevent a total blackout of power for the country. The impact of these arrangements on industry are
significant and are expected to continue to have a material impact in the future. The continued short supply of
power and any failure on the part of the South African government to invest in adequate infrastructure could
adversely affect our retail sales, financial condition and results of operations.
South African currency exchange control restrictions could hinder our ability to procure and/or repay
foreign-denominated financings.
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The Exchange Control Regulations restrict the exchange of currency between residents of South Africa, the
Republic of Namibia and the Kingdoms of Lesotho and Swaziland (the “Common Monetary Area”) on the one hand,
and non-residents of the Common Monetary Area, on the other hand. In particular, South African companies are:
x
x
x
generally not permitted to export capital from South Africa, or grant security or financial assistance
[including guarantees] to non-residents, hold foreign currency in excess of certain limits or incur
indebtedness denominated in foreign currencies without the approval of the South African exchange
control authorities;
prohibited from using transfer pricing and excessive interest rates on foreign loans as a means of
expatriating currency; and
generally not permitted to acquire an interest in a foreign venture without the approval of the South
African exchange control authorities and are subject to compliance with the investment criteria of the
South African exchange control authorities.
These restrictions could hinder our ability to procure financings provided by non-resident lenders in the future.
While the South African government has relaxed exchange controls in recent years, it is difficult to predict what
action, if any, the government may take in the future with respect to exchange controls. The government may
continue to relax or abolish exchange controls in the future. However, if the government were to tighten exchange
controls, these restrictions could further hinder our ability to procure foreign-denominated financings in the future
and could adversely impact our liquidity and results of operations.
The high rates of HIV infection in South Africa could cause us to lose skilled employees, incur additional
costs or adversely affect economic conditions generally or demand for our products specifically, each of
which could cause our retail sales, liquidity and results of operations to decline.
South Africa has one of the highest reported HIV infection rates in the world. The exact impact of increased
mortality rates due to AIDS-related deaths on the cost of doing business in South Africa and the potential growth
rate of the economy is unclear at this time. We may lose employees with valuable skills due to AIDS-related
deaths, and our results of operations and financial condition could be materially adversely affected if we lose such
employees. In addition, we may incur education and prevention costs. Our results of operations and liquidity could
be materially adversely affected if our employee health-related expenses increase. Moreover, increased mortality
rates due to AIDS-related deaths may slow the population growth rate, cause the South African population to
decline or significantly increase the overall cost of doing business in South Africa, which may affect economic
conditions generally and demand for our products specifically. The effect of HIV infection on both our employees
and on the South African market may have a material adverse effect on profitability, financial condition and results
of our operations.
Compliance requirements related to new South African laws could impact our cost structures and growth,
which could have an adverse effect on our retail sales, liquidity and results of operations.
The National Credit Act (the “NCA”) has been in effect since June 1, 2007. The NCA requires that before granting
credit to a prospective customer, a credit provider must undertake an affordability assessment in respect of a
customer’s ability to service his or her potential debt obligations by taking into consideration the customer’s
financial means, obligations and prospects as well as the customer’s debt repayment history and his or her
understanding of the risks and costs of the proposed credit. Other than at inception, an affordability assessment
must be conducted during the term of the agreement should the credit limit be increased temporarily or
permanently, by agreement with the customer. Failure to conduct such an assessment will result in the agreement
being considered reckless and a court could set it aside. Although the NCA makes provision for unilateral,
automatic increases to the credit limit by the credit provider in limited circumstances, when an affordability
assessment is not required, the NCA limits the number of automatic credit limit increases to one per year. The
restrictions imposed by the NCA could have a negative impact on our or on Absa’s ability to attract new store card
customers or to offer higher credit limits or additional credit products to existing store card customers. As a
consequence, the NCA could have a material adverse effect on our sales, liquidity and results of operations.
Most of the provisions of the Consumer Protection Act (the “CPA”) came into effect on March 31, 2011. The CPA
seeks to advance the social and economic welfare of consumers in South Africa by providing a range of new
29
statutory rights and safeguards. The CPA applies, amongst others, to all transactions concluded by a supplier in
the ordinary course of business for consideration. There are certain exceptions where various provisions of the
CPA will not apply (for example, in circumstances where the consumer is a juristic person with an asset value or
annual turnover exceeding a threshold prescribed by the minister responsible for consumer protection matters).
Where applicable, the CPA regulates various activities and obligations of suppliers and entrenches several
consumer rights. These rights include, amongst others, the right to equality; the right to fair, just and reasonable
terms and conditions; the right to privacy; the right to disclosure and information; the right to fair and responsible
marketing; the right to fair and honest dealing; and the right to fair value, good quality and safety. The CPA sets out
numerous provisions, rights and obligations which embody and underlie such rights. For example, and without
being exhaustive, issues related to direct marketing are regulated within the right to privacy, and implied warranties
are included within the scope of the right to fair value, good quality and safety. The CPA does contain provisions
regulating its enforcement and the investigation and resolution of complaints and prohibited conduct. The CPA also
provides various powers to the courts and other agencies to enforce its provisions and impose sanctions. The
National Consumer Commission and the National Consumer Tribunal are primarily responsible for enforcing the
CPA. In the case of the National Consumer Commission, this includes (amongst others) considering and
investigating complaints and monitoring the consumer market to ensure that prohibited conduct and offences are
prevented or detected and prosecuted. Noncompliance with the CPA can lead to severe sanctions and/or the
inability in certain cases to enforce contract terms and conditions that contravene the CPA, which in turn may have
a significant adverse effect on our sales, liquidity and results of operations.
Although the CPA represented a significant departure from the laws that were applicable prior to its inception, our
experience to date is that the CPA has not had a major negative impact on our business operations.
There has also been an increase in anticompetitive behavior investigations by the South African competition
commission (the “Competition Commission”) which, pursuant to the South African Competition Amendment Act,
has led to significant fines being imposed by the Competition Commission on a number of companies. If an
investigation were to find Edcon guilty of anticompetitive behavior, we could be subject to fines, required to dispose
of assets or prevented from making further acquisitions.
The CPA will soon be supplemented by a new market conduct regime for financial services providers based on the
United Kingdom Financial Conduct Authority’s Treating Customers Fairly regulatory initiative. This will mainly affect
the Issuer’s financial services business. Credit agreements governed by the NCA do not fall within the ambit of the
CPA. However, the goods or services that are the subject of those credit agreements are not excluded from the
ambit of the CPA.
30
Audited Consolidated and Company Annual Financial
Statements
For the period ended 28 March 2015
31
Consolidated and Company Financial Statements of Edcon Holdings Limited
(Registration number 2006/036903/06)
Contents
Consolidated and Company Financial Statements
Certificate by the Company Secretary
33
Approval of the Consolidated and Company Financial Statements
34
Independent Auditor’s Report
35
Directors’ Report
37
Audit Committee Report
41
Currency of the Consolidated and Company Financial Statements
43
Consolidated Financial Statements of Edcon Holdings Limited
Consolidated Statement of Financial Position
44
Consolidated Statement of Comprehensive Income
45
Consolidated Statement of Changes in Equity
46
Consolidated Disclosure of Tax Effects on Other Comprehensive Income
47
Consolidated Statement of Cash Flows
48
Notes to the Consolidated Financial Statements
49
Company Financial Statements
144
Company Statement of Financial Position
145
Company Statement of Comprehensive Income
146
Company Statement of Changes in Equity
147
Company Disclosure of Tax Effects on Other Comprehensive Income
148
Company Statement of Cash Flows
149
Notes to the Company Financial Statements
150
Annexure 1 – Interests in Significant Subsidiaries
169
170
These annual financial statements were prepared by the finance department of the Edcon Holdings Limited Group acting under
the supervision of T Clerckx, who is the Chief Financial Officer of the Group, and holds a Master’s degree in Applied Economics.
32
Certificate by the Company Secretary
In my capacity as Company Secretary, I hereby confirm, in terms of the Companies Act, No. 71 of 2008 (the “Act”) of South
Africa, that for the period ended 28 March 2015, the Company has filed with the Commission for Intellectual Property and
Companies (CIPC) all such returns and notices as are required of a public company in terms of the Act and that all such returns
and notices are true, correct and up to date.
CM Vikisi
Group Secretary
Johannesburg
24 June 2015
33
Approval of the Consolidated and Company Financial Statements of Edcon Holdings
Limited
The directors’ responsibility for the Consolidated and Company Financial Statements is set out on page 40 of the directors’
report.
The Consolidated and Company annual financial statements, which appear on pages 44 to 169, were approved by the board of
directors on 24 June 2015 and are signed on its behalf by:
DM Poler,
J Schreiber
Chairman
Group Chief Executive Officer
Johannesburg
24 June 2015
34
INDEPENDENT AUDITOR’S REPORT
TO THE SHAREHOLDERS OF EDCON HOLDINGS LIMITED
We have audited the consolidated and separate financial statements of Edcon Holdings Limited set out on pages 44
to 169, which comprise the statements of financial position as at 28 March 2015, and the statements of
comprehensive income, statements of changes in equity and statements of cash flows for the 52 week period then
ended, and the notes, comprising a summary of significant accounting policies and other explanatory information.
Directors’ Responsibility for the Financial Statements
The company’s directors are responsible for the preparation and fair presentation of these consolidated and separate
financial statements in accordance with International Financial Reporting Standards and the requirements of the
Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated and separate financial statements based on our
audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that
we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether
the consolidated and separate financial statements are free from material misstatement.NG
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the
risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk
assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the
financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes
evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
Opinion
In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the
consolidated and separate financial position of Edcon Holdings Limited as at 28 March 2015, and its consolidated
and separate financial performance and its consolidated and separate cash flows for the 52 week period then ended
in accordance with International Financial Reporting Standards and the requirements of the Companies Act of
South Africa.
35
Independent Auditor’s Report (continued)
Other reports required by the Companies Act
As part of our audit of the consolidated and separate financial statements for the 52 week period ended 28 March
2015, we have read the Directors’ Report, the Audit & Risk Committee’s Report and the Company Secretary’s
Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the
audited consolidated and separate financial statements.
These reports are the responsibility of the respective preparers. Based on reading these reports we have not
identified material inconsistencies between these reports and the audited consolidated and separate financial
statements, however, we have not audited these reports and accordingly do not express an opinion on these reports.
Deloitte & Touche
Registered Auditor
Per: AJ Dennis
Partner
24 June 2015
36
DIRECTORS’ REPORT
The directors submit their report on the state of affairs, the business and profit or loss of Edcon Holdings Limited (the
“Company”) and the Edcon Holdings Limited Group (the “Group”) together with the Consolidated and Company financial
statements for the 52–week period ended 28 March 2015.
Nature of business
The Company is incorporated and domiciled in the Republic of South Africa. Its principal trading subsidiary Edcon Limited is
engaged in the retailing of fashion apparel and related merchandise. The Group operates primarily in southern Africa. The
Consolidated Financial Statements of Edcon Holdings Limited are set out on pages 44 to 143 and the Company Financial
Statements are set out on pages 144 to 169.
Results of operations
The results for the period are detailed in the Consolidated and Company financial statements that follow.
Group results
Group retail sales during the period increased by 2%. Gross profit margin increased from the prior financial period from 36.5% in
2014 to 37.2% in 2015 due to better pricing architecture, a reduction in markdown activity as well as increased gross margin
generated through our Africa expansion. Profit before net financing costs increased by R2 257 million to R1 626 million from a
loss of R631 million in the prior financial period, mainly due to foreign exchange gains of R998 million this period compared to
losses of R2 458 million reported in the prior financial period, partially offset by derivative losses incurred of R601 million this
period compared to derivative gains of R603 million in the prior financial period. Net financing costs increased by R753 million
mainly due to increased finance costs relating to the notes in issue and current interest-bearing debt while the tax charge
decreased by R1 052 million as a result of foreign exchange gains and the tax treatment relating to derivative financial contracts
which gave rise to the recognition of deferred tax liabilities. Net loss for the period reported was R1 997 million compared to a
net loss of R2 449 million in the prior period.
Non-current interest-bearing debt
On 20 May 2014, the Group agreed to beneficial amendments to the level of the financial maintenance covenants under the
ZAR term loan of R4 120 million and agreed to test those revised covenant levels on a quarterly basis which created a more
flexible arrangement for the Group.
Current interest-bearing debt
A portion of the revolving credit facility reached maturity on 31 March 2014 resulting in a R250 million reduction in credit limit.
The deferred option premium (note 19) of R1 076 million matures during the 2016 financial period.
Derivative financial instruments
In September and November 2014, the Group restructured certain derivative contracts by early terminating a series of cross
currency swaps and foreign currency call options with notional values of €230 million and €237 million, respectively, which were
due to mature in March 2015. On termination, the Group realised net proceeds of R227 million being, R826 million (note 6.5)
gross proceeds received, net of a R310 million (note 19) settlement relating to the option premiums which had been deferred on
the early terminated foreign currency call options.
New derivative contracts were entered into as follows:
-
-
Foreign currency call options to partially hedge interest on the €317 million and €300 million senior secured fixed rate
notes with a notional value of €44 million and principal with a notional value of €385 million. These new foreign
currency call options extend the hedge cover to March 2016;
Foreign currency forward contracts with a notional value of €7 million each, maturing in September 2015 and March
2016, respectively, to partially hedge the interest payments on the €300 million senior secured fixed rate notes; and
Foreign currency call options with a notional value of $24 million to partially hedge interest on the $250 million senior
secured fixed rate notes, extending hedge cover to March 2016.
In respect of these new derivative contracts, a premium of R204 million was deferred and R289 million was settled in cash. Only
the foreign currency forward contracts in respect of the €300 million senior secured fixed rate notes have been designated as
cash flow hedges. Refer to note 19 for the deferred option premium and note 36.2 for the Group’s hedging strategy.
37
DIRECTORS’ REPORT (continued)
Sale and leaseback transaction
On 2 April 2014, the Group completed a sale and leaseback transaction to the value of R132 million relating to fixtures and
fittings. These fixtures and fittings were disposed of at their carrying values and the lease classified as a finance lease
obligation.
Business combination
On 3 August 2014, the Group acquired a 75.5% interest in each of Rowmoor Investments 582 Proprietary Limited and
Kamnandi Retail Proprietary Limited for R2 million (note 33.6.1). These companies form part of the ALI group of companies
that was acquired by the Group in the prior year (note 33.6.2).
Dividends
No dividends were paid by the Company for the period ended 28 March 2015 (2014 and 2013: RNil).
Property, fixtures, equipment and vehicles
There were no major changes in the nature of the Group’s property, fixtures, equipment and vehicles during the period. During
the financial period, the Group acquired fixtures, equipment and vehicles to the value of R1 037 million (2014 and 2013:
R1 349 million and R856 million, respectively). Details are provided in note 3 of the financial statements.
Shareholding
Edcon Holdings Limited’s shareholders are Edcon (BC) S.A.R.L, The Edcon Staff Empowerment Trust (the “Empowerment
Trust”) and ten further trusts. Edcon (BC) S.A.R.L is a société à responsabilité limitée incorporated in Luxembourg and holds
84% of the ordinary shares of Edcon Holdings Limited. The Empowerment Trust was created in July 2005 as part of our Black
Empowerment Equity (BEE) program and its beneficiaries are predominantly black employees. The Staff Empowerment Trust
holds shares entitling it in aggregate to 11% of the votes at any general meeting of Edcon Holdings Limited.
The remaining shareholders in Edcon Holdings Limited are the Founder Investor Trusts, Independent Investor Trusts and
Tertiary Investor Trusts. These trusts, the beneficiaries of which include members of Edcon management and directors of
Edcon who are considered to be related parties, collectively hold 5% of the shares of Edcon Holdings Limited.
Refer to note 37 for disclosure around transactions with related parties.
Subsidiaries
The Company has a 100% shareholding in Edcon Acquisition Proprietary Limited, and indirectly owns 100% of the issued
capital of Edcon Limited. A list of significant subsidiaries is reflected in Annexure 1 on page 169.
Share capital
Details of the authorised and issued share capital of the Company and any movements during the period are disclosed in note
8 of the Company Financial Statements.
Special resolutions
During the financial period the Company issued the following special resolutions:
x
the existing Memorandum of Incorporation of the Company be and is deleted in its entirety and replaced with the new
Memorandum of Incorporation of the Company attached hereto as Annex A (“New MOI”) in terms of section 16(5)(a) of
the Companies Act, with effect from the date of the filing of the required Notice of Amendment and New MOI with the
Companies and Intellectual Property Commission; and
x
the remuneration of the directors for their services as directors be and is hereby approved by the shareholders, as
required by section 66(9) of the Companies Act.
Non-executive directors
DM Poler (Chairman)*
EB Berk*
ZB Ebrahim
MS Levin*
RB Daniels*
DH Brown
TF Mosololi
LL von Zeuner
M Osthoff***
(appointed on 25 May 2007)
(appointed on 23 July 2007)
(Resigned 31 March 2015)
(appointed on 7 June 2014)
(appointed on 1 January 2013)
(appointed on 1 January 2013)
(appointed on 1 April 2013)
38
Executive directors
J Schreiber***
Dr U Ferndale
T Clerckx**
MR Bower
(appointed on 17 February 2014)
(retired on 31 March 2014)
*USA **Belgium ***Germany
Prescribed officers
G Napier – Chief Executive Discount Division
B Gebauer – Chief Executive Edgars Division
(appointed on 17 February 2014)
(appointed on 19 November 2013)
The directors’ and prescribed officers’ emoluments are included in the Consolidated Financial Statements in note 30.2.1 on
page 104.
Directors’ remuneration
Details of remuneration relating to the executive directors of the Company can be found in note 30.2.1 of the Group financial
statements.
Auditors
Deloitte & Touche.
Secretary
The Group Secretary is CM Vikisi.
Registered Office
Edgardale, Press Avenue
Crown Mines, Johannesburg
2092
Postal Address
PO Box 100
Crown Mines
2025
Events after the reporting period
No events occurred between the financial period end and the date of this report which would have a material impact on the
Company’s Financial Statements.
In terms of the Consolidated Financial Statements, the following events have occurred after the reporting period:
On 19 June 2015, the Group signed a Commitment Letter for a Term loan facility with Goldman Sachs Lending Partners LLC for
R1 billion available to be utilised in EUR or ZAR currency for general corporate and working capital purposes of the Group
including the exchange, repurchase or redemption of any indebtedness of the Group. The Super Senior Liquidity Facility (“the
SSLF”) will rank pari passu with the Revolving Credit facility (note 20 and 36.7) and the Super Senior Secured notes due 4 April
2016 (note 18.1). The SSLF has an initial termination date of 30 September 2016 subject to the exercise of the Extension
Option which allows the Group to extend the termination date by a period of up to and including the earlier of:
(iii) six months following the initial termination date and;
(iv) the termination date in respect of the revolving credit facility (note 20 and 36.7).
The SSLF shall accrue PIK interest monthly at the applicable JIBAR/EURIBOR with a 0% floor plus a margin of 9% and is
secured by substantially all the assets of Edcon Holdings Limited and its subsidiaries. The SSLF is subject to the preparation,
execution and delivery of the Facility Documents by no later than 17 August 2015.
39
Going concern
The Consolidated Statement of Financial Position at 28 March 2015 reports share premium of R2 155 million (2014: R2 155
million) in equity attributable to shareholders and a shareholder’s loan recognised in equity of R8 311 million (2014: R8 290
million) offset by an accumulated retained loss of R16 318 million (2014: R14 314 million) and a net debit of R48 million (2014:
net credit of R117 million) in other reserves, resulting in negative equity at 28 March 2015 of R5 900 million (2014: R3 752
million). After considering non-controlling interests of R146 million (2014: R93 million), total equity of the Group is a deficit of
R5 754 million (2014: R3 659 million). The shareholder’s loan of R9 152 million (2014: R9 087 million) has been subordinated to
the claims of all the creditors of the Group and the total negative equity and shareholder’s loan is R4 913 million (2014: R2 862
million).
The directors have considered the solvency and liquidity of the business in accordance with the Act and in doing so, have
focused on the fair value of the assets and liabilities of the business (“solvency”) and the ability of the business to meet its
financial obligations for the 12 months following approval of the Consolidated Financial Statements (“liquidity”). The analysis
considered planned future sales growth, margin growth, expected operating costs, refinancing of debt, the tax settlement of the
Group, the terms of the shareholder’s loan, all guarantors and cross guarantors, the fair values of the Group’s assets and
liabilities and all maturities relating to liabilities for the following 12 months. In particular the analysis took into consideration the
R1 154 million in deferred option premium liabilities maturing in July 2015, December 2015 and March 2016; and the R1 010
million in super senior secured notes maturing April 2016, which given their seniority in the capital structure and based on
advice provided by international investment banks, the directors believe should be refinanceable. The directors have assessed
these and all other maturities which fall due over the 12 months following the approval of the Consolidated Financial
Statements, believe that the Group will have adequate facilities, and that the assets at fair value exceed the liabilities of the
Group.
As previously advised, to ensure the sustainability of the business Edcon is looking at ways to improve the capital structure. We
have entered into discussions with our lenders as well as certain 2019 noteholders regarding potential debt exchanges, new
debt raises and/or amendments to improve our capital structure. These discussions are proceeding constructively, but there
can be no assurance at this time that they will be successful.
Notwithstanding the fact that the Group’s liabilities exceed its assets in accordance with International Financial Reporting
Standards, the Consolidated Financial Statements set out on pages 44 to 143 have been prepared on the going-concern basis
(note 1.3) as the Group’s assets at fair value exceed the liabilities. The directors believe that the Group will have adequate
resources to continue in operation and is considered both solvent and liquid.
Directors’ responsibility for financial reporting
The directors’ are ultimately responsible for the preparation of the Consolidated and Company financial statements and related
financial information that fairly present the state of affairs and the results of Edcon Holdings Limited. The external auditors are
responsible for independently auditing and reporting on these financial statements in conformity with International Standards on
Auditing.
The financial statements set out in this report have been prepared by management in accordance with International Financial
Reporting Standards and the South African Companies Act, No 71, of 2008. They incorporate full and reasonable disclosures
and are based on appropriate accounting policies, which have been consistently applied and which are supported by
reasonable and prudent judgments and estimates.
Adequate accounting records have been maintained throughout the period under review.
40
AUDIT COMMITTEE REPORT
This report is provided by the Audit and Risk Committee (the “Committee”), in respect of the 2015 financial period of Edcon
Holdings Limited, in compliance with section 94 of the Companies Act 71 of 2008 (the “Act”), as amended from time to time. The
Committee’s operation is guided by a detailed charter that is informed by the Act and the King Code of Good Corporate
Governance. In this regard, the board of directors (the “board”) continues to undertake the Institute of Directors endorsed
Governance Assessment Instrument to assess the extent to which the Group applies best practice recommendations contained
in the King Code of Good Corporate Governance. The Group complies with all aspects of the King III Code of Corporate
Governance except for certain differences noted which are described and explained on our website www.edcon.co.za.
Charter
The Committee is appointed by the board and the shareholders annually and has adopted a comprehensive and formal Charter
which has been approved by the board and reviewed on an annual basis.
Execution of functions
The Committee has executed its duties and responsibilities during the financial period in accordance with its terms of reference
as they relate to the Group's accounting, internal auditing, internal controls and financial reporting practices.
During the period under review the Committee, amongst other matters, considered the following:
x
In respect of the external auditors and the external audit:
— approved the external auditors’ terms of engagement, the audit plan and budgeted audit fees payable;
— reviewed the audit process and audit reports and evaluated the effectiveness of the audit; and
— obtained assurance from the external auditors that their independence was not impaired.
x
In respect of the financial statements:
— confirmed the going concern concept as the basis of preparation of the quarterly and annual financial statements;
— examined and reviewed the quarterly and annual financial statements prior to submission and approval by the board;
— reviewed any significant legal and tax matters that could have a material impact on the financial statements;
— reviewed and discussed the external auditors' audit report; and
— ensured that the financial statements fairly present the financial position of the Company and of the Group as at the
reporting dates and the results of operations and cash flows for the reporting period and based on the above, the
Committee was satisfied that at the date of this report, the financial statements complied with accounting practices of
the Group.
x
In respect of internal financial controls and internal audit:
— reviewed and approved the internal audit charter and audit plan and evaluated the independence, effectiveness and
performance of the internal audit department;
— considered reports of the internal auditors on the Group's systems of internal control, including internal financial controls
and maintenance of effective internal control systems;
— assessed the adequacy of the performance of the internal audit function and adequacy of the available internal audit
resources and found them to be satisfactory;
— reviewed significant issues raised by the internal audit processes and the adequacy of corrective action in response to
such findings; and
— noted that there were no significant differences of opinion between the internal audit function and management; and
based on the above, the Committee was satisfied that at the date of this report there were no material breakdowns in
internal control, including internal financial controls, resulting in any material loss to the Group.
x
In respect of legal, regulatory and compliance requirements:
— reviewed with management matters that could have a material impact on the Group;
— monitored compliance with the Act, JSE debt listing requirements, Irish Stock Exchange requirements and all other
applicable legislation and governance codes as well as financial covenants; and
41
AUDIT COMMITTEE REPORT (continued)
—
x
noted that no complaints were received through the Group's ethics and fraud hotline concerning accounting matters,
internal audit, internal financial controls, contents of financial statements, potential violations of the law and questionable
accounting or auditing matters.
In respect of risk management and information technology
— considered and reviewed reports from management on risk management, including fraud risks and information
technology risks as they pertain to financial reporting, internal controls and the going concern assessment.
Solvency and liquidity review
The Committee considered the solvency and liquidity tests as stipulated in section 4 and 46 of the Act. The Committee is
satisfied that the board has performed a solvency and liquidity test and that the Group met all the requirements.
Going concern
The Committee considered the going concern status of the Company and the Group on the basis of a review of the financial
statements and the budgeted and forecast earnings and cash flow information as well as liquidity forecasts available to the
Committee and recommended such going concern status for adoption by the board. The board statement on the going concern
status of the Group and Company is contained on page 40 in the directors’ report.
Independence of the external auditors
The Committee is satisfied that Deloitte & Touche are independent of the Group. This conclusion was arrived at, inter alia, after
taking into account the following factors:

the representations made by Deloitte & Touche to the Committee;
the auditors do not, except as external auditors or in rendering permitted non-audit services, receive any remuneration or
other benefits from the Group;
the auditors' independence was not impaired by any consultancy, advisory or other work undertaken by the auditors;
the auditors' independence was not prejudiced as a result of any previous appointment as auditor; and
the criteria specified for independence by the Independent Regulatory Board for Auditors and international regulatory
bodies were met.
The Committee has reviewed the Consolidated and Company Financial Statements of Edcon Holdings Limited and
recommended them to the board for approval.
On behalf of the Committee
David H Brown
Chairman of the Audit & Risk Committee
24 June 2015
42
Currency of the Consolidated and Company Financial Statements of Edcon Holdings
Limited
The presentation currency of the financial statements is South African Rand (R). The approximate Rand cost of a unit of the
following currencies at each reporting period end was:
28 March
2015
US Dollar
Sterling
Botswana Pula
Euro
Zambian Kwacha - ZMW
Mozambique Metical
Singapore Dollar
Bangladeshi Taka
Chinese Yuan Renminbi
Hong Kong Dollar
Ghanaian Cedi
12,04
17,81
1,21
13,12
1,57
0,34
8,76
0,15
1,93
1,55
3,15
29 March
2014
10,56
17,66
1,20
14,54
1,65
0,34
8,41
0,14
1,71
1,37
30 March
2013
9,16
14,02
1,12
11,78
1,70
0,31
7,44
0,12
1,47
1,19
43
Consolidated Statement of Financial Position of Edcon Holdings Limited
1
2015
28 March
Rm
2014
29 March
Rm
Restated
2013
30 March
Rm
3
4
6.1
7
30.3
3 337
16 146
330
110
19 923
3 157
16 388
724
387
178
20 834
2 606
16 697
292
33
172
19 800
8
9
10
6.2
11
4 373
473
824
816
1 288
7 774
393
8 167
28 090
4 436
323
774
1 297
410
7 240
651
7 891
28 725
3 738
373
468
815
710
6 104
1 160
7 264
27 064
2 155
(48)
(16 318)
8 311
(5 900)
146
(5 754)
2 155
117
(14 314)
8 290
(3 752)
93
(3 659)
2 153
(60)
(11 864)
8 290
(1 481)
68
(1 413)
Note
ASSETS
Non-current assets
Properties, fixtures, equipment and vehicles
Intangible assets
Deferred taxation
Employee benefit asset
Total non-current assets
Current assets
Inventories
Trade receivables
Sundry receivables and prepayments
Assets classified as held-for-sale
Total current assets
Total assets
EQUITY AND LIABILITIES
Equity attributable to shareholders
Share capital
Share premium
Other reserves
Retained loss
Shareholder’s loan – equity
12.2.2
13
13
14
15
17
Non-controlling interest
Total equity
Non-current liabilities – shareholder’s loan
Shareholder’s loan
17
Total equity and shareholder’s loan
841
797
801
(4 913)
(2 862)
(612)
21 486
22 373
811
19 259
269
331
262
273
578
402
432
184
Non-current liabilities – third parties
Interest-bearing debt
Finance lease liability
18
19
21.2
Lease equalisation
Onerous lease liability
21.3
129
Employee benefit liability
30.5
155
176
22
73
67
Deferred taxation
7
90
74
617
Deferred revenue
24
52
64
86
22 894
24 229
21 120
23 735
25 026
21 921
Option liability
Total non-current liabilities
Current liabilities
20
2 964
1 270
1 516
19
1 076
291
36
33
11
40
21.2
Current taxation
19
37
10
77
114
106
Deferred revenue
24
6.4
103
24
79
Trade and other payables
23
5 837
5 611
4 769
Total current liabilities
10 109
7 358
6 556
Total equity and liabilities
Total managed capital per IAS 1
28 090
28 725
27 064
19 901
21 054
20 473
1.
Refer to note 38.
35
44
Consolidated Statement of Comprehensive Income of Edcon Holdings Limited
Note
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Restated &
1
Re-presented
2013
52 weeks to
30 March
Rm
Continuing operations
Total revenues
Revenue - retail sales
Cost of sales
Gross profit
Other income
Store costs
Share of profits from insurance business
Trading profit
Derivative (loss)/gain
Foreign exchange gain/(loss)
Fair value adjustment for put option
Impairment of brands and goodwill
Profit/(loss) before net financing costs
Finance income
Profit/(loss) before financing costs
Financing costs
Loss before taxation from continuing operations
Taxation
LOSS FOR THE PERIOD FROM CONTINUING
OPERATIONS
Discontinued operations
Profit/(loss) after tax for the period from discontinued
operations
LOSS FOR THE PERIOD
Other comprehensive income after tax:
Items that may be reclassified subsequently to profit or
loss:
(Loss)/gain on cash flow hedges
Exchange difference on translating foreign operations
Items that will not be reclassified to profit or loss:
Actuarial gains on employee benefits
26
27
28
6.6
29
22
4
31.1
31.2
32
12.1.3
27 210
25 670
(16 239)
9 431
763
(5 076)
(4 427)
666
1 357
(897)
(1 108)
1 626
33
1 659
(3 414)
(1 755)
(242)
28 784
26 974
(17 132)
9 842
1 031
(5 700)
(4 613)
739
1 299
603
(2 458)
(42)
(33)
(631)
40
(591)
(2 668)
(3 259)
810
(1 997)
(2 449)
(5 243)
14
(1 983)
(62)
(2 511)
253
(4 990)
29 415
27 510
(17 265)
10 245
1 125
(6 277)
(4 605)
747
1 235
(601)
998
(6)
(175)
31
(144)
11
11
(465)
(1 113)
115
(998)
(3 144)
(4 142)
(1 101)
136
41
177
624
13
637
86
86
7
7
Other comprehensive (loss)/income for the period after
tax
TOTAL COMPREHENSIVE LOSS FOR THE PERIOD
(133)
(2 116)
263
(2 248)
644
(4 346)
Loss attributable to:
Owners of the parent
(2 015)
32
(2 536)
25
(5 012)
22
Total comprehensive income attributable to:
Owner of the parent
(2 169)
53
(2 273)
25
(4 368)
22
1.
Refer to note 38.
45
Consolidated Statement of Changes in Equity of Edcon Holdings Limited
Share
Capital
Rm
Restated balance
as at 31 March
2012
-
Share
premium
Rm
2 153
Foreign
currency
translation
reserve
Rm
(44)
Cash
flow
hedging
reserve
Rm
(661)
Loss for the period
Other
comprehensive
income for the
period
13
624
Total
comprehensive
(loss)/income
13
624
(31)
(37)
Restated balance
as at 30 March
2013
-
2 153
(6 859)
8 290
7
(5 005)
8
(11 864)
-
2
Balance as at
29 March 2014
-
2 155
Loss for the period
Other
comprehensive
(loss)/income
for the period
41
136
41
136
Noncontrolling
interest
Rm
Total
equity
Rm
2 887
46
2 933
(5 012)
22
(4 990)
644
8 290
(2 536)
Total
comprehensive
(loss)/income
Ordinary shares
issued
Note
8
Retained
loss
Rm
Shareholder’s
loan
Rm
(5 012)
Loss for the period
Other
comprehensive
income
for the period
Total
comprehensive
(loss)/income
Reclassification
from shareholder’s
loan in non-current
liabilities
Balance as at
28 March 2015
Revaluation
surplus
Rm
Total
attributable
to owners
of the
parent
Rm
86
644
(4 368)
22
(4 346)
(1 481)
68
(1 413)
(2 536)
25
(2 511)
263
(2 450)
(2 273)
263
25
(2 248)
2
10
99
10
(175)
10
(175)
8
(14 314)
8 290
(3 752)
93
(3 659)
(2 015)
(2 015)
32
(1 983)
11
(154)
21
(133)
(2 169)
53
(2 116)
(2 004)
21
-
2 155
20
(76)
8
13.7
13.7
14
14
14
2
(16 318)
15
8 311
21
(5 900)
21
146
(5 754)
17
46
Consolidated Disclosure of Tax Effects on Other Comprehensive Income of Edcon
Holdings Limited
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Restated
2013
52 weeks to
30 March
Rm
Disclosure of tax effects relating to each component of other
comprehensive (loss)/income:
Before tax amount
Cash flow hedges
172
868
Exchange differences on translating foreign operations
31
41
13
Actuarial gain on employee benefits
15
119
10
332
891
Other comprehensive (loss)/income for the period before tax
(223)
(177)
Tax income/(expense)
Cash flow hedges
48
(36)
(244)
Employee benefits
(4)
(33)
(3)
44
(69)
(247)
136
624
After tax amount
Cash flow hedges
(175)
Exchange differences on translating foreign operations
31
41
13
Actuarial gain on employee benefits
11
86
7
263
644
Other comprehensive (loss)/income for the period after tax
(133)
47
Consolidated Statement of Cash Flows of Edcon Holdings Limited
Note
Cash retained from operating activities
Loss before taxation from continuing operations
Profit/(loss) before taxation from discontinued operations
Finance income
Financing costs
Impairment of intangibles
Derivative loss/(gain)
Deferred revenue – loyalty programme
1
Foreign exchange (gain)/loss
Fair value adjustment on put option
Amortisation of intangible assets
Depreciation
Net loss on disposal of properties, fixtures, equipment and
vehicles
Onerous leases
Other non-cash items
Operating cash inflow before changes in working
capital
Working capital movement
Cash inflow from operating activities
Finance income received
Financing costs paid
Taxation paid
12.1.3
4
6.6
24
29
22
28.1
28.2
Cash and cash equivalents at the beginning of the
period
Currency adjustments
Cash and cash equivalents at the end of the period
1.
(4 142)
351
(115)
3 144
465
897
112
1 108
319
737
33.2
2 502
573
2 540
(114)
2 937
8 482
33.3
3 075
9
(3 112)
(137)
2 426
22
(2 057)
(115)
11 419
101
(2 907)
(102)
33.4
33.5
4
33.6.1
33.7
33.8
33.9
33.10
33.11
33.12
Net cash inflow/(outflow) from financing activities
Increase/(decrease) in cash and cash equivalents
601
(71)
(1 028)
6
247
832
(3 259)
(86)
(40)
2 668
33
(603)
(14)
2 458
42
345
792
37
137
100
Net cash outflow from investing activities
Cash effects of financing activities
Non-current interest-bearing debt increase/(decrease)
Settlement of derivatives
Receivables-backed notes decrease
Current interest-bearing debt increase/(decrease)
Settlement of option premium
Capitalised finance lease decrease
(1 755)
15
(33)
3 414
2014
52 weeks to
29 March
Rm
28.5
21.3
33.1
Net cash (outflow)/inflow from operating activities
Cash utilised in investing activities
Investment to maintain operations
Investment to expand operations
Investment in other intangible assets
2015
52 weeks to
28 March
Rm
Restated &
2
re-presented
2013
52 weeks to
30 March
Rm
33.13
11
22
193
39
(165)
276
(454)
(398)
(1)
(2)
(882)
(388)
(36)
(25)
(566)
(209)
(855)
(1 331)
(775)
32
826
(294)
1 658
1 679
(599)
(40)
(260)
(312)
(40)
(5 402)
1 072
(4 300)
600
(51)
(34)
1 898
752
(8 115)
878
(303)
410
710
3
410
1 288
8 511
(379)
1 086
3
710
Includes realised foreign exchange gains of R30 million in 2015.
Refer to note 38.
2.
48
Notes to the Consolidated Financial Statements of Edcon Holdings Limited
1.
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION
1.1
Corporate information
Edcon Holdings Limited (the “Company”) is a limited liability company which is incorporated and domiciled in South Africa.
The address of the Company’s registered office is Edgardale, Press Avenue, Crown Mines, Johannesburg, 2092. The
consolidated financial statements of the Company for the year ended 28 March 2015 comprise the Company and its
subsidiaries (together referred to as the “Group”).
1.2
Basis of preparation
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as
issued by the International Accounting Standards Board (IASB) and the Companies Act of South Africa (No. 71 of 2008).
The financial statements are presented in Rand (ZAR), the currency of South Africa where Edcon Holdings Limited is
incorporated.
On 24 June 2015, the financial statements were authorised for issue by the Board of Directors.
The financial statements have been prepared on a historical cost basis except for land and buildings and certain financial
instruments that have been measured at fair value.
The 2015, 2014 and 2013 financial periods consisted of 52 weeks respectively.
The Consolidated and Company Financial Statements incorporate the following accounting policies which remain
consistent with the prior period, except for IAS 20 Government grants (note 1.24), as well as the application of breakage
rates to the gift card liability (note 23), which were adopted in the current period:
Fair value measurements and valuation processes
The Group measures financial instruments such as, derivatives (note 36.8) and non-financial assets (land and buildings),
at fair value at each reporting date.
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The fair value measurement is based on the presumption that the
transaction to sell the asset or transfer the liability takes place either:
x
x
in the principal market for the asset or liability, or
in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible to the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing
the asset or liability, assuming that market participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset
in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to
measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the
fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement
as a whole:
x
x
x
Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is
directly or indirectly observable.
Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is
unobservable.
49
1.
SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PREPARATION (continued)
1.2
Basis of preparation (continued)
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines
whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level
of input that is significant to the fair value measurement as a whole) at the end of each reporting period.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the
nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
The Group’s treasury department is responsible for the fair value measurements of financial instruments, required for
financial reporting purposes, including level 3 fair values, where applicable. This department reports directly to the chief
financial officer (CFO) and the Audit and Risk Committee. Discussions of valuation processes and the results thereof are
discussed at least once every quarter, in line with the Group’s quarterly reporting dates.
The Group regularly engages external, independent and qualified valuers to determine the fair value of the Group’s land
and buildings. The Group’s property management team decides upon the involvement of external valuers annually.
Selection criteria include market knowledge, reputation, independence and whether professional standards are
maintained. The property management team decides, after discussions with the Group’s external valuers, which valuation
techniques and inputs to use for each case.
Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are
disclosed in notes 3 and 36.8.
1.3
Going concern basis of accounting
The consolidated financial statements have been prepared on the going concern basis.
The Group has recognised a loss after tax of R1 983 million for the period ended 28 March 2015 (2014: R2 511 million and
2013: R4 990 million) and as at that date, total liabilities exceeded its total assets by R5 754 million (2014: R3 659 million
and 2013: R1 413 million). These conditions, along with other matters as set forth in this note, indicate the existence of
material uncertainty which may cast doubt on the Group’s ability to continue as a going concern and, therefore, that it may
be unable to realise its assets and discharge its liabilities in the normal course of business.
Management has considered the upcoming maturities in the next 12 months which include the super senior secured notes
of R1 010 million (note 18.1) maturing on 4 April 2016 and the deferred option premiums of R1 076 million (note 19), due
largely in December 2015 and March 2016.
In assessing the refinancing and repayment of obligations, management has considered future sales growth, margin
growth, expected operating costs, refinancing of debt, the tax settlement of the Group, the terms of the shareholder’s loan
(note 17), all guarantors and cross guarantors, the fair values of the Group’s assets and liabilities and all maturities relating
to liabilities for the following 12 months in assessing its ability to trade against its operating budget. Management monitors
cash requirements on an ongoing basis for uncertainties which may arise and takes appropriate action where necessary.
For example, economic uncertainties may arise which may affect the businesses ability to meet its objectives in terms of
sales growth, credit sales, improvement in gross margins, performance of our own credit book introduced during the
current financial period, various working capital initiatives and the timing thereof.
Management anticipate repayments required will be met out of operating cash flows or from alternative forms of capital
raising such as further asset sales or borrowings. In reaching its conclusion, and in mitigation of the uncertainties outlined
above, management has taken into consideration the facility available under the revolving credit facility (note 20 and 36.7);
the available funding capacity under the super senior borrowing basket, the securitisation basket and general debt basket;
the ability to sell non-core assets of the Group including but not limited to trade receivables held-for-sale (note 12.2.2) and
various working capital initiatives although there can be no certainty as to whether such risks will arise or that such
mitigants will be successful, nor the timing thereof. Refer to note 39, Events after the reporting period.
Further, management has obtained advice provided by international investment banks on the ability to refinance upcoming
maturities in light of the available capacity in the senior part of the capital structure. As previously advised, to ensure the
sustainability of the business Edcon is looking at ways to improve the capital structure. We have entered into discussions
with our lenders as well as certain 2019 noteholders regarding potential debt exchanges, new debt raises and/or
amendments to improve our capital structure. These discussions are proceeding constructively, but there can be no
assurance at this time that they will be successful.
50
1.
1.3
Going concern basis of accounting (continued)
We also refer the users of the financial statements to pages 17 to 30 “Risk Factors” of the Annual Report for the discussion
of the risk areas facing the business.
Management acknowledge that uncertainty remains over the ability of the Group to meet its funding requirements and to
refinance or repay its obligations as they fall due. However, as described above, management has a reasonable
expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. If for
any reason the Group is unable to continue as a going concern, it would have an impact on the Groups ability to realise
assets at their recognised values, in particular goodwill and other intangible assets and to extinguish liabilities in the
normal course of business at the amount stated in these consolidated financial statements.
1.4
Basis of consolidation
The Consolidated Financial Statements comprise the financial statements of the parent company, Edcon Holdings Limited,
its subsidiaries, the Staff Empowerment Trust, Edgars Stores Limited Zimbabwe and OntheCards Investment Limited II
Proprietary Limited (“OtC”) (securitisation program), presented as a single economic entity and, consolidated at the same
reporting date of Edcon Holdings Limited. The Consolidated Financial Statements are prepared using uniform accounting
policies for similar transactions and other events. The Consolidated Financial Statements provide comparative information
in respect of the two previous reporting periods. As the Group presents two additional statements of financial position (in
addition to the current financial period), when there is a retrospective application of an accounting policy, a retrospective
restatement, or a reclassification of items in the financial statements the restated amounts are presented in the
comparative period, as well as the additional third statement of financial position similar to an opening statement of
financial position, where applicable. The comparative periods in the Consolidated Financial Statements have been represented where applicable to take into account the discontinued operation (note 12).
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 those returns through its power over the investee. Specifically, the Group controls an investee
if and only if the Group has:
x
x
x
Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the
investee);
Exposure, or rights, to variable returns from its involvement with the investee; and
The ability to use its power over the investee to affect its returns.
When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant
facts and circumstances in assessing whether it has power over an investee including:
x
x
x
The contractual arrangement with the other vote holders of the investee;
Rights arising from other contractual arrangements; and
The Group’s voting rights and potential voting rights.
The Group 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 of control. Consolidation of a subsidiary begins when the Group obtains control over
the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a
subsidiary acquired or disposed of during the period are included in the statement of comprehensive income from the date
the Group gains control until the date the Group ceases to control the subsidiary.
Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent
of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit
balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies in line with the Group’s accounting policies.
51
1.
1.4
Basis of consolidation (continued)
All intragroup assets and liabilities, equity, income, expense and cash flows relating to transactions between members of
the Group are eliminated in full on consolidation.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the
Group loses control over a subsidiary it:
x
x
x
x
x
x
x
derecognises the assets (including goodwill) and liabilities of the subsidiary;
derecognises the carrying amount of any non-controlling interests;
derecognises the cumulative translation differences recorded in equity;
recognises the fair value of the consideration received;
recognises the fair value of any investment retained;
recognises any surplus or deficit in profit or loss; and
reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as
appropriate, as would be required if the Group had directly disposed of the related assets or liabilities.
Business combinations
Business combinations are accounted for using the acquisition method. As of the acquisition date, the Group recognises
the identifiable assets acquired and the liabilities assumed at their acquisition date fair values. For each business
combination, the Group measures the non-controlling interests in the acquiree either at fair value or at their proportionate
share of the aquiree’s identifiable net assets.
The cost of an acquisition, is the aggregate of the assets transferred, the liabilities incurred to former owners of the
acquiree and the equity instruments issued, measured at acquisition-date fair values. Acquisition related costs are
expensed as incurred. Any contingent consideration that may be transferred by the Group is recognised at fair value at the
acquisition date. If the contingent consideration is classified as an asset or a liability, subsequent changes in the fair value
of the contingent consideration are recognised in profit or loss. If the contingent consideration is classified as equity, it is
not re-measured until it is finally settled.
Any excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests over
the net identifiable assets acquired and liabilities assumed is considered to be goodwill and the goodwill is recognised as a
separate asset on the Statement of Financial Position, initially measured at cost. If the fair value of the net assets of the
subsidiary acquired exceeds the aggregate of the consideration transferred and the amount recognised for non-controlling
interests, the difference is recognised in profit or loss on the acquisition date.
If the business combination is achieved in stages any previously held equity interest is re-measured at its acquisition date
fair value and any resulting gain or loss is recognised in profit or loss. It is then considered in the determination of goodwill.
If the initial accounting for a business combination is incomplete by the end of the reporting period in which the
combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete. Those
provisional amounts are adjusted during the measurement period, or additional assets or liabilities are recognised, to
reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would
have affected the amounts recognised at that date. Measurement period adjustments are adjustments that arise from
additional information obtained during the measurement period (which cannot exceed one year from the acquisition date)
about facts and circumstances that existed at the acquisition date.
Goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount
recognised for non-controlling interests, and any previous interest held, over the net identifiable assets acquired and
liabilities assumed. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill
is not amortised; it is tested annually for impairment and, additionally, when an indication of impairment exists at the end of
each reporting period. For the purpose of impairment testing, goodwill acquired in a business combination is, from the
acquisition date, allocated to each of the Group’s cash-generation units that are expected to benefit from the combination,
irrespective of whether other assets or liabilities of the acquiree are assigned to those units.
For goodwill impairment testing purposes, the segments reported in note 2 are separate cash-generating units, since this
is the level at which the performance of investments is reviewed and assessed by management. The recoverable amount
of a segment is determined on the basis of its value in use. Refer to note 5 for details.
52
1.
1.4
Basis of consolidation (continued)
Goodwill (continued)
Where goodwill has been allocated to a cash-generating unit and part of the operation within that unit is disposed of, the
goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the
gain or loss on disposal. Goodwill disposed in these circumstances is measured base on the relative values of the
disposed operation and the cash-generating unit retained.
1.5
Use of estimates and judgments and assumptions made in the preparation of the Financial Statements
In preparing the financial statements in accordance with IFRS, management is required to make estimates, assumptions
and judgements that affect reported income, expenses, assets, liabilities and disclosure of contingent assets and liabilities.
Assessing available information and the application of judgement are necessary elements in making estimates. Actual
results in the future could differ from such estimates, and such differences may be material to the financial statements.
Estimates and their underlying assumptions are reviewed on an on-going basis. Any revisions to estimates resulting from
these reviews are recognised in the period in which such estimates are revised.
Significant estimates, assumptions and judgements made at the reporting date relate to:
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
1.6
assumptions around going concern (note 1.3);
credit risk valuation adjustments in determining the fair value of derivative instruments to reflect non-performance
risk (note 1.11.4);
fair value measurements and valuation processes of financial instruments (note 1.2, 1.11 and 36.8);
provision for impairment of receivables (note 1.11.1);
derecognition of financial instruments (note 1.11.1 and 1.11.2);
allowances for slow-moving inventory (note 1.12);
residual values, useful lives and depreciation methods for property, fixtures, equipment and vehicles (note 1.15);
fair value measurements and valuation processes in respect of land and buildings (note 1.2, 1.15.2 and 3);
impairment of all non-financial assets including goodwill and intangibles with indefinite lives (note 1.4, 1.15.5, 1.26
and 5);
measurement of pension fund and medical aid obligations i.e. key actuarial assumptions (note 1.20, 30.3.6 and
30.5.4);
operating leases (note 1.13);
current and deferred tax (note 1.17);
discontinued operations (note 1.16 and 12);
loyalty points deferred revenue (note 1.24.2);
classification of financial assets and financial liabilities into categories (note 1.11.1 and 1.11.2);
put option obligation (note 1.11.2 and 22); and
onerous leases (note 1.24.3 and 21.3).
Foreign currency transactions and balances – Group companies
The presentation currency of the Consolidated Financial Statements is the South African Rand, which is also the functional
currency of Edcon Holdings Limited. Each entity in the Group determines its own functional currency and items included in
the financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot
rates at the date the transaction first qualifies for recognition. Subsequent to initial recognition, monetary assets and
liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the
reporting date. Differences arising on settlement or translation of monetary items are recognised in profit or loss.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange
rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated
using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of nonmonetary items measured at fair value is treated in line with the recognition of gain or loss on change in fair value of the
item (i.e., translation differences on items whose fair value gain or loss is recognised in other comprehensive income or
profit or loss are also recognised in other comprehensive income or profit or loss, respectively).
53
Notes to the Consolidated Financial Statements of Edcon Holdings Limited (continued)
1.
1.6
Foreign currency transactions and balances – Group companies (continued)
Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of
assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at
the spot rate of exchange at the reporting date.
1.7
Foreign currency translations – Group companies
On consolidation, the assets and liabilities of entities with a functional currency other than the Rand are translated into
Rand at the rate of exchange prevailing at the reporting date and their statements of comprehensive income are translated
at the weighted average exchange rates for the period. The exchange differences arising on translation for consolidation
are recognised in other comprehensive income (foreign currency translation reserve). On disposal of a foreign operation,
the deferred cumulative amount recognised in other comprehensive income (foreign currency translation reserve) relating
to that particular foreign operation is recognised in profit or loss.
1.8
Investment in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in
the financial and operating policy decision of the investee, but is not control or joint control over those policies.
A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to
the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which
exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The
considerations made in determining significant influence or joint control are similar to those necessary to determine control
over subsidiaries.
The Group’s investments in its associates and joint ventures are accounted for using the equity method.
Under the equity method, the investment in associates and joint ventures is at cost plus post-acquisition changes in the
Group’s share of net assets of the associates and joint ventures in the Consolidated Statement of Financial Position.
Goodwill relating to the associates and joint ventures are included in the carrying amount of the investment and is not
amortised or separately tested for impairment.
The Consolidated Statement of Comprehensive Income reflects the Group’s share of the results of operations of the
associates and joint ventures. The Group’s share of profit or loss from an associate and joint venture is shown on the face
of the Consolidated Statement of Comprehensive Income within operating profit or loss and represents profit or loss after
tax and non-controlling interests in the subsidiaries of the associates and joint ventures.
When there has been a change recognised directly in other comprehensive income or equity of the associates and joint
ventures, the Group recognises its share of any changes, when applicable, in the Consolidated Statement of other
Comprehensive Income or Consolidated Statement of Changes in Equity respectively. Where the Group transacts with an
associate or joint venture, unrealised profits or losses are eliminated to the extent of the Group’s interest in the associates
and joint ventures. Losses on transactions are recognised immediately if there is evidence of a reduction in the net
realisable value of current assets or an impairment loss.
The reporting period for associates and joint ventures is the same as the Group’s. Where necessary, adjustments are
made to bring the accounting policies in line with those of the Group.
The investment in associates and joint ventures are considered for impairment on an annual basis. At each reporting date,
the Group determines whether there is objective evidence that the investment in the associates and joint ventures is
impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the
recoverable amount and its carrying value, and then recognises the loss in the Consolidated Statement of Comprehensive
Income.
The associate and joint venture is equity accounted until the date on which the Group ceases to have significant influence
or joint control over the associate or joint venture. Upon loss of significant influence or joint control, the Group measures
and recognises its remaining investment in the associate or joint venture at its fair value. The difference between the
carrying amount of the investment upon loss of significant influence or joint control and the fair value of the remaining
investment and proceeds from disposal is recognised in profit or loss.
1.9
Interests in joint operations
A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the
assets, and obligations for the liabilities, relating to the arrangement. Joint control is the contractually agreed sharing of
control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the
parties sharing control.
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1.9
Interests in joint operations (continued)
When a Group entity undertakes its activities under joint operations, the Group as a joint operator recognises in relation to
its interest in a joint operation:
x
x
x
x
x
its assets, including its share of any assets held jointly;
its liabilities, including its share of any liabilities incurred jointly;
its revenue from the sale of its share of the output arising from the joint operation;
its share of the revenue from the sale of the output by the joint operation; and
its expenses, including its share of any expenses incurred jointly.
The Group accounts for the assets, liabilities, revenues and expenses relating to its interest in a joint operation in
accordance with the IFRSs applicable to the particular assets, liabilities, revenues and expenses.
When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a sale or
contribution of assets), the Group is considered to be conducting the transaction with the other parties to the joint
operation, and gains and losses resulting from the transactions are recognised in the Group’s Consolidated Financial
Statements only to the extent of the other parties interests in the joint operation.
When a Group entity transacts with a joint operation in which a Group entity is a joint operator (such as a purchase of
assets), the Group does not recognise its share of the gains and losses until it resells those assets to a third party.
The Group currently has interests in joint operations. As at 28 March 2015, these joint operations were neither material or
significant to the Group’s operations.
1.10
Intangible assets
Intangible assets comprise separately identifiable intangible items arising from business combinations and certain
purchased intangibles. Intangible assets acquired separately are initially measured at cost. The cost of intangible assets
acquired in a business combination is measured at their fair value as at the date of acquisition. Following initial recognition,
intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally
generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is reflected in
profit or loss in the year in which the expenditure is incurred.
The useful lives of intangible assets are assessed as either finite or indefinite.
Intangible assets with finite lives are amortised using the straight-line method over their estimated useful economic life and
assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation
period and the amortisation method for an intangible asset with a finite useful life is reviewed at least at the end of each
reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits
embodied in the asset is accounted for by changing the amortisation period or method, as appropriate, and are treated as
changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or
loss in the expense category consistent with the function of the intangible assets.
Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or
at the cash-generating unit level (refer to note 5 for details on how impairment testing is performed for indefinite life
intangible assets). The assessment of the indefinite life is reviewed annually to determine whether the indefinite life basis
continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.
The Group’s intangible assets and their associated useful lives are as follows:
Edgars brand
Jet brand
CNA brand
Boardmans brand
Red Square brand
Legit brand
La Senza
Inglot
Accessorize
Customer relationships
Trademarks
Customer lists
Technology
Estimated
useful life
Indefinite
Indefinite
Indefinite
Indefinite
10 years
10 years
5 years
5 years
5 years
5 – 10 years
5 – 15 years
5 – 10 years
7 years
Intangible assets are derecognised on disposal or when no future economic benefits are expected through use of the
intangible asset. Gains or losses arising from derecognition of an intangible asset are measured as the difference between
the net disposal proceeds and the carrying amount of the intangible asset and are recognised in profit or loss when the
intangible asset is derecognised. Expenditure on internally developed and maintained intangible assets are expensed
through profit or loss. Expenditure incurred to maintain brand names is charged in full to profit or loss as incurred.
55
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1.11
Financial instruments
The Group recognises financial instruments on the statement of financial position when the Group becomes party to the
contractual provisions of the instruments.
1.11.1 Financial assets
Initial recognition and measurement
Financial assets within the scope of IAS 39 are classified as financial assets at fair value through profit or loss, loans and
receivables, held-to-maturity investments, available-for-sale financial assets, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate. The Group determines the classification of its financial assets at initial
recognition. Financial assets are initially recognised at fair value, including transaction costs except those at fair value
directly through profit or loss, when the Group becomes a party to contractual arrangements.
Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or
convention in the market place (regular way trades) are recognised on the trade date, i.e., the date that the Group commits
to purchase or sell the asset.
The Group’s financial assets include trade and other receivables, derivatives and cash and cash equivalents which are
classified as either loans and receivables or as derivatives at fair value through profit or loss or derivatives designated as
hedging instruments in an effective hedge as appropriate.
Subsequent measurement
The subsequent measurement of financial assets depends on their classification as described below:
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss include financial assets held-for-trading and financial assets designated
upon initial recognition at fair value through profit or loss. Financial assets are classified as held-for-trading if they are
acquired for the purpose of selling or repurchasing in the near term. Derivatives, including separated embedded
derivatives are also classified as held-for-trading unless they are designated as effective hedging instruments as defined
by IAS 39. The Group does not undertake any trading activity in financial assets.
The Group does not have any financial assets, other than derivative financial instruments, designated at fair value through
profit or loss. Derivatives are discussed in note 1.11.4.
Financial assets designated upon initial recognition at fair value through profit or loss are designated at their initial
recognition date and only if the criteria under IAS 39 are satisfied.
Financial assets designated at fair value through profit or loss upon initial recognition cannot be reclassified after initial
recognition.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their
economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held
for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with
changes in fair value recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the
contract that significantly modifies the cash flows that would otherwise be required.
Any gains and losses realised are recognised in profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an
active market, not classified as held-for-trading, not designated as at fair value through profit or loss or available-for-sale.
Financial assets classified as loans and receivables include originated loans where funding is provided directly to the
borrower. Loans and receivables are recognised when the Group becomes a party to the contractual provisions of the
instrument, which is when funding is advanced to borrowers. After initial measurement, such financial assets are
subsequently measured at amortised cost using the effective interest rate method, less impairment. Effective interest rate
is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial
instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or liability. Amortised
cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part
of the effective interest rate. The losses arising from impairment are recognised in the Consolidated Statement of
Comprehensive Income in other operating expenses.
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1.
1.11
Financial instruments (continued)
1.11.1 Financial assets (continued)
Cash and cash equivalents are measured at amortised cost and comprise cash on hand and demand deposits together
with any highly liquid investments readily convertible to known amounts of cash.
Held-to-maturity investments
Non-derivative financial assets with fixed or determinable payments and fixed maturities are classified as held-to-maturity
when the Group has the positive intention and ability to hold them to maturity. After initial measurement, held-to-maturity
investments are measured at amortised cost using the effective interest rate, less impairment. Amortised cost is calculated
by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the effective
interest rate. The Group did not have any held-to-maturity investments for the 2015, 2014 and 2013 financial periods.
Available-for-sale financial investments
Investments classified as available-for-sale are those that are neither classified as held-for-trading nor designated at fair
value through profit or loss. After initial measurement, available-for-sale financial investments are subsequently measured
at fair value with unrealised gains or losses recognised as other comprehensive income until the investment is
derecognised, at which time the cumulative gain or loss is recognised in other operating income, or the investment is
determined to be impaired, when the cumulative loss is reclassified from other comprehensive income to the statement of
comprehensive income.
The Group did not have any available-for-sale investments for the 2015, 2014 and 2013 financial periods.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is
derecognised when:
x
x
The rights to receive cash flows from the asset have expired; or
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the
received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a)
the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred
nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither
transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the asset
is recognised to the extent of the Group’s continuing involvement in the asset. In that case, the Group also recognises an
associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and
obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of consideration that the Group could be required to repay.
Impairment of financial assets
The Group assesses, at each reporting date, whether there is objective evidence that a financial asset or a group of
financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if there is objective
evidence of impairment as a result of one or more events that has occurred since the initial recognition of the asset (an
incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the
group of financial assets that can be reliably estimated.
Financial assets carried at amortised cost
For financial assets carried at amortised cost, the Group first assesses whether objective evidence of impairment exists
individually for financial assets that are individually significant, or collectively for financial assets that are not individually
significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial
asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics
and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an
impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.
If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the
difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future
57
1.
1.11
1.11.1 Financial assets (continued)
expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted
at the financial asset’s original effective interest rate.
The carrying amount of the asset is reduced through the use of an allowance account and the loss is recognised in profit or
loss. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event
occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by
adjusting the allowance account, to the extent the carrying value of the receivable does not exceed its cost at any reversal
date.
If a write-off is later recovered, the recovery is credited to other income in the statement of comprehensive income.
For trade receivables, evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they
will enter bankruptcy or other financial reorganisation and observable data indicating that there is a measurable decrease
in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
A provision for impairment is made when there is objective evidence that the Group will not be able to collect all amounts
due under the original terms of the trade receivable transactions. The process for estimating impairment considers all
credit exposures, not only those of low credit quality and is estimated on the basis of historical loss experience, adjusted
on the basis of current observable data, to reflect the effects of current conditions.
1.11.2 Financial liabilities
Initial recognition and measurement
Financial liabilities within the scope of IAS 39 are classified as financial liabilities at fair value through profit or loss, loans
and borrowings, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. The Group
determines the classification of its financial liabilities at initial recognition. All financial liabilities are recognised initially at
fair value and, in the case of loans and borrowings, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, loans and borrowings, deferred option premiums, put
option liability and derivative financial instruments and are classified as loans and borrowings, derivatives at fair value
through profit or loss or derivatives designated as hedging instruments in an effective hedge, as appropriate.
Subsequent measurement
The measurement of financial liabilities depends on their classification as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held-for-trading and financial liabilities
designated upon initial recognition as at fair value through profit or loss.
Financial liabilities are classified as held-for-trading if they are acquired for the purpose of selling in the near term. The
Group has not designated any financial liabilities as held for trading in the 2015, 2014 and 2013 financial period.
This category includes derivative financial instruments entered into by the Group that are not designated as hedging
instruments in hedge relationships as defined by IAS 39. Separated embedded derivatives are also classified as held-fortrading unless they are designated as effective hedging instruments.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the initial date of
recognition, and only if the criteria in IAS 39 are satisfied.
Any gains and losses realised are recognised in profit or loss.
Loans and borrowings
After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the
effective interest rate method.
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1.
1.11
1.11.2 Financial liabilities (continued)
Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an
integral part of the effective interest rate. The effective interest rate amortisation is included as finance costs in the
statement of comprehensive income.
Derecognition
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or has expired. When an
existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an
existing liability are substantially modified, such an exchange or modification is treated as the extinguishment of the
original liability or part of it and the recognition of a new financial liability. The difference in the respective carrying amounts
is recognised in profit or loss.
1.11.3 Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if
there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net
basis.
1.11.4 Derivative financial instruments and hedge accounting
The Group uses derivative financial instruments such as foreign currency forward contracts, foreign currency call options,
cross currency swaps and interest rate swaps to manage the financial risks associated with their underlying business
activities and the financing of those activities. The Group does not undertake any trading activity in derivative financial
instruments.
Derivative financial instruments are initially measured at their fair value on the date on which a derivative portfolio contract
is entered into and are subsequently remeasured at fair value. Any gains or losses arising from changes in the fair value of
derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognised in
other comprehensive income.
The fair value of foreign currency forward contracts, foreign currency call options and the cross currency swaps is
calculated by reference to current forward exchange rates for contracts with similar maturity profiles. The fair value of
interest rate swap contracts is determined by reference to market interest rates for similar instruments. The fair value of
cross currency swaps is determined by reference to market interest rates and forward exchange rates for similar
instruments. A credit risk valuation adjustment is incorporated to appropriately reflect the Group’s own non-performance
risk and the respective counterparty’s non-performance risk in the fair value measurement. The significant inputs to the
overall valuations are based on market observable data or information derived from or corroborated by market observable
data, including transactions, broker or dealer quotations, or alternative pricing sources with reasonable levels of price
transparency.
Where models are used, the selection of a particular model to value the derivative depends upon the contractual terms of,
and specific risks inherent in the instrument as well as the availability of pricing information in the market. The Group uses
similar models to value similar instruments. Valuation models require a variety of inputs including contractual terms, market
prices, yield curves and credit curves.
The credit risk valuation adjustments are calculated by determining the net exposure of each derivative portfolio (including
current and potential future exposure) and then applying the Group’s credit spread, and each counterparty’s credit spread
to the applicable exposure.
The inputs utilised for the Group’s own credit spread are based on estimated fair market spreads for entities with similar
credit ratings as the Group. For counterparties with publicly available credit information, the credit spreads over the
benchmark rate used in the calculations represent implied credit default swap spreads obtained from a third party credit
provider.
In adjusting the fair value of derivative contracts for the effect of non-performance risk, the Group has not considered the
impact of netting and any applicable credit enhancements such as collateral postings, thresholds, mutual puts and
guarantees. The Group actively monitors counterparty credit ratings for any significant changes.
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1.
1.11
1.11.4 Derivative financial instruments and hedge accounting (continued)
For the purpose of hedge accounting, hedges are classified as:
x
x
x
Fair value hedges when hedging the exposure to changes in the fair value of a recognised asset or liability or an
unrecognised firm commitment;
Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a particular risk
associated with a recognised asset or liability or a highly probable forecast transaction or the foreign currency risk in
an unrecognised firm commitment; and
Hedges of a net investment in a foreign operation.
The Group does not have any hedges of a net investment in a foreign operation.
At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the
Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. The
documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk
being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in
offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such
hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on
an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for
which they were designated.
In relation to cash flow hedges, which meet the conditions for hedge accounting, the portion of the gain or loss on the
hedging instrument that is determined to be an effective hedge is recognised in other comprehensive income in the cash
flow hedging reserve and the ineffective portion is recognised in profit or loss.
For cash flow hedges, the gains or losses that are recognised in other comprehensive income are transferred to profit or
loss in the same period in which the hedged item affects the profit or loss.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer
qualifies for hedge accounting. At that point in time, any cumulative gain or loss on the hedging instrument recognised in
other comprehensive income is kept in other comprehensive income until the forecasted transaction occurs. If a hedged
transaction is no longer expected to occur, the net cumulative gain or loss recognised in other comprehensive income is
transferred to profit or loss for the period.
Current versus non-current classification
Derivative instruments are classified as current or non-current or separated into current and non-current portions based on
an assessment of the facts and circumstances (i.e., the underlying contracted cash flows).
When the Group expects to hold a derivative as an economic hedge (and does not apply hedge accounting) for a period
beyond 12 months after the reporting date, the derivative is classified as non-current (or separated into current and noncurrent portions) consistent with the classification of the underlying item.
Embedded derivatives that are not closely related to the host contract are classified consistent with the cash flows of the
host contract.
Derivative instruments that are designated as, and are effective hedging instruments, are classified consistently with the
classification of the underlying hedged item. The derivative instrument is separated into a current portion and a non-current
portion only if a reliable allocation can be made.
1.12
Inventories
Retail trading inventories are valued at the lower of cost, using the weighted average cost, and net realisable value, less
an allowance for slow-moving items. Net realisable value is the estimated selling price in the ordinary course of business
less necessary costs to make the sale. In the case of own manufactured inventories, cost includes the total cost of
manufacture, based on normal production facility capacity, and excludes financing costs. Work-in-progress is valued at
actual cost, including direct material costs, labour costs and manufacturing overheads.
Factory raw materials and consumable stores are valued at average cost, less an allowance for slow-moving items.
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1.
1.12
Inventories (continued)
The allowance for slow-moving inventory is made with reference to an inventory age analysis. All inventory older than 18
months is provided for in full as it is not deemed to be readily disposable.
1.13
Leases
The determination of whether an arrangement is a lease, or contains a lease, is based on the substance of the
arrangement at inception date and whether the fulfilment of the arrangement is dependent on the use of a specific asset or
assets or the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.
Group as a lessee
Leases are classified as finance leases where substantially all the risks and rewards associated with ownership of an asset
are transferred from the lessor to the Group as lessee. Assets subject to finance leases are capitalised at the lower of the
fair value of the asset, and the present value of the minimum lease payments, with the related lease obligation recognised
at the same value. Capitalised leased assets are depreciated over the shorter of the lease term and the estimated useful
life if the Group does not obtain ownership thereof.
Finance lease payments are allocated, using the effective interest rate method, between the lease finance cost, which is
included in financing costs, and the capital repayment, which reduces the liability to the lessor.
Operating leases are those leases which do not fall within the scope of the above definition. Operating lease rentals with
fixed escalation clauses are charged against trading profit on a straight-line basis over the term of the lease. The resulting
difference between the lease expenses arising from the application of the straight-line basis and the contractual amounts
actually paid or accrued is recognised as a lease equilisation obligation or asset.
In the event of a sub-lease classified as an operating lease, lease rentals received are included in profit or loss on a
straight-line basis.
Group as a lessor
Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified
as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the
leased asset and recognised over the lease term on the same basis as rental income. Contingent rentals are recognised
as revenue in the period in which they are earned.
1.14
Borrowing costs
Borrowing costs directly attributed to the acquisition, construction or production of an asset that necessarily takes a
substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the asset. All other
borrowing costs are expensed in the period in which they occur. Borrowing costs consists of interest and other costs that
an entity incurs in connection with the borrowing of funds. Currently the Group does not capitalise any borrowing costs as
it does not have any qualifying assets.
1.15
1.15.1 Fixtures, equipment and vehicles
Fixtures, equipment and vehicles are stated at cost, net of accumulated depreciation and accumulated impairment losses,
if any. Such cost includes the cost of replacing part of the fixtures, equipment and vehicles and borrowing costs for longterm construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are
required to be replaced at intervals, the Group recognises such parts as individual assets with specific useful lives and
depreciates them accordingly. Likewise, when a major inspection is performed, its cost is recognised in the carrying
amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and
maintenance costs are recognised in profit or loss as incurred.
1.15.2 Properties (Land and buildings)
Land is initially measured at cost and subsequently revalued by recognised professional valuers every three years and
annually by internal valuers, to net realisable open-market value using the alternative or existing-use basis as appropriate
(which is considered a level 3 valuation under IFRS 13), ensuring carrying amounts do not differ materially from those
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1.
1.15
Properties, fixtures, equipment and vehicles (continued)
1.15.2 Properties (Land and buildings) (continued)
which would be determined using fair value at the reporting date. Buildings are also measured at fair value (as per above)
less accumulated depreciation and impairment losses at the date of revaluation. Land and buildings were valued by
reference to market-based evidence, using comparable prices adjusted for specific market factors such as nature, location
and condition of the property.
Any revaluation surplus is recorded in other comprehensive income and hence, credited to the revaluation surplus reserve
in equity, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or
loss, in which case, the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to
the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve.
The amount in the revaluation surplus reserve is transferred to retained earnings/loss upon disposal of a particular asset.
Additionally, accumulated depreciation, for buildings, as at the revaluation date is eliminated against the gross carrying
amount of the asset and the net amount is restated to the revalued amount of the asset.
1.15.3 Lease premiums and leasehold improvements
Expenditure relating to leased premises is capitalised as appropriate and depreciated to expected residual value over the
remaining period of the lease on a straight-line basis.
Leasehold improvements for leasehold land and buildings are depreciated over the lease periods which range from 5 to 10
years, or such shorter periods as may be appropriate.
1.15.4 Depreciation rates
Fixtures, equipment and vehicles are depreciated on a straight-line basis to their expected residual values over the
estimated useful lives as follows:
Fixtures and fittings
Leased assets
Computer equipment
Computer software
Machinery
Vehicles
Buildings
7 – 8 years
5 – 50 years
3 – 5 years
2 – 3 years
9 – 10 years
4 – 5 years
48 – 50 years
1.15.5 Impairment of properties, fixtures, equipment and vehicles
Property, fixtures, equipment and vehicles are reviewed at each reporting date, to determine whether there is any
indication of impairment. When impairment indicators are present, the impairment recognised in the profit or loss (or other
comprehensive income for revalued property limited to the extent of the revaluation surplus) is the excess of the carrying
value over the recoverable amount (the greater of fair value less costs to sell and value in use).
Recoverable amounts are estimated for individual assets or, when an individual asset does not generate cash flows
independently, the recoverable amount is determined for the larger cash-generating unit to which the asset belongs.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining
fair value less costs to sell, recent market transactions are taken into account. If no such transactions can be identified, an
appropriate valuation model is used. These calculations are corroborated by valuation multiples or other available fair
value indicators.
The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately
for each of the Group’s cash generating units to which the individual assets are allocated. These budgets and forecast
calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to
project future cash flows after the fifth year.
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1.15
Properties, fixtures, equipment and vehicles (continued)
1.15.5 Impairment of properties, fixtures, equipment and vehicles (continued)
An assessment is made at each reporting date to determine whether there is an indication that previously recognised
impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the assets or the cash
generating units recoverable amount. A previously recognised impairment loss is reversed only if there has been a change
in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The
reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the
carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the
asset in prior periods. Such reversal is recognised in the statement of comprehensive income unless the asset is carried at
a revalued amount in which case, the reversal is treated as a revaluation increase.
1.15.6 Derecognition of properties, fixtures, equipment and vehicles
An item of property, fixtures, equipment and vehicles is derecognised on disposal or when no future economic benefits are
expected through its continued use. Gains or losses which arise on derecognition, are included in profit or loss in the year
of derecognition. The gain or loss is calculated as the difference between the net disposal proceeds and the carrying
amount of the property, fixtures, equipment or vehicles at the date of sale.
1.15.7 Asset lives and residual values
Buildings, fixtures, equipment and vehicles are depreciated over their useful life taking into account any residual values
where appropriate. The estimated useful life of these assets and depreciation methods are assessed at each reporting
date and could vary as a result of technological innovations and maintenance programs. In addition, residual values are
reviewed at each reporting date after considering future market conditions, the remaining life of the asset and projected
disposal values. Changes in asset lives and residual values are accounted for on a prospective basis as a change in
estimate.
1.15.8 Software costs
Packaged software and the direct costs associated with the development and installation thereof are capitalised as
computer software and are an integral part of computer hardware. The total cost is capitalised and depreciated in
accordance with note 1.15.1 and 1.15.4.
1.16
Non-current assets held–for-sale and discontinued operations
Non-current assets (or a disposal group) are classified as held-for-sale if the carrying amount will be recovered through a
highly probable sale transaction, rather than through continuing use. The sale is considered to be highly probable where
the assets (or a disposal group) are available for immediate sale, management is committed to the sale and the sale is
expected to be completed within a period of one year from the date of classification. Assets classified as held-for-sale are
measured at the lower of the asset’s carrying amount and fair value less costs to sell.
Where the sale is more than one year into the future due to circumstances beyond the Group’s control, the costs to sell are
measured at the present value. Any increase in the present value of costs to sell is recognised in the Group statement of
comprehensive income as a financing cost.
An impairment loss is recognised in profit or loss for any initial or subsequent write-down of the asset or disposal group to
fair value less costs to sell. A gain, for any subsequent increase in fair value less costs to sell, is recognised in profit or loss
to the extent that it does not exceed the cumulative impairment loss previously recognised.
Non-current assets classified as held-for-sale are not depreciated or amortised.
Where a component of the Group, being either a separate major line of business, a geographical area of operations or a
subsidiary is acquired exclusively with a view to resell and management is committed to the sale and it is expected to be
completed within a period of one year or has been sold, that component is classified as a discontinued operation.
Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as
profit or loss after tax from discontinued operations in the statement of comprehensive income.
63
1.
1.17
Taxation
Current income tax
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from
or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or
substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.
Current income tax relating to items recognised directly in other comprehensive income or equity is recognised in other
comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax
returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions
where appropriate.
Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and
timing of future taxable income. Given the wide range of international business relationships and the long-term nature and
complexity of existing contractual agreements, differences arising between the actual results and the assumptions made,
or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded.
The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax
authorities of the respective counties in which it operates. The amount of such provisions is based on various factors, such
as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the
responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the
conditions prevailing in the respective domicile of the Group companies.
Deferred tax
Deferred tax is provided using the liability method on temporary differences at the reporting date between the tax base of
the assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognised for all taxable deductible differences, except:
x
When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a transaction that
is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss;
x
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, when the timing of the reversal of the temporary differences can be controlled and it is probable that
the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised for all temporary differences, carry forward of unused tax credits and unused tax
losses, which will result in deductible amounts in future periods, but only to the extent that it is probable that sufficient
taxable profits will be available against which these deductible temporary differences, and carry forward of unused tax
credits and unused tax losses can be utilised, except:
x
When the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an
asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither
the accounting profit nor taxable profit or loss;
x
In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in
joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary differences
will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can
be utilised.
Significant management judgment is required to determine the amount of deferred tax assets that can be recognised,
based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is
no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be
utilised. Unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent
that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the asset
will be realised or the liability will be settled, based on enacted or substantively enacted rates at the reporting date.
Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are
recognised in correlation to the underlying transaction either in other comprehensive income or directly in equity.
64
1.
1.17
Taxation (continued)
Current and deferred tax assets and liabilities are offset when they arise from the same tax reporting entity, and relate to
the same tax authority, and when the legal right to offset exists. Where applicable; non-resident shareholders’ taxation is
provided for in respect of foreign dividends receivable.
Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date,
are recognised subsequently if new information about facts and circumstances change. The adjustment is either treated as
a reduction to goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or
recognised in profit or loss.
Refer to notes 32 and 7 for further details around current and deferred tax.
1.18 Financing costs
Finance costs comprises interest paid and payable on borrowings, calculated using the effective interest rate method, and
foreign currency gains and losses in respect of borrowings. Financing costs are recognised in profit or loss in the period in
which they are incurred.
1.19
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue
can be reliably measured, regardless of when payment is made. Revenue is measured at the fair value of the
consideration received net of returns and customer loyalty points excluding discounts, rebates and sales taxes or duty. The
Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent.
Revenue comprises retail sales of merchandise, manufacturing sales, club fees, revenue from insurance business,
dividends, finance charges and administration fees accrued to the Group.
The specific recognition criteria described below must also be met before revenue is recognised.
Sales of merchandise
Revenue from sale of merchandise is recognised when the significant risks and rewards of ownership of the goods have
passed to the buyer, usually on delivery of goods. Such income represents the net invoice value of merchandise provided
to such third parties – excluding discounts, value-added and general sales tax. The Group chains that contribute to the
revenue from sale of merchandise are the Edgars division, CNA division, Discount division and the Edgars Zimbabwe
division.
Loyalty points program
The Group operates a loyalty points program that allows customers to accumulate points when they purchase
merchandise, subject to certain criteria, in the Group’s retail stores. The points can then be redeemed as discount against
merchandise purchases. The fair value which includes the expected redemption rate, attributed to the credits awarded, is
deferred as a provision and recognised as revenue on redemption of the points by customers.
Manufacturing sales
Revenue from manufacturing and other operations is recognised when the sale transactions giving rise to such revenue
are concluded.
Club fees
Club fees are recognised as revenue as incurred.
Finance charges
Finance charges on arrear account balances are accrued on a time proportion basis, recognising the effective yield on the
underlying assets.
Group customers are offered Edgars and Jet branded insurance products, in pursuance of a business arrangement formed
with Hollard Insurance (Hollard). Hollard underwrites all insurance products and further provides the joint venture with
actuarial and compliance support. The Group provides product distribution, marketing and billing and premium collection
services. The business sells to both credit customers and cash customers and is managed by a dedicated team of people
from both Hollard and the Group. Under the provisions of the agreement, the Group charges a fee for the continued
management of the debtors and maintenance of systems. The Group also charges a fee for the use of the Group’s brands
in the marketing of the insurance products. This fee income is recognised by the Group as and when it is accrued.
65
1.
1.19
Revenue recognition (continued)
The profit share is done on a product by product basis with the profit share percentage as agreed between the parties from
time to time.
The Group has a closed book for the Edgars and Jet Legal Plan underwritten by Zurich Insurance Ltd. Europ Assistance
provides risk management and policy fulfillment services. Under the provisions of the agreement, if the policy premiums
exceed the claims and expenses, the net profit is distributed as a fee.
Dividends
Dividends are recognised when the Group’s right to receive payment is established, which is generally when shareholders
approve the dividend.
Interest received
Interest received is recognised using the effective interest rate method.
Administration fees
Administration fees are recognised as they are accrued based on the services provided.
1.20
Employee benefits
Short-term employee benefits
The cost of all short-term employee benefits is recognised during the period in which the employee renders the related
service. The accruals for employee entitlements to wages, salaries, annual and sick leave represent the amount which the
group has a present obligation to pay as a result of employees’ services provided to the reporting date. The short-term
employee benefits have been calculated at undiscounted amounts based on current wage and salary rates.
Post-employment benefits
The Group operates a number of retirement benefit plans for its employees. These plans include both defined benefit and
defined contribution provident funds and other retirement benefits such as medical aid benefit plans.
Defined contribution plans – Provident fund benefits
A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a
separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to
defined contribution pension, provident and retirement funds are recognised as an employee benefit expense in profit or
loss when they are due. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in
future payments is available.
Defined benefit plans – Pension and Post-retirement Medical Aid benefits
The Group uses the projected unit credit actuarial method to determine the present value of its defined benefit plans and
the related current service cost and, where applicable, past service costs. Contribution rates to defined benefit plans are
adjusted for any unfavourable experience adjustments. Favourable experience adjustments are retained within the funds.
Net benefit assets are only brought into account in the Group’s Financial Statements when it is certain that economic
benefits will be available to the Group. Actuarial gains or losses are recognised in full the period in which they occur in
other comprehensive income. Such actuarial gains and losses are also immediately recognised in retained earnings and
are not reclassified to profit or loss in subsequent periods.
Past service cost is recognised in profit or loss in the period of a plan amendment. Net interest is calculated by applying
the discount rate at the beginning of the period to the net defined benefit liability or asset. The Group presents service
costs and net interest expense or income in profit or loss in other operating costs and financing costs in the Statement of
Comprehensive income. Curtailment gains and losses are accounted for as past service costs.
66
1.
1.20
Employee benefits (continued)
The defined benefit asset or liability comprises the present value of the defined benefit obligation, less the fair value of any
plan assets out of which the obligations are to be settled i.e. the net obligation represents the actual deficit or surplus in the
Group’s defined benefit plans. Plan assets are assets that are held by a long-term employee benefit fund or qualifying
insurance policies. Plan assets are not available to the creditors of the Group, nor can they be paid directly to the Group.
Fair value is based on market price information and, in the case of quoted securities; it is the published bid price. The
value of any defined benefit asset recognised is restricted to the present value of any economic benefits available in the
form of refunds from the plan or reductions in the future contributions to the plan.
1.21
Share capitalisation awards and cash dividends
The full cash equivalent of capitalisation share awards and cash dividends paid by the Group are recorded and disclosed
as dividends declared in the statement of changes in equity. Dividends declared subsequent to the period-end are not
charged against shareholders’ equity at the reporting date as no liability exists. Upon allotment of shares in terms of a
capitalisation award, the election amounts are transferred to the share capital and share premium account; cash dividend
election amounts are paid and the amount deducted from equity.
1.22
Treasury shares
Shares held by the Staff Empowerment Trust are classified in the Group’s shareholders’ equity as treasury shares. These
shares are treated as a deduction from the issued number of shares, and the cost price of the shares is deducted from
share capital and premium in the Group’s Statement of Financial Position. Any dividends received on treasury shares are
eliminated on consolidation.
1.23
Operating Segment Report
The Group is organised into business units based on their target markets and product offering, and the business is
structured under seven reportable operating segments. The segments were selected on the basis of internal reports in
order to allocate resources to the segment and assess its performance. Sales of merchandise in four main operating
divisions gives rise to the Edgars, Discount, CNA and Zimbabwe division which targets different domains of income, age
and products. Manufacturing Sales gives rise to the Manufacturing division which is an apparel manufacturer, focusing on
mid to high-end garments of mostly woven construction. This operating segment, manufactures ladies and men’s
outerwear for the Edgars and Discount divisions and the outside market. The Credit and Financial division focuses on the
management of the Group’s trade debtors and administration of trade accounts receivable sold to Absa Limited and offers
consumer credit and insurance products. The Credit and Financial division incorporates revenue from the arrangement
between Edcon and Hollard and administration fees earned on the administration of the Absa Limited trade accounts
receivable sold to Absa Limited.
1.24
Provisions
1.24.1 General
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. The amount recognised as a provision will be reassessed at each
statement of financial position date taking into account the latest estimates of expenditure required and the probability of
the outflows. If the effect of the time value of money is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where
appropriate, the risks specific to the liability except those that have been taken into account in the estimate of future cash
flows. Where discounting is used, the increase in a provision due to the passage of time is recognised as an interest
expense in profit or loss. A provision is used only for the expenditures for which the provision was originally recognised.
When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the
reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain. The expense
relating to a provision is presented in the Statement of Comprehensive Income net of any reimbursement.
67
1.
1.24
Provisions (continued)
1.24.2 Loyalty points deferred revenue
The Group operates a loyalty points program which allows customers to accumulate points when they purchase
merchandise, subject to certain criteria, in the Groups retail stores. The points can then be redeemed as discount against
merchandise purchases. The Group accounts for award credits as a separately identifiable component of the sales
transaction in which they are granted. The consideration in respect of the initial sale is allocated to award credits at their
fair value and is accounted for as a provision (deferred revenue) in the statement of financial position.
The fair value of an individual award credit is determined using estimation techniques reflecting the weighted average of a
number of factors. A rolling 12-month historical trend forms the basis of the calculations. The number of points not
expected to be redeemed by members are also factored into the estimation of fair value. Historical redemption trends are
also used to determine the long and short-term portion of the deferred revenue liability. A level of judgment is exercised by
management in determining the fair value of the points (note 24).
1.24.3 Onerous leases
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are
lower than the unavoidable cost of meeting the obligations under the contract. The provision is measured at the present
value of the lower of the expected cost of terminating the contract and net cost of continuing with the contract. The straightline operating lease accrual is adjusted accordingly for any onerous leases. Before a provision is established the Group
recognises any impairment loss on the asset associated with that contract.
1.25
Government grants
Government grants are recognised where there is reasonable assurance that the grant will be received and all attached
conditions will be complied with. When the grant relates to an expense item, it is recognised as income on a systematic
basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates
to an asset, it is recognised as income in equal amounts over the expected useful life of the related asset.
1.26
Investments in subsidiaries (Company only)
Investments in subsidiaries are equity interests which are held for the purposes of Edcon Holdings Limited business
activities or for strategic reasons. They include all directly held subsidiaries through which Edcon Holdings Limited
conducts its business. The investments are carried at cost less impairment. The carrying value is tested for impairment
when indicators for a decrease in value exist, which include incurrence of significant operating losses. If an investment in a
subsidiary is impaired, its value is generally written down to the net asset value. Subsequent recoveries in value are
recognised up to the original cost value based on the increased net asset value.
1.27
New and amended standards and interpretations adopted by the Group
The Group applied for the first time, in the current year, certain standards, amendments and interpretations.
The nature and the impact of each new standard and amendment is described below:
Investment entities - Amendments to IFRS 10, IFRS 12 and IAS 27
These amendments provide an exception to the consolidation requirement for entities that meet the definition of an
investment entity under IFRS 10 Consolidated Financial Statements and must be applied retrospectively, subject to certain
transitional relief. The exception to consolidation requires investment entities to account for subsidiaries at fair value
through profit or loss.
These amendments have no impact on the Group, since none of the entities in the Group qualifies to be an investment
entity under IFRS 10.
Offsetting financial assets and financial liabilities - Amendments to IAS 32
These amendments clarify the meaning of ‘currently has a legally enforceable right to set-off’ and the criteria for nonsimultaneous settlement mechanisms of clearing houses to qualify for offsetting and are applied retrospectively.
The Group has assessed these requirements and does not expect any material impact to its financial statements as a
result of this amendment.
68
1.
1.27
New and amended standards and interpretations adopted by the Group (continued)
Recoverable amount disclosures for non-financial assets - Amendments to IAS 36
These amendments remove the unintended consequences of IFRS 13 on the disclosures required under IAS 36 by
clarifying the disclosure requirements in respect of fair value less costs of disposal. In addition, these amendments require
disclosure of the recoverable amounts for the assets or CGUs for which impairment loss has been recognised or reversed
during the period.
The Group does not expect any material impact on its financial statements as a result of the amendments to IAS 36.
Novation of derivatives and continuation of hedge accounting – Amendments to IAS 39
These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a
hedging instrument meets certain criteria and retrospective application is required.
These amendments have no impact on the Group as the Group has not novated its derivatives during the current or prior
periods.
IFRIC 21 Levies
IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the
relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that
no liability should be anticipated before the specified minimum threshold is reached. Retrospective application is required
for IFRIC 21.
This interpretation has no impact on the Group as it has applied the recognition principles under IAS 37 Provisions,
Contingent Liabilities and Contingent Assets consistent with the requirements of IFRIC 21 in prior years.
1.28
New and revised standards and interpretations in issue but not yet effective
The IASB and IFRS Interpretations Committee issued the following standards, with an effective date after the date of these
financial statements, which management believes could impact the Group in future periods. The Group has not elected to
early adopt any of these standards.
IFRS 9 Financial instruments
IFRS 9 Financial Instruments issued on 24 July 2014 is the IASB's replacement of IAS 39 Financial Instruments:
Recognition and Measurement. The Standard includes requirements for recognition and measurement, impairment,
derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the
standard as it completed each phase.
The version of IFRS 9 issued in 2014 supersedes all previous versions and is mandatorily effective for periods beginning
on or after 1 January 2018 with early adoption permitted. For a limited period, previous versions of IFRS 9 may be adopted
early if not already done so provided the relevant date of initial application is before 1 February 2015.
The Group is in the process of quantifying the effect of any possible impact of IFRS 9 on its financial statements.
IFRS 15 Revenue from contracts with customers
IFRS 15 replaces all existing revenue requirements (IAS 11 Construction Contracts, IAS 18 Revenue, IFRIC 13 Customer
Loyalty Programmes, IFRIC 15 Agreements for the Construction of Real Estate, IFRIC 18 Transfers of Assets from
Customers and SIC 31 Revenue – Barter Transactions Involving Advertising Services) in IFRS and applies to all revenue
arising from contracts with customers. It also provides a model for the recognition and measurement of sales of some nonfinancial assets including disposals of property, equipment and intangible assets.
The standard outlines the principles an entity must apply to measure and recognise revenue. The core principle is that an
entity will recognise revenue at an amount that reflects the consideration to which the entity expects to be entitled in
exchange for transferring goods or services to a customer.
69
1.
1.28
New and revised standards and interpretations in issue but not yet effective (continued)
The principles in IFRS 15 will be applied using a five-step model:
1.
2.
3.
4.
5.
Identify the contract(s) with a customer;
Identify the performance obligations in the contract;
Determine the transaction price;
Allocate the transaction price to the performance obligations in the contract;
Recognise revenue when (or as) the entity satisfies a performance obligation.
For each step of the model, the standard requires entities to exercise judgement and to consider all relevant facts and
circumstances when applying the model to contracts with their customers.
In addition to the five-step model, the standard also specifies how to account for the incremental costs of obtaining a
contract and the costs directly related to fulfilling a contract.
Application guidance is provided in the standard to assist entities in applying its requirements to common arrangements,
including licences, warranties, rights of return, principal-versus-agent considerations, options for additional goods or
services and breakage.
The standard is effective for annual periods beginning on or after 1 January 2018. The Group will quantify the effect of any
possible impact.
The following standards, amendments and interpretations, that have been issued but are not yet effective, have been
assessed for applicability to the Group. Management has concluded that they are not expected to have a significant impact
on future financial statements.
x
x
x
x
x
x
x
Employee contributions - Amendments to IAS 19 Employee benefits
Acceptable methods of depreciation and amortisation - Amendments to IAS 16 Property, plant and equipment and
IAS 38 Intangible assets
Accounting for acquisitions of interests in joint operations - Amendments to IFRS 11 Joint arrangements
IFRS 14 Regulatory deferral accounts
Sale or contribution of assets between an investor and its associate or joint venture – Amendments to IFRS 10
Consolidated financial statements and IAS 28 Investments in associates and joint ventures
Equity method in separate financial statements – Amendments to IAS 27 Separate financial statements
Annual improvements to IFRS
70
2.
OPERATING SEGMENT REPORT
For management purposes, the Group is organised into business units based on their target markets and product offering,
and the business is structured under seven reportable operating segments. Management monitors the operating results of
the business segments separately for the purpose of making decisions about resources to be allocated and of assessing
performance. The reportable segments are as follows:
Edgars division
The division is targeted at middle to upper income consumers. The speciality store chains included in this division are
Edgars, Boardmans, Red Square, Edgars Active, Edgars Shoe Gallery, Inglot, La Senza, Accessorize, Topshop, Tom
Tailor, Mac, Lipsy, Bobbi Brown, Lucky Brands, Dune, TM Lewin, Salsa, Jigsaw, Calvin Klein, Khiels, Victoria’s Secret
Beauty and Accessories, Vince Camuto, River Island, Dr. Martens and Jo Malone. The products within this operating
segment include mainly clothing, footwear, cosmetics, mobile phones, homewares and accessories.
CNA division
The CNA division is targeted at middle to upper income consumers and its product offering includes stationery, books,
magazines, greeting cards, mobile phones, music, toys, photographic and digital equipment.
Discount division
The discount division sells value merchandise targeted at lower to middle income consumers. The largest brand in
discount division is Jet, with associated brands that include Jet Mart, Jet Shoes and Legit. The product offering within this
operating segment includes mainly clothing, footwear, mobile phones, cosmetics, homewares and accessories.
Edgars Zimbabwe division
This division incorporates both the Edgars and Jet formats and is targeted at the lower to middle income consumers for Jet
and middle to upper consumers for Edgars and includes both retail and manufacturing operations. The products within this
operating segment include mainly clothing, footwear, cosmetics, mobile phones and accessories.
Manufacturing division
The manufacturing division is an apparel manufacturer, focusing on mid to high-end garments of mostly woven
construction. This operating segment, manufactures ladies and men’s outerwear for the Edgars and Discount divisions and
the outside market.
Credit and Financial Services
Credit and financial services focuses on the management of the Group’s trade debtors and offers consumer credit and
insurance products. For the Group’s trade debtors, this operating segment issues private label credit cards to qualifying
customers who can use these credit cards in all the Group’s chains. Credit and financial services performs all aspects of
the credit management process in-house including credit scoring activation, servicing and collection.
For the third party’s debtors, the third party extends credit to our private label store card customers while this operating
segment remains responsible for all customer-facing activities, including the distribution of the store cards and credit
collection. A net fee is paid by the third party for the administration of the accounts.
In addition, all private label store card customers are offered insurance products in partnership with insurance providers.
The operating segment does not bear underwriting risk with respect to these insurance products.
Group Services
Group Services performs the Group’s shared services functions which include mainly; human resources, treasury, tax,
finance, internal audit, property management, logistics, loyalty, business intelligence and secretarial. Additionally, the trade
accounts payable function for the Group is managed centrally by Group Services, as well as the accounting for trademarks
and goodwill.
Management monitors the operating results of its business units separately for the purpose of making decisions about
resource allocation and performance assessment. Operating segment performance is evaluated based on operating profit
or loss and is measured consistently with operating profit or loss in the Consolidated Financial Statements.
71
2.
OPERATING SEGMENT REPORT (continued)
Group financing (including all treasury functions such as finance costs and income and related borrowings), income taxes,
trade accounts payable, trademarks and goodwill are managed on a group basis and are not allocated to operating
segments.
2015
Rm
Edgars division
CNA division
Discount
division
Edgars
Zimbabwe
division
Manufacturing
division
Credit and
Financial
Services
Group
Services2
REVENUES
2014
Rm
20138
Rm
REVENUE-RETAIL SALES
2015
2014
20138
Rm
Rm
Rm
(LOSS) OR PROFIT BEFORE
FINANCING3
2015
2014
20138
Rm
Rm
Rm
14 257
14 011
13 622
13 929
13 684
13 318
1 305
1 538
2 248
2 011
2 131
2 065
2 011
2 131
2 065
35
69
100
10 986
10 735
10 006
10 771
10 513
9 786
1 220
1 212
1 057
861
673
520
799
646
501
101
76
68
1621
1331
1001
19
10
9744
7654
(8)
1 105
1 061
812
1 1064
33
40
85
(2 133)7
Group
29 415
28 784
27 210
27 510
26 974
25 670
1 6267
South Africa
26 043
25 844
24 904
24 255
24 039
23 384
1 293
3 372
2 940
2 306
3 255
2 935
2 286
333
Other 6
DEPRECIATION AND
AMORTISATION
2015
2014
20138
Rm
Rm
Rm
Edgars division
CNA division
Discount
division
Edgars
Zimbabwe
division
Manufacturing
division
Credit and
Financial
Services
Group
Services2
331
266
178
24
26
24
150
155
11
IMPAIRMENT OF INTANGIBLES5
2015
Rm
2014
Rm
20138
Rm
(4 519)7
(5 361)7
(631)7
(1 113)7
(1 002)
(1 351)
371
238
EXPENDITURE FOR ASSETS
2015
2014
20138
Rm
Rm
Rm
577
873
302
14
16
41
123
180
212
238
9
7
33
32
18
7
5
4
2
15
9
4
6
6
79
1
2
9
33
386
552
670
714
230
199
239
Group
1 079
1 137
1 056
33
465
1 037
1 349
856
South Africa
1 028
1 097
1 029
33
465
840
1 267
766
51
40
27
197
82
90
Other6
Notes
1.
Represents manufacturing sales to third parties. In deriving the revenue, inter-group manufacturing sales of R198 million (52 weeks to 28 March 2014: R224 million and 52 weeks to 31 March 2013: R143 million) have
been eliminated.
2.
Incorporating corporate divisions and consolidation adjustments, including additional depreciation and amortisation which arose on formation of the Group.
3.
The segmental result is stated after impairment of intangibles.
4.
Includes profit share from insurance business of R747 million (52 weeks to 28 March 2014: R739 million and 52 weeks to 31 March 2013: R662 million).
5.
Impairment of intangibles is accounted for by Group Services and included in Group Services operating profit but, the split of these impairments in relation to each operating segment has been disclosed here.
6.
Comprising Botswana, Lesotho, Swaziland, Namibia, Zambia, Mozambique, Ghana and Zimbabwe.
7.
Net financing costs of R3 381 million (52 weeks to 29 March 2014: R2 628 million and 52 weeks to 30 March 2013: R3 029 million) are reported in Group Services. The loss before taxation as reflected in the Consolidated
Statement of Comprehensive Income is reconciled by including these costs.
8.
As per the 2014 Annual Financial statements, 2013 has been restated and represented where necessary (note 38).
72
2.
The following is an analysis of the consolidated revenue from continuing operations by reportable segment:
52 weeks 28 March
2015
Retail sales
Club revenue
1
Manufacturing sales
Finance charges on
trade receivables
Share of profits from
insurance business
Finance income
Administration fee
Total revenue
52 weeks 29 March
2014
Retail sales
Club revenue
1
Manufacturing sales
Finance charges on
trade receivables
insurance business
Finance income
Administration fee
Total revenue
52 weeks to 30
2
March 2013
Retail sales
Club revenue
1
Manufacturing sales
Finance charges on
trade receivables
insurance business
Finance income
Administration fee
Total revenue
Edgars
Rm
CNA
Rm
13 929
328
2 011
Discount
Division
Rm
Edgars
Zimbabwe
Rm
10 771
215
799
7
Manufacturing
Rm
Credit &
Financial
Services
Rm
Group
Services
Rm
27 510
550
162
162
42
55
97
747
33
747
33
316
33
29 415
316
14 257
2 011
10 986
861
13 684
327
2 131
10 513
222
646
162
1 105
26 974
549
133
133
27
42
69
739
40
739
40
280
40
28 784
280
14 011
2 131
10 735
673
13 318
304
2 065
9 786
220
501
133
1 061
25 670
524
100
100
13 622
2 065
10 006
Total
Rm
18
40
1
662
29
81
85
662
115
81
812
85
27 210
520
100
58
Note
1
2
Represents manufacturing sales to third parties. In deriving the revenue, inter-group manufacturing sales of R198 million (52 weeks to 28
March 2014: R224 million and 52 weeks to 30 March 2013: R143 million) has been eliminated.
As per the 2014 Annual Financial statements, 2013 has been restated and represented where necessary.
73
2.
2.1
Information on products
The following is an analysis of the Group’s retail sales from continuing operations by product line:
2015
52 weeks to
28 March
Rm
12 673
4 034
2 830
1 060
2 966
1 116
2 902
(71)
Clothing
Footwear
Cosmetics
Homeware
Cellular
Stationery, books, magazines etc.
Hardlines and FMCG
Loyalty points program
Total retail sales
2.2
2014
52 weeks to
29 March
Rm
12 383
3 929
2 633
1 056
2 715
1 728
2 516
14
27 510
26 974
Restated
2013
52 weeks to
30 March
Rm
12 046
3 765
2 471
1 068
2 488
1 679
2 265
(112)
25 670
Information about major customers
Revenues arise from direct sales to a broad base of public customers. The following is an analysis of the number of
stores in the Group through which the Group’s product offering is distributed:
Edgars Division
CNA Division
Discount Division
Edgars Zimbabwe
2015
28 March
Number
533
195
719
53
2014
29 March
Number
478
191
685
49
Restated
2013
30 March
Number
392
195
646
40
1 500
1 403
1 273
Group
2.3
Reportable operating segment assets and liabilities
The following is an analysis of the operating segments assets and liabilities:
TOTAL ASSETS
3
TOTAL LIABILITIES
2015
Rm
2014
Rm
2013
Rm
3 944
3 908
375
487
2 543
Edgars Zimbabwe division
Manufacturing division
Credit and Financial Services
Edgars division
CNA division
Discount division
Group Services
1
Assets classified as held-for-sale
Group
South Africa – continuing
operations
South Africa – discontinued
operations
2
Other – continuing operations
2
Other – discontinued
operations
4
4
2015
Rm
2014
Rm
2013
Rm
2 830
1 360
332
236
485
59
25
50
2 166
2 354
827
6
49
658
437
368
395
260
265
101
84
62
51
23
17
200
119
238
220
96
345
19 876
20 873
19 567
30 932
31 642
27 515
393
651
1 160
28 090
28 725
27 064
33 844
32 384
28 477
26 246
26 903
25 046
33 310
32 080
28 138
534
304
339
487
1 451
1 171
858
393
651
673
Notes
1
Incorporating corporate divisions and consolidation adjustments, including additional depreciation and amortisation.
2
Compromising Botswana, Lesotho, Swaziland, Namibia, Zambia, Ghana, Mozambique and Zimbabwe.
3
Included in total assets are non-current assets of R17 308 million (2014: R18 439 million and 2013: R18 109 million) which are part of Group Services. 99% of non-current assets are
domiciled in South Africa.
4
As per the 2014 Annual Financial statements, 2013 has been restated and represented where necessary.
74
3.
2015
28 March
Rm
2014
29 March
Rm
Restated
2013
30 March
Rm
4
14
322
949
3 715
2 898
262
4
14
228
986
4 573
1 978
245
4
11
327
785
3 627
1 691
204
8 164
8 028
6 649
2
33
545
1 228
2 822
197
2
11
607
2 576
1 505
170
1
40
513
2 127
1 232
130
4 827
4 871
4 043
16
289
404
2 487
76
65
16
217
379
1 997
473
75
14
287
272
1 500
459
74
3 337
3 157
2 606
3 157
2 606
2 504
-
-
-
169
657
204
7
192
938
194
25
19
87
545
189
16
1 037
1 349
856
PROPERTIES, FIXTURES, EQUIPMENT AND VEHICLES
Historic cost except for revalued land and buildings
Land and buildings
1
Historic cost
1
Revaluation surplus
Leased assets
Leasehold improvements
Computer equipment and software
Machinery and vehicles
Accumulated depreciation
Buildings
Leased assets
Net carrying value
Comprising:
Land and buildings
Leased assets
Opening net carrying value
Movements for the period
Land and buildings – revaluation, cost less accumulated
depreciation
Additions
Leased assets
Transfers between asset categories
Leased assets
108
(32)
(81)
1
5
Relates to land and buildings of the Group.
75
3.
Restated
2013
30 March
Rm
2015
28 March
Rm
2014
29 March
Rm
1
1
17
1
1
19
11
1 049
(3)
1 365
7
863
20
16
1
2
18
2
4
18
2
-
37
832
22
792
24
737
3 337
3 157
2 606
PROPERTIES, FIXTURES, EQUIPMENT AND VEHICLES (continued)
Assets acquired through business combination (note 33.6)
Other
Disposals (net carrying value)
Leased assets
Depreciation (note 28.2)
Closing net carrying value
Land and buildings were revalued at 29 March 2014 to open market value based on the open market net rentals and current
replacement cost of each property. Deferred taxation has been raised on the revaluation surplus. The independent
valuations were carried out by professional valuers. No other categories of assets were revalued.
A register of the Group’s land and buildings is available for inspection at the Company’s registered office. If the land and
buildings were measured using the cost model the cost would have been R4 million (2014: R4 million and 2013: R4 million)
and the accumulated depreciation R1 million (2014: R1 million and 2013: R1 million).
At 28 March 2015, the properties, fixtures, equipment and vehicles have an estimated replacement cost and insurance value
of R9 billion (2014: R8 billion and 2013: R8 billion) which excludes input value added-tax where appropriate.
These assets are security in terms of the floating rate notes, fixed rate notes, the super senior secured notes and the
revolving credit facility (note 18 and 20).
The leased assets are secured by the lease liabilities (note 21.2).
4.
INTANGIBLE ASSETS
Goodwill represents the excess of the purchase consideration over the fair value of the identifiable assets at the date of
acquisition purchased as part of a business combination. Other intangible assets represent registered rights to the exclusive
use of certain trademarks and brand names.
Balance at the beginning of the period
Movement of intangible assets:
Additions of finite life brands
Additions of other intangibles
Goodwill acquired (note 33.6)
Charge for the period (note 28.1)
Derecognition/impairment of goodwill
Impairment of finite life brands
Impairment of indefinite life brands (note 5)
16 388
Balance at the end of the period
Comprising:
Goodwill at cost
Intangible assets at cost
Impairment of intangibles including goodwill
Accumulated amortisation of intangible assets
16 146
16 388
16 697
8 527
12 039
(1 458)
(2 962)
8 526
12 035
(1 458)
(2 715)
8 513
11 979
(1 425)
(2 370)
16 146
16 388
16 697
4
1
(247)
16 697
20
36
13
(345)
(33)
17 481
(319)
(79)
(386)
76
2015
28 March
Rm
4.
2014
29 March
Rm
Restated
2013
30 March
Rm
INTANGIBLE ASSETS (continued)
Intangible assets (excluding goodwill)
Intangible assets at cost:
Indefinite life brands
Finite life brands
Trademarks recognised
Customer lists
Technology
Other intangibles
8 492
249
1 974
206
561
517
40
8 492
249
1 974
206
561
517
36
8 492
229
1 974
206
561
517
12 039
12 035
11 979
(1 170)
(40)
(1 170)
(40)
(1 137)
(40)
(1 210)
(1 210)
(1 177)
(163)
(1 622)
(141)
(482)
(517)
(37)
(144)
(1 454)
(128)
(445)
(511)
(33)
(126)
(1 285)
(115)
(407)
(437)
(2 962)
(2 715)
(2 370)
7 322
46
352
65
79
7 355
63
689
91
154
80
3
7 322
65
520
78
116
6
3
7 867
8 110
8 432
2–4
3–5
4
2
3
4
2–7
3–8
4–9
2
3
4
Less than 1
1
Impairment of intangibles:
Finite life brands
Accumulated amortisation of intangible assets:
Finite life brands
Customer lists
Technology
Other intangibles
Carrying value of intangible assets:
Finite life brands
Customer lists
Technology
Other intangibles
Remaining useful lives (in years)
Finite life brands
Customer lists
Technology
Indefinite life brands principally comprise those brands for which there is no foreseeable limit to the period over which they
are expected to generate net cash inflows.
The Edgars, Jet, CNA and Boardmans brands are considered to have an indefinite life as each has been in existence for a
significant period, have strength and durability and require a low level of marketing support.
Goodwill and indefinite life brands are tested annually for impairment (note 5).
77
5.
IMPAIRMENT TESTING OF GOODWILL AND INTANGIBLES WITH INDEFINITE LIVES
Goodwill acquired through business combinations and intangible assets with indefinite lives have been allocated to individual
cash-generating units for impairment testing as follows:
x
x
x
x
Edgars Division – includes Edgars, Boardmans, Red Square, Edgars Active, Edgars Shoe Gallery, Inglot, La Senza,
Accessorize, Topshop, Tom Tailor, Mac, Lipsy, Bobbi Brown, Lucky Brands, Dune, TM Lewin, Salsa, Jigsaw, Calvin
Klein, Khiels, Victoria’s Secret Beauty and Accessories, Vince Camuto, River Island, Dr. Martens and Jo Malone
offering, clothing, footwear and homeware products.
CNA – offers stationery and electronic products.
Discount – includes Jet, JetMart, Legit and Jet Shoes chains offering clothing, footwear, beauty and homeware
products.
Credit and Financial Services.
Impairment testing of this goodwill and intangibles with indefinite lives was undertaken on the following basis:
The recoverable amount of cash-generating units has been determined based on a value-in-use calculation. To calculate
this, cash flow projections are based on financial budgets approved by the board covering a five-year period. The discount
rate applied to the cash flow projections for the Edgars and the Discount division is 12% (2014: 13% and 2013: 12%), for
CNA, 14% (2014: 15% and 2013: 14%) and for the Credit and Financial Services division, 13% (2014: 13% and 2013:
12%). The average growth rates used to extrapolate the cash flow projection of each cash-generating unit beyond the
periods covered by the financial forecasts for Edgars is 6% (2014: 5% and 2013: 6%), the Discount division is 7% (2014:
8% and 2013: 6%), the Credit and Financial Services division is 5% (2014: 5% and 2013: 6%) and for CNA, 2% (2014: 5%
and 2013: 4%) as future benefits are expected beyond the periods of the financial forecasts.
As a result, forecast sales assumptions were based on estimated growths over the short-term, and the growth rates
beyond the forecasted period is 5% (2014: 6% and 2013: 6%) for Edgars and the Discount division, 5% (2014: 6% and
2013: 6%) for the Credit and Financial Services division and for CNA, 5% (2014: 6% and 2013: 4%).
Carrying amount of goodwill and intangibles with
Indefinite lives (Rm)
2015
Carrying amount of goodwill
Carrying amount of indefinite life intangibles
Credit and
Financial
Services
Edgars
CNA
Discount
Total
1 767
4 535
2 922
2 660
3 590
127
8 279
7 322
2014
1 766
4 535
2 922
2 660
3 590
127
8 278
7 322
2013
1 753
4 535
2 922
2 660
3 590
160
8 265
7 355
In the prior period an impairment of R33 million was recognised on the indefinite life brand for CNA due to economic trading
conditions and a change in the mix of products sold by CNA stores. During the 2013 financial period, R79 million relating to
OtC goodwill was derecognised as the securitisation program was terminated.
Key assumptions applied in value-in-use calculation of the cash generating units
The calculation of value-in-use is sensitive to changes in the following assumptions, listed in order from most sensitive to
least sensitive: gross margin, revenue growth, discount rates, growth rates (used to extrapolate cash flows beyond the
financial forecast period), store expenses and market share.
Gross margins are based on average values achieved in the three years preceding the start of the budget period. These are
increased over the budget period for anticipated efficiency improvement and therefore based on financial forecasts for the
Edgars, CNA and the Discount divisions.
Store expenses are applied as a percentage of sales to the forecast based on historic performance, adjusted for any future
impacts. Discount rates reflect management’s estimate of the risks specific to each unit. Market share assumptions (based
on external market information) are important as management considers how the unit’s position relative to its competitors
might change over the forecast period.
Growth rate estimates are conservatively applied to each unit having considered industry expected growth rates and
internal targets. The Group is not expected to exceed the long-term average growth rates of the industry.
78
5.
IMPAIRMENT TESTING OF GOODWILL AND INTANGIBLES WITH INDEFINITE LIVES (continued)
Sensitivity analysis
If the estimated pre-tax discount rates, terminal growth rates, gross margins and revenue growth rates applied to the
discounted cash flows for each cash-generating unit had been 1% less favourable than management’s estimates, this
would not cause the carrying amount of any of the cash-generating units to exceed the recoverable amount. Accordingly,
management believe that a reasonable possible change in any of the key assumptions on which the recoverable amount
is based would not result in the carrying amount of any of the cash generating units exceeding their recoverable amount.
6.
DERIVATIVE FINANCIAL INSTRUMENTS
6.1
Non-current derivative assets
Cross currency swaps
Foreign currency call options
6.2
1
Current derivative assets
2
Call option premium
Foreign currency forward contracts
2015
28 March
Rm
527
289
816
6.3
6.4
6.5
2014
29 March
Rm
2013
30 March
Rm
23
701
292
724
292
747
550
813
1 297
2
815
Non-current derivative liabilities
Interest rate swaps
-
Current derivative liabilities
Interest rate swaps
Total derivatives
Interest rate swaps liability
Foreign currency forward contracts liability
Cross currency swaps (liability)/asset
Foreign currency call option asset
2
Call option premium
Credit risk valuation adjustments
Interest rate swaps
24
79
24
103
24
68
11
79
(24)
(79)
527
289
746
1 251
(68)
(9)
813
292
713
1 997
1 028
1
(2)
6
4
(4)
7
1
4
(25)
(84)
528
289
744
1 257
(72)
(9)
820
293
708
2 001
(1)
(5)
1
(5)
Total derivatives before credit risk valuation adjustments
Interest rate swaps liability
Foreign currency forward contracts liability
Cross currency swaps (liability)/asset
Foreign currency call option asset
2
Call option premium
1 032
1
Credit risk valuation adjustments are included in the total fair
value of derivatives above.
2
Represents the premium settled in November 2014 on the new
foreign currency call options.
79
2015
28 March
Rm
6.
DERIVATIVE FINANCIAL INSTRUMENTS (continued)
6.5
Total derivatives (continued)
2014
29 March
Rm
2013
30 March
Rm
Refer to note 36.2 for details of hedging activities.
In September and November 2014, the Group restructured
certain derivative contracts by early terminating a series of cross
currency swaps and foreign currency call options with gross
notional values of €230 million and €237 million, respectively,
which were due to mature in March 2015. On termination, the
Group realised net proceeds of R227 million being, R826 million
(note 33.8) gross proceeds received, net of a R310 million (note
19) settlement relating to the option premiums which had been
deferred on the early terminated foreign currency call options.
The balance of R289 million relates to premiums settled on the
new foreign currency call options (refer to paragraph below).
New foreign currency call options were entered into which
partially hedge both interest and principal with a notional value of
€44 million and €385 million, respectively, on the senior secured
fixed rate notes. These new foreign currency call options extend
the hedge cover to March 2016. Premiums payable on these
foreign currency call options of R50 million and R154 million has
been deferred to July 2015 and March 2016, respectively, and
R289 million settled in November 2014 (note 6.2). These foreign
currency call options have not been designated as cash flow
hedges.
Additionally, the Group entered into two foreign currency forward
contracts with a notional value of €7 million each, maturing in
September 2015 and March 2016, respectively, and these
contracts have been designated as cash flow hedges. These
forward contracts partially hedge the interest payments on the
€300 million senior secured fixed rate notes.
The Group also entered into new foreign currency call options
with a notional value of $24 million to partially hedge interest on
the $250 million senior secured fixed rate notes, extending hedge
cover to March 2016. The foreign currency call options have not
been designated as cash flow hedges.
During November 2013 and December 2013, Edcon Holdings
Limited terminated cross currency swaps, interest rate swaps and
currency forwards as a consequence of the redemption of the
senior floating rate notes to which they were related and received
net proceeds of R277 million.
On 17 May 2013, Edcon Limited terminated cross currency
swaps as a consequence of the repurchase of the senior secured
floating rate notes with a nominal value of €387 million and
received proceeds of R654 million which were applied to the
redemption of the senior secured floating rate notes.
On 13 February 2013, Edcon Limited terminated cross currency
swaps as a consequence of the repurchase of the senior secured
floating rate notes with a nominal value of €754 million and
received proceeds of R1 021 million which were applied to the
buy-back transaction.
6.6
Derivative (loss)/gain
Derivative (loss)/gain recognised in profit or loss
(601)
603
(897)
(601)
603
(897)
80
2015
28 March
Rm
7.
2014
29 March
Rm
Restated
2013
30 March
Rm
DEFERRED TAXATION
Balance at the beginning of the period – asset/(liability)
Recognised in profit or loss – current year (note 32.1)
Recognised in profit or loss – prior year (note 32.1)
Deferred tax in profit or loss – discontinued operation (note 12)
Deferred tax in other comprehensive income – cash flow hedges (note
32.2)
Other deferred tax movements
Deferred tax in other comprehensive income –employee benefits (note
32.2)
Balance at the end of the period – asset/(liability)
346
(558)
129
856
(241)
106
(9)
7
48
(36)
(5)
4
(4)
1 015
691
(2 028)
(233)
(33)
264
346
(3)
(558)
Comprising:
40
14
-
1 333
1 408
1 500
239
217
242
Prepayments
42
21
3
Employee benefits asset
31
50
45
Section 24C allowance
Intangible assets
Forward exchange contracts – application of Section 24I
Call option premium
Foreign currency call options – application of Section 24I
3
76
320
22
Interest - application of Section 24J
20
Cross currency swaps - application of Section 24I
25
Fair value gain on interest rate hedges
Other
Deferred tax liability
Provision for impairment of receivables
Provision for stock losses
Other payables
Leave pay accrual
Operating lease adjustment
14
3
-
22
2 132
1 732
1 826
31
41
28
10
7
9
166
120
187
42
44
41
166
134
119
31
Income received in advance
25
28
-
Finance leases
90
77
88
Employee benefits liability
43
49
10
1 463
1 269
680
301
309
77
Assessed loss
Cash flow hedges
25
Restraint of trade
3
Fair value loss on interest rate hedges
Deferred tax asset
Net deferred tax asset/(liability)
29
2 396
2 078
264
346
330
387
1 268
(558)
Reflected in the Statement of Financial Position as follows:
Deferred tax assets – continuing operations
33
Deferred tax assets – discontinued operations
24
33
Deferred tax liabilities – continuing operations
(90)
(74)
(617)
Net deferred tax asset/(liability)
264
346
(558)
26
The deferred tax asset relating to the assessed loss will be realised through the normal course of trading or through tax
planning strategies under the control of management.
81
8.
2015
28 March
Rm
2014
29 March
Rm
Restated
2013
30 March
Rm
Merchandise
4 276
4 360
3 686
Raw material
79
57
42
Work in progress
18
19
10
4 373
4 436
3 738
140
100
143
17 155
16 939
16 172
Trade accounts receivable – retail
505
369
395
(32)
(46)
(22)
Total trade receivables
473
323
373
INVENTORIES
Total inventories on hand
Inventory write-downs included above
Cost of inventories expensed
9.
TRADE RECEIVABLES
R6 million (2014: R16 million and 2013: R118 million) of the balances
are covered by an account protection policy whereby the Group is the
beneficiary in the event of the customer’s death, the customer being
retrenched or becoming permanently disabled. The policy does not
provide cover for insolvency or inability to pay.
On 6 June 2012, the Group announced the intended sale of its private
label store cards to Absa, as well as the implementation of a long-term
strategic agreement. On 1 November 2012, all conditions required for
the first closing of the South African trade accounts receivable sale were
satisfied and R8 667 million of the South African private label store and
portfolio was sold to Absa. On 30 April 2013 and 30 June 2013, all
condition required for the second and third closing of the South African
trade accounts receivable sale were satisfied and R461 million and R114
million, respectively, was sold to Absa. On 1 July 2014, R314 million of
the Namibian private label store card portfolio was sold to Absa. In terms
of the strategic agreement with Absa, Absa will provide retail credit to
these Group customers which were sold to Absa, while the Group
continues to be responsible for all customer-facing activities for these
trade receivables which were sold to Absa, including sales and
marketing, customer services and collections.
The balance of the Group’s trade receivables of R473 million consists
mainly of net trade receivables in Edgars Stores Limited Zimbabwe of
R397 million whilst R76 million relates to South African trade receivables
not considered as “held-for-sale”. The remainder of the trade receivables
balance of R369 million, has been disclosed as “assets classified as
held-for-sale” (note 12). This portion of the card portfolio (Lesotho,
Botswana, Swaziland and the remaining Namibian trade receivables
portfolio not sold to Absa) of R369 million is still expected to be sold as
soon as compliance screening processes and valuation calculations in
respect of these accounts have been completed, as well as the relevant
regulatory approvals have been obtained.
On 1 February 2015, a portion of the continuing written down trade
receivables book was sold for R42 million.
The Edgars Stores Limited Zimbabwe trade receivables have an
average credit period on sale of goods of 390 days (2014: 210 days).
Interest is charged on accounts with payment terms in excess of 6
months to pay. Additional late payment interest is charged at 4% per
month on the outstanding balance for customers who default on their
repayments.
82
2015
28 March
Rm
9.
TRADE RECEIVABLES (continued)
9.1
Analysis of trade receivables past due but not impaired
9.2
9.3
2014
29 March
Rm
Restated
2013
30 March
Rm
Overdue 30 days – 60 days
15
20
27
Greater than 120 days
2
1
1
3
3
2
3
17
25
35
Interest on impaired receivables
Interest recognised on impaired receivables
2
6
4
Total interest recognised on impaired receivables
2
6
4
46
(1)
22
40
868
(2)
(13)
(16)
(844)
32
46
22
539
4
153
128
613
6
96
59
447
6
15
824
774
468
257
1 031
251
159
427
283
1 288
410
710
(Decrease)/increase in impairment provision
Decrease in impairment provision – discontinued operation (note
12)
10. SUNDRY RECEIVABLES AND PREPAYMENTS
Sundry receivables
Staff loans
Prepayments
Value added taxation
11.
CASH AND CASH EQUIVALENTS
Cash on hand
Cash on deposit
12.
DISCONTINUED OPERATIONS
On 6 June 2012, the Group announced the intended sale of its
private label store card portfolio to Absa as well as the
proposed implementation of a long-term strategic agreement.
On 1 November 2012, all conditions required for the first
closing of the South African trade accounts receivable were
satisfied and R8 667 million of the South African private label
store card portfolio was sold to Absa. On 30 April 2013 and 30
June 2013, all conditions required for the second and third
closing of the South African trade accounts receivable were
satisfied and a further R461 million and R114 million,
respectively, was sold to Absa. On 1 July 2014, R314 million of
the Namibian private label store card portfolio was sold to
Absa. In terms of the strategic agreement Absa will provide
retail credit to the Group’s customers which were sold to Absa,
while the Group continues to be responsible for all customerfacing activities for these trade receivables which were sold to
Absa, including sales, marketing, customer services and
collections.
The remainder of the trade receivables balance not sold of
R369 million is still expected to be sold and has been disclosed
as “assets classified as held-for-sale”.
83
12.
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Re-presented
2013
52 weeks to
30 March
Rm
Revenues
12
14
1 188
Other income
12
14
1 188
DISCONTINUED OPERATIONS (continued)
The card portfolio in Lesotho, Namibia, Botswana and
Swaziland classified as held-for-sale, is still expected to
be sold as soon as compliance screening processes and
valuation calculations in respect of these accounts have
been completed, as well as the relevant regulatory
approvals have been obtained. Accordingly, the
provision of credit relating to the portion of the trade
account receivables not yet sold has been disclosed as
a discontinued operation and trade receivables classified
as assets held-for-sale.
The results of the discontinued operation are as follows:
12.1
Statement of Comprehensive Income
12.1.1
Trade receivables disposed of
12.1.2
(110)
(919)
(Loss)/Profit before taxation
Taxation
-
(96)
27
269
(75)
(Loss)/Profit for the period
-
(69)
194
Trade receivables held-for-sale
Revenues
119
144
150
Other income
119
144
150
(104)
(134)
(68)
Profit before taxation
Taxation
15
(1)
10
(3)
82
(23)
Profit for the period
14
7
59
Revenues
131
158
1 338
Other income
131
158
1 338
(116)
(244)
(987)
Profit/(Loss) before taxation
15
(86)
351
Taxation
(1)
24
(98)
Profit/(Loss) for the period
14
(62)
253
12.1.3
(12)
Total discontinued operations
84
12.
DISCONTINUED OPERATIONS (continued)
12.2
Statement of Financial Position
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
314
314
575
575
8 667
8 667
369
24
393
618
33
651
1 134
26
1 160
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Re-presented
2013
52 weeks to
30 March
Rm
314
479
8 937
314
479
8 937
265
524
(138)
265
524
(138)
579
1 003
8 799
579
1 003
8 799
The major classes of assets sold are as follows:
12.2.1
12.2.2
12.3
Assets
Trade receivables
Total assets disposed of
Assets
Trade receivables
Deferred tax asset
Statement of Cash Flows
The net cash flows incurred by the discontinued operations are as
follows:
12.3.1
Operating
Investing
Financing
Net cash inflow
12.3.2
Operating
Investing
Financing
Net cash inflow/(outflow)
12.3.3
Total discontinued operations
Operating
Investing
Financing
Net cash inflow
85
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
1 000 000 000 “A” preference shares of R0.00001 each
-
-
-
1 000 000 000 “B” preference shares of R0.00001 each
-
-
-
-
-
Number of ordinary shares in issue
Number of shares at the beginning of the period
“C” ordinary shares issued
“D” ordinary shares issued
“E” ordinary shares issued
564 375
1 621
1 621
1 621
564 375
1 621
1 621
1 621
564 375
Number of shares at the end of the period
569 238
569 238
564 375
Number of ordinary shares in issue comprise:
“A” ordinary shares issued
“B” ordinary shares issued
“C” ordinary shares issued
“D” ordinary shares issued
“E” ordinary shares issued
Treasury shares – Staff Empowerment Trust
500 133
69 213
23 035
23 035
23 035
(69 213)
500 133
69 213
23 035
23 035
23 035
(69 213)
500 133
69 213
21 414
21 414
21 414
(69 213)
569 238
569 238
564 375
Number of preference shares in issue
Number of shares at the beginning of the period
256 707
256 707
256 707
Number of shares at the end of the period
256 707
256 707
256 707
Number of preference shares in issue comprise:
“A” preference shares of R0.00001 each
“B” preference shares of R0.00001 each
200 866
55 841
200 866
55 841
200 866
55 841
256 707
256 707
256 707
13.
SHARE CAPITAL AND PREMIUM
13.1
Authorised ordinary share capital
1 000 000 000 “A “ordinary shares with a par value of
0.00001 cent each
100 000 000 “B” ordinary shares with a par value of
0.00001 cent each
1 000 000 000 “C” ordinary shares with a par value of
0.00001 cent each
1 000 000 000 “D” ordinary shares with a par value of
0.00001 cent each
1 000 000 000 “E” ordinary shares with a par value of
0.00001 cent each
13.2
13.3
13.4
Authorised preference share capital
86
13.
SHARE CAPITAL AND PREMIUM (continued)
13.5
Voting rights of ordinary and preference shares
Each “A” ordinary share of the Group shall entitle the holder
thereof to 1 000 votes on all matters upon which
shareholders have the right to vote.
Each “A” redeemable cumulative preference share of the
Group shall not entitle the holders thereof to receive notice
of or to attend or vote at any general meeting of the
company Edcon Holdings Limited, save where a resolution
affecting a matter contemplated in section 37(3)(a) of the
Companies Act of South Africa is proposed.
The total “B” ordinary shareholder of the Group at any time
shall, in aggregate, have the right to exercise such number
of votes as is equal to 10,6% of the aggregate voting rights
of the total “A” ordinary shares then in issue.
Each “B” redeemable cumulative preference share of the
Group shall not entitle the holders thereof to receive notice
of or to attend or vote at any general meeting of the
company Edcon Holdings Limited, save where a resolution
affecting a matter contemplated in section 37(3)(a) of the
Companies Act of South Africa is proposed.
Each “C”, “D” and “E” ordinary share shall entitle the holder
thereof to one vote on all matters upon which shareholders
have the right to vote.
13.6
Redemption of preference shares
The “A” and “B” Preference Shares may not be redeemed
within three years and one day of their date of issue and will
thereafter be redeemed at a date fixed by the Company.
The Company shall pay to the member, all monies payable
in respect of the redemption of such “A” and “B” Preference
Shares as calculated in accordance with the provisions of
the memorandum of incorporation of the Company.
The “A” and “B” Preference Shares shall not confer on the
holders thereof any further rights to participate in the profits
or assets of the Company.
87
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
2 155
2 153
2
2 153
2 155
2 155
2 153
Comprising:
Share capital
Share premium
2 155
2 155
2 153
Total
2 155
2 155
2 153
13.
SHARE CAPITAL AND PREMUIM (continued)
13.7
Issued shares and premium
Ordinary shares issued
Preference shares issued – share capital
Preference shares issued – share premium
14.
OTHER RESERVES
Balance at the beginning of the period comprising:
Revaluation reserve net of deferred taxation
Foreign currency translation reserve
Cash flow hedges net of tax
8
10
99
8
(31)
(37)
8
(44)
(661)
117
(60)
(697)
10
41
13
(527)
564
1 483
208
96
76
(771)
(3)
1 033
(2 215)
48
303
(36)
570
(244)
(48)
117
(60)
Comprising:
Revaluation reserve net of deferred taxation
8
20
(76)
8
10
99
8
(31)
(37)
(48)
117
(60)
Movements
Net decrease in revaluation reserve
Cash flow hedges recognised in other comprehensive
income
Cash flow hedges released to derivative losses as hedge
ineffectiveness
Cash flow hedges released to financing costs
Cash flow hedges released to foreign exchange loss/(gain)
Cash flow hedges released due to discontinued hedge
accounting
Tax impact of cash flow hedges (note 32.2)
88
2015
28 March
Rm
14.
2014
29 March
Rm
Restated
2013
30 March
Rm
OTHER RESERVES (continued)
The foreign denominated floating and fixed rate notes
expose the Group to both interest rate risk and foreign
exchange risk. Derivative instruments have been executed
to limit the exposure to both interest rate and/or foreign
exchange risk. Certain derivative instruments have been
designated as a cash flow hedge. Refer to note 36.2 for
details of the hedging strategy.
The foreign currency translation reserve is used to
record exchange differences arising from the translation of
the financial statements of foreign subsidiaries. It is also
used to record the effect of hedging net investments in
foreign operations.
15.
RETAINED (LOSS)/SURPLUS
Comprising:
Holding company - Edcon Holdings Limited
Consolidated subsidiaries
16.
2 821
2 557
2 357
(19 139)
(16 871)
(14 222)
(16 318)
(14 314)
(11 864)
FOREIGN SUBSIDIARY DISTRIBUTIONS
Distributions by certain foreign subsidiaries will give rise to
withholding taxes of R57 million (2014: R44 million and
2013: R26 million). No deferred tax is raised until dividends
are declared as the Group controls the timing of the reversal
and it is probable that there will be no reversal in the
foreseeable future. Deferred tax not raised was R145 million
(2014: R113 million and 2013: R68 million).
89
17.
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
8 290
21
8 311
8 290
8 290
8 290
8 290
638
203
841
659
138
797
659
142
801
797
65
(21)
841
801
(4)
659
142
797
801
9 152
9 087
9 091
8 949
8 949
8 949
1 005
1 010
1 010
4 543
4 406
5 381
2 981
4 108
3 773
4 083
155
21 486
5 948
2 603
4 542
4 149
4 008
113
22 373
SHAREHOLDER’S LOAN
Loan recognised in equity
Principal at the beginning of the period
Reclassification from loan recognised in non-current liabilities
Loan recognised in non-current liabilities
Principal
Cumulative notional interest charged
Reconciliation of loan recognised in non-current liabilities
Principal and notional interest at the beginning of the period
Notional interest charged for the period
Reclassification to loan recognised in equity
Principal and notional interest at the end of the period
Total principal recognised in equity and non-current liabilities
at the end of the period, including notional interest
Total principal recognised in equity and non-current liabilities
at the end of the period, excluding notional interest
In June 2007, the parent company, Edcon (BC) S.A.R.L,
provided a shareholder loan for R5 057 million as proceeds of
capital investment to Edcon Holdings Limited. The loan is
denominated in South African Rands and accrued interest at the
South African prime rate plus 2% p.a. up to and including 7
February 2012. Thereafter, no interest will accrue up to and
including the date of repayment. The principal is repayable in
May 2037. This shareholder’s loan is regarded as capital for IAS
1 purposes (note 35). As a result of the loan being interest-free,
the terms of the loan were substantially different and it was
necessary to derecognise the loan in terms of IAS 39 on 8
February 2012. Applying initial measurement in terms of IAS 39
resulted in R8 290 million being recognised in equity and R659
million being recognised in non-current liabilities in the 2013
financial period.
During the current financial period, R21 million was reclassified
from the shareholder’s loan recognised in non-current liabilities
to the shareholder’s loan recognised in equity due to a
misclassification between equity and non-current liabilities at 8
February 2012. As a result, the amount that should have been
recognised in equity at 8 February 2012 was R8 311 million
whilst R638 million should have been recognised in non-current
liabilities at that date.
The directors have considered the going concern assumption
and have included the total shareholder’s loan of R9 152 million
in the assessment (note 1.2 and 35). To the extent required to
maintain the solvency of the Group, the shareholder’s loan has
been subordinated to the claims of all of the creditors of the
Group.
18.
NON-CURRENT INTEREST-BEARING DEBT
Super senior secured notes (note 18.1)
Senior secured floating rate notes (note 18.2)
Senior floating rate notes (note 18.3)
Senior fixed rate notes – EUR 425 million (note 18.4)
Senior secured fixed rate notes – USD 250 million (note 18.5)
Senior secured fixed rate notes – EUR 317 million (note 18.6)
Senior secured fixed rate notes – EUR 300 million (note 18.7)
Senior secured term loan R4 120 million (note18.8)
Other interest-bearing debt (note 18.9)
2 245
3 654
3 279
122
19 259
1.
The above table has been restated in 2013 for the effect of
consolidating Edgars Stores Limited Zimbabwe.
90
18.
NON-CURRENT INTEREST-BEARING DEBT (continued)
18.1
Super senior secured notes
Notes issued
Fees capitalised
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
1 010
(5)
1 010
1 010
1 005
1 010
1 010
1 010
1 010
1 010
1 010
1 010
3 698
1 014
3 698
867
(22)
Fees capitalised
(8)
Fees amortised
3
1 005
The super senior secured notes were issued during the 2012
financial period by Edcon Limited and guaranteed on a super
senior secured basis. These notes are secured along with
the revolving credit facility, the senior secured term loan, the
senior secured floating rate notes and the senior secured
fixed rate notes by security interests over the assets of
Edcon Holdings Limited and its subsidiaries. Interest is
payable quarterly in arrears at a rate of three-month JIBAR,
plus 6.25%. The notes mature on 4 April 2016, subject to a
springing maturity structure.
There have been no defaults or breaches of the principal or
interest during the period.
18.2
Senior secured floating rate notes
Notes issued
Foreign currency
Fees capitalised
Repurchased
(4 712)
4 543
Foreign currency movement
Fees amortised
Repurchased
Balance at end of period
4 543
146
23
(4 712)
11 559
1 795
90
(8 901)
4 543
On 20 May 2013, the Group completed the repurchase of all its
senior secured floating rate notes at a face value of €387
million. The repurchase was funded by the proceeds from the
senior secured term loan (note 18.8) and the net proceeds on
termination of the derivative contracts which hedged the
exchange risk on these notes.
On 14 February 2013, the Group completed a note repurchase
of the senior secured floating rate notes with a nominal value
of €754 million being 100.1% of the face value. The notes were
redeemed out of the combined proceeds raised from the
issuance of new senior secured fixed rate notes (note 18.7), a
portion of the proceeds from the sale of the Group’s private
label store card portfolio to Absa and through proceeds
received on termination of certain in-the-money derivative
contracts over the related notes being repurchased.
91
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
3 606
1 674
3 606
846
(46)
18. NON-CURRENT INTEREST-BEARING DEBT (continued)
18.2 Senior secured floating rate notes (continued)
In May 2011, the Group completed a note repurchase of the
senior secured floating rate notes with a nominal value of €39
million being 90% of the face value.
Interest was payable quarterly in arrears at a rate of three month
EURIBOR, reset quarterly, plus 3.25%. The notes matured on
15 June 2014. There have been no defaults or breaches of the
principal or interest during the period. The market value of the
senior secured floating rate notes at 28 March 2015 was RNil
million (2014: RNil and 2013: R4 542 million).
18.3 Senior floating rate notes
Notes issued
Foreign currency
Fees capitalised
Repurchased
(5 280)
4 406
Fees amortised
Repurchased
4 406
828
46
(5 280)
3 802
587
17
4 406
On 14 November 2013, the Group completed the
repurchase of €378 million senior floating rate notes at a
redemption price of 100% of face value. The repurchase
was paid in two tranches of €262 million and €116 million
being the principal and interest due. The first tranche was
paid on 14 November 2013 and the second on 14
December 2013. These notes were redeemed out of the
proceeds on the issue of the senior fixed rate notes with a
nominal value of €425 million (note 18.4).
Interest was payable quarterly in arrears at a rate of three
month EURIBOR, reset quarterly, plus 5.5%. The notes
matured on 15 June 2015. There were no defaults or
breaches of the principal or interest during the period. The
market value of the senior floating rate notes at 28 March
2015 was RNil million (2014: RNil million and 2013: R4 059
million).
92
2015
28 March
Rm
18.
18.4
Senior fixed rate notes – EUR 425 million
Notes issued
Foreign currency
Fees capitalised
2014
29 March
Rm
5 905
(328)
(196)
5 905
273
(230)
5 381
5 948
2013
30 March
Rm
Notes issued
Fees capitalised
Fees amortised
5 948
5 381
5 948
1 737
1 273
(29)
1 737
904
(38)
1 737
554
(46)
2 981
2 603
2 245
Fees amortised
2 603
369
9
2 245
350
8
1 863
374
8
2 981
2 603
2 245
(601)
(3)
37
5 905
273
(244)
14
On 14 November 2013, Edcon Holdings Limited issued senior fixed
rate notes with a nominal value of €425 million.
Interest is payable semi-annually in arrears at a rate of 13.375% per
annum and the notes mature in June 2019.
The market value of the senior fixed rate notes at 28 March 2015
was R1 301 million (2014: R5 560 million). There have been no
defaults or breaches of the principal or interest during the period.
18.5
Senior secured fixed rate notes – USD 250 million
Notes issued
Foreign currency
Fees capitalised
The senior secured fixed rate notes of US$250 million were
issued by Edcon Limited in March 2011 and guaranteed on a
senior secured basis and is secured, along with the revolving
credit facility, the super senior secured notes, the senior
secured floating rate notes and the senior secured term loan,
by security interests over substantially all the assets of
Edcon Holding Limited and its subsidiaries.
Interest is payable semi-annually in arrears at a rate of 9.5%
per annum and they mature in March 2018.
The market value of the senior secured fixed rate notes at 28
March 2015 was R2 300 million (2014: R2 564 million and
2013: R2 274 million). There have been no defaults or
breaches of the principal or interest during the period.
93
2015
28 March
Rm
18.
18.6
2014
29 March
Rm
2013
30 March
Rm
Senior secured fixed rate notes – EUR 317 million
Notes issued
Foreign currency
Fees capitalised
3 044
1 115
(51)
3 044
1 563
(65)
3 044
689
(79)
4 108
4 542
3 654
Fees amortised
4 542
(448)
14
3 654
874
14
3 149
492
13
4 108
4 542
3 654
3 598
339
(79)
(85)
3 598
763
(102)
(110)
3 598
(64)
(123)
(132)
3 773
4 149
3 279
Notes issued
Discount on notes issued
Foreign currency
Fees capitalised
Discount amortised
Fees amortised
4 149
3 279
3 773
The senior secured fixed rate notes of €317 million were
issued by Edcon Limited in March 2011 and guaranteed on a
senior secured basis and are secured, along with the
revolving credit facility, the super senior secured notes, the
senior secured floating rate notes and the senior secured term
loan, by security interests over substantially all the assets of
Edcon Holding Limited and its subsidiaries.
18.7
Senior secured fixed rate notes – EUR 300 million
Notes issued
Foreign currency
Discount on notes issued
Fees capitalised
(424)
23
25
827
(2)
22
23
4 149
3 598
(126)
(64)
(135)
3
3
3 279
On 13 February 2013, Edcon Limited issued new senior
secured fixed rate notes which mature in March 2018, with a
face value of €300 million. The notes were issued at 96.5%
of the face value, are guaranteed on a senior secured basis
and are secured, along with the revolving credit facility, the
super senior secured notes, the senior secured floating rate
notes and the senior secured term loan, by security
interested over substantially all the assets of Edcon Holdings
Limited and its subsidiaries.
94
2015
28 March
Rm
18.
18.8
Senior secured term loan ZAR 4 120 million
Loan raised
Fees capitalised
Interest capitalised
2014
29 March
Rm
4 120
(79)
42
4 120
(112)
4 083
4 008
Notes issued
Fees capitalised
Fees amortised
Interest capitalised1
4 008
4 120
(140)
28
4 083
4 008
138
17
155
110
3
113
1
33
42
2013
30 March
Rm
Interest capitalised as per the original loan agreement.
On 28 March 2013, Edcon Limited concluded an agreement with
certain financial institutions to provide a R4 120 million term loan,
guaranteed on a senior secured basis and secured, along with the
revolving credit facility, the super senior secured notes, the senior
secured floating rate notes and the senior secured fixed rate notes, by
security interests over substantially all the assets of Edcon Holdings
Limited and its subsidiaries. The proceeds from the senior secured term
loan were used to repurchase all outstanding senior secured floating
rate notes. The loan is repayable four years from drawdown (May
2013), while interest is payable quarterly at an initial rate of three-month
JIBAR, plus 7.0%.
18.9
Other interest-bearing debt
Edgars Stores Limited Zimbabwe loans
Other interest-bearing loans
122
122
The borrowing arrangements for Edgars Stores Limited Zimbabwe are
secured with a Notarial General covering bond and negative pledge over
assets and cession of trade accounts receivable. The weighted average
effective interest rate on all the borrowings is 11.08% (2014: 9.79% and
2013: 10.17%) per annum and maturities of the interest-bearing debt
range between 90 days and 3 years. The Group has guaranteed this
facility in favour of Edgars Stores Limited Zimbabwe.
Other interest-bearing loans relate to the borrowing arrangements for the
ALI group of companies (note 33.6) and are secured with a general
notarial bond over all inventory and moveable assets and cession of trade
accounts receivable. The loan bears interest at prime plus 1% p.a. and is
repayable in monthly instalments over 4 years.
95
2015
28 March
Rm
19.
2014
29 March
Rm
2013
30 March
Rm
DEFERRED OPTION PREMIUM
Current
Non-current
Deferred option premium raised during the period
Deferred option premium settled during the period
Effective interest (note 31.2)
1 076
291
811
36
269
1 076
1 102
305
1 102
175
(310)
109
305
1 069
(312)
40
351
(51)
5
1 076
1 102
305
2 865
99
1 210
60
1 456
60
2 964
1 270
1 516
In September and November 2014, the Group restructured foreign
currency call options with a notional value of €237 million by early
terminating these derivative contracts that were due to mature in March
2015 and entered into new foreign currency call options to partially
hedge both interest, with a notional value of €44 million and $24 million,
and principal with a notional value of €385 million on the senior secured
fixed rate notes; extending hedge cover to March 2016. Of these new
options, a premium of R175 million was deferred and R289 million was
settled in cash. Deferred option premiums of R310 million, including
early termination costs, were settled in November 2014. Refer to note
6.5 for more information.
In December 2013 and January 2014, the Group restructured foreign
currency call options with notional values of €150 million and US$250
million by early terminating these derivative contracts that were due to
mature in March 2014 and entered new foreign currency call options to
extend the tenor of hedge cover to 15 December 2015 on the principal
debt of the senior secured fixed rate notes. A deferred option premium
with a face value of R312 million was also settled. The Group received
net proceeds of R377 million on settlement of the foreign currency call
options, net of amounts due on the related deferred option premiums.
New deferred option premiums with a face value of R950 million arose
on the re-strike and extension of foreign currency call options. These
premiums are payable on 31 December 2015 and are interest free.
In April 2013 foreign currency call options were entered into which
hedge the repayment of €237 million in principal on the senior secured
fixed rate notes to 12 March 2015. The premiums payable on the
foreign currency call options of R317 million have been deferred to 13
March 2015 and are interest-free.
In December 2012, a series of foreign currency call options were
entered into, with notional values of €150 million and US$250 million to
buy foreign currency and sell Rand. These foreign currency call options
hedge a portion of our principal obligations on the senior secured fixed
rate notes. The premiums payable on the foreign currency call options
have been deferred to between March 2014 and April 2014 and were
interest-free. These premiums have been settled in prior periods.
20.
CURRENT INTEREST-BEARING DEBT
Revolving credit facility
Other interest-bearing debt
96
20.
CURRENT INTEREST-BEARING DEBT (continued)
The revolving credit facility provides senior secured financing of up to
R3 717 million (2014: R3 967 million and 2013: R3 967 million) for
general corporate and working capital purposes. All obligations under
the facility is secured by substantially all the assets of Edcon Holdings
Limited and its subsidiaries. The revolving credit facility accrues interest
at applicable JIBAR plus a margin of 4% (2014 and 2013: 4%) payable
monthly in arrears. The facility includes R2 550 million (2014: R2 550
million and 2013: R2 700 million) borrowing capacity available for bank
guarantees, letters of credit, forward exchange contracts and for
borrowings under bilateral ancillary facilities. These ancillary facilities
accrue interest at ruling over-night market related lending rates.
Other interest-bearing debt consists of:
-
A loan of R60 million (2014: R39 million and 2013: R36 million),
bank overdraft of R25 million (2014: R5 million and 2013: RNil
million) and treasury bills of R11 million (2014: R16 million and
2013: R24 million) in Edgars Stores Limited Zimbabwe. This debt
in Zimbabwe is secured with an external guarantee, Notional
General Covering Bond and negative pledge over the Zimbabwe
assets and trade accounts receivable. The weighted average
effective interest rate on all the borrowings is 11.08% (2014: 9.79%
and 2013: 10.17%) per annum and maturities of the interestbearing debt range between 90 days and 3 years; and
-
A bank overdraft of R3 million in Celrose Proprietary Limited. The
facility bears interest at prime plus 2.37% p.a. and is unsecured.
There have been no defaults or breaches of principal, interest or
redemption terms during the current or prior periods.
21.
LEASE OBLIGATIONS
21.1
Operating lease obligations
The Group leases the majority of its properties and computer
equipment under operating leases whereas other operating assets are
generally owned. The lease agreements of certain of the Group's store
premises provide for a minimum annual rental payment and additional
payments determined on the basis of turnover. Lease agreements have
an option of renewal in terms of the lease agreement ranging between
5 to 10 years.
97
2015
28 March
Rm
2014
29 March
Rm
Restated
2013
30 March
Rm
11 443
2 015
6 317
12 346
1 879
6 860
8 979
1 627
4 778
3 111
3 607
2 574
The future minimum computer equipment operating lease commitments
are due as follows:
218
455
288
Within one year
Between two and five years
197
21
265
190
148
140
Minimum lease payments
562
464
537
Within one year
In more than five years
78
277
207
40
167
257
72
162
303
The present value of the lease obligation is due as follows:
Within one year
364
33
161
170
273
11
63
199
313
40
51
222
The present value of the interest payments is due as follows:
198
191
224
Within one year
45
116
37
29
104
58
32
111
81
21.
LEASE OBLIGATIONS (continued)
21.1
Operating lease obligations (continued)
The future minimum property operating lease commitments are
due as follows:
Within one year
The future revenue expected from sub-leases is estimated to be R32
million (2014: R29 million and 2013: R19 million).
The Group also leases certain computer equipment. The agreements
provide for minimum annual rental payments and additional payments
depending on usage.
21.2
The finance lease relating to leased assets (note 3) is recognised in
respect of a building and furniture and fittings for which the present
value of the minimum lease payments due in terms of the lease
agreements amounted substantially to the fair value of the building and
furniture and fittings at the time the agreement was entered into. The
average borrowing rate on the lease of the building is 11.0% (2014 and
2013: 11%) and the average borrowing rate on the furniture and fittings
is 13.7% (2014: 8.5% and 2013: 8.6%).
98
2015
28 March
Rm
21.
LEASE OBLIGATIONS (continued)
21.3
Non-current liabilities
Current liabilities (note 23)
2014
29 March
Rm
2013
29 March
Rm
129
5
134
Raised during the period (note 28.6)
Utilised during the period
137
(3)
134
Onerous contracts are identified where the present value of future
obligations in terms of the contracts in question exceeds the estimated
benefits accruing to the Group from the contracts. The provision relates
to certain leases where the site is either vacant or the commercial activity
on the site is incurring losses.
Future cash flows are determined in accordance with the contractual
lease obligations and are adjusted by market-related sublet rentals,
where applicable, and discounted at the Group’s risk-adjusted pre-tax
weighted average cost of capital rate.
22.
PUT OPTION LIABILITY
Put option liability
73
67
Put option liability raised
Fair value adjustment for the period
67
25
6
42
73
67
On 1 September 2013, the Group acquired the following companies,
collectively referred to as the ALI group of companies:
-
Rosyco Retail Proprietary Limited (Lingerie retailer)
Cosyro Retail Proprietary Limited (Cosmetic retailer)
Quinmatro Retail Proprietary Limited (Accessory retailer)
Under the sale agreement the minority shareholders have a put option
exercisable no sooner than 4 April 2016. The put option in respect of the
shares in the ALI group of companies arises from an arrangement
whereby the non-controlling shareholders of each company have the
right to put their interest of 49.9% in each company to Edcon Limited.
The fair value of the put option is determined based on an EBITDA
multiple, as determined in accordance with the terms and conditions of
the contractual arrangement. As such, the amount that may become
payable under the option on exercise by the non-controlling shareholders
is initially recognised at fair value within non-current liabilities at the date
of acquisition with subsequent fair value adjustments recognised through
profit or loss.
99
23.
Restated
2013
30 March
Rm
2015
28 March
Rm
2014
29 March
Rm
3 662
1 567
38
21
164
27
353
5
3 554
1 349
51
73
166
418
3 258
1 201
4
1
152
38
115
5 837
5 611
4 769
52
64
86
TRADE AND OTHER PAYABLES
Trade accounts payable
Sundry accounts payable and accrued expenses
Provisions
Lease equalisation
Leave pay accrual
Value added taxation
Interest accrued
Onerous leases (note 21.3)
The trade and sundry payables amounts are interest-free and
mature no later than 30 to 60 days. Other payables mature no
later than one year.
Provisions include amounts relating to the restructuring, customer
returns and supplier-related claims.
Included within sundry payables is a liability relating to gift cards
purchased by customers. In the current period, R69 million was
released to the Statement of Comprehensive Income as a result of
breakage rates being applied for the first time to this liability based on
historic trends of the expected usage of these gift cards. There is no
effect on future periods as a result of this initial application of
breakage rates.
24.
DEFERRED REVENUE
Deferred revenue has been classified as:
Current liabilities
Total deferred revenue
77
114
106
129
178
192
103
178
192
129
178
192
29
74
64
114
86
106
103
178
192
178
208
(283)
192
265
(279)
80
252
(140)
103
178
192
Deferred revenue comprises:
Loyalty programme deferred revenue
Government grants deferred
Total deferred revenue
24.1
Loyalty programme deferred revenue
Non-current liability
Current liability
Total
Reconciliation of loyalty programme deferred revenue:
Loyalty points earned
Loyalty points redeemed
26
The deferred revenue in respect of loyalty arises from the
Thank U rewards program launched during February 2012.
100
2014
29 March
Rm
Restated
2013
30 March
Rm
241
382
837
256
669
231
497
1 051
1 068
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Restated &
re-presented
2013
52 weeks to
30 March
Rm
27 510
550
97
747
33
316
162
26 974
549
69
739
40
280
133
25 670
524
58
662
115
81
100
29 415
28 784
27 210
550
97
316
162
549
69
280
133
524
58
81
100
1 125
1 031
763
2015
28 March
Rm
24.2
Government grants deferred
Non-current liability
Current liability
Total
23
3
26
Grants received
261
26
1
Includes government grants amortised of R18 million.
Government grants have been received for the purchase of
certain items of property, plant and equipment. There are no
unfulfilled conditions or contingencies attached to these grants.
25.
FUTURE CAPITAL EXPENDITURE
Contracted:
Authorised by the directors but not yet contracted:
26.
REVENUE
Retail sales
Club fees
Finance charges on trade receivables
Finance income (note 31.1)
Administration fee
Manufacturing sales to third parties
27.
OTHER INCOME
Club fees
1
Finance charges on trade receivables
Administration fee
Manufacturing sales to third parties
1
2013 has been re-presented for the discontinued operation (note 12).
101
2015
52 weeks to
28 March
Rm
28.
2014
52 weeks to
29 March
Rm
Restated &
re-presented
2013
52 weeks to
30 March
Rm
OTHER OPERATING COSTS
Trading profit is stated after taking account inter alia the following
items:
28.1
28.2
28.3
28.4
Amortisation of intangible assets
Charge for the period (note 4)
247
345
319
Depreciation of properties, fixtures, equipment and vehicles
Buildings
Leased assets
Machinery
Total charge for the period (note 3)
35
97
449
229
22
832
20
86
442
219
25
792
23
86
392
215
21
737
199
380
579
219
397
484
374
616
858
2 045
9
124
(42)
198
1 806
10
38
(38)
205
2 021
1 576
25
29
(36)
227
1 821
Fees payable
Managerial, technical, administrative and secretarial fees paid
outside the Group
Outsourcing of IT function
Operating lease expenses
Minimum lease payments
Turnover clause payments
Sublease rental income
Equipment
2 334
28.5
Net loss on disposal of properties, fixtures, equipment and
vehicles
28.6
Onerous lease expense (note 21.3)
29.
FOREIGN EXCHANGE GAINS/(LOSSES) AND FEES AMORTISED
37
22
137
Released from other comprehensive income (note 14)
1 103
(96)
Foreign exchange loss on notes
Other foreign exchange (loss)/gain
1 007
(9)
Total foreign exchange gain/(loss)
Fees and discount amortised recognised in financing costs (note 31.2)
11
998
141
(3 298)
771
(2 527)
69
(2 458)
(3 186)
2 215
(971)
(137)
(1 108)
176
133
102
2015
52 weeks to
28 March
Rm
30.
DIRECTORS AND EMPLOYEES
30.1
Employees
The aggregate remuneration and associated cost of permanent and
casual employees including directors was:
Salaries and wages
Retirement benefit costs
Medical aid contributions:
Current
Post-retirement
30.2
2014
52 weeks to
29 March
Rm
2013
52 weeks to
30 March
Rm
3 331
317
3 313
313
3 082
299
66
8
67
8
63
8
3 722
3 701
3 452
2015
52 weeks to
28 March
R 000
2014
52 weeks to
29 March
R 000
2
2013
52 weeks to
30 March
R 000
Directors and
prescribed
officers
Directors and
prescribed
officers
Directors and
prescribed
officers
1 955
1 880
668
1 955
1 880
668
Executive directors and prescribed officers:
Remuneration
Retirement, medical, accidental and death benefits
Relocation payment
Performance bonuses
3
Other bonuses
Other benefits
29 592
2 056
649
9 102
36 900
128
25 016
2 457
23 148
2 449
1 830
26 050
79
18 772
185
Retired ex-directors
Total
78 427
97
78 524
53 602
89
46 384
85
53 691
46 469
1
Directors’ and prescribed officers remuneration
Non-executive directors:
Fees
1
2
2
Prescribed officers are members of the executive committee.
2013 has been restated to include prescribed officers whilst both 2014 and
2013 have been restated to reflect the bonuses in the period it was
receivable.
3
Includes retention, loyalty, sign-on and other bonuses.
103
30.
DIRECTORS AND EMPLOYEES (continued)
30.2
Directors’ and prescribed officers remuneration (continued)
30.2.1 Directors emoluments
2015
Name
Fees
R000
Remueration
R000
Retirement,
medical,
accident
and death
benefits
R000
Relocation
R000
Performance
bonus
R000
Other
Bonuses1
R000
Other
benefits
R000
Total
R000
ZB Ebrahim
634
634
DH Brown
489
489
TF Mosololi
416
416
LL Von Zeuner
416
416
Total
1 955
Executive
directors and
prescribed
Months
officers
paid
J Schreiber
12
12 545
80
T Clerckx
12
4 354
146
7 500
MR Bower
2
1 315
172
700
Dr. U Ferndale2
12
3 392
723
7 500
64
G Napier
12
2 839
661
402
5 000
64
B Gebauer
12
4 029
134
1 200
11 000
C Claasen
3
1 118
140
649
20 125
12 700
17 849
2 187
11 679
8 966
16 363
1 258
78 427
Total - non-executive directors, executive directors and prescribed officers
80 382
Pension for past managerial services - retired ex directors
Total emoluments
97
80 479
1
Includes retention, loyalty, sign on and other bonuses.
2
An amount of R7.5 million is receivable in 2016.
Executive directors
The executive board members at 28 March 2015 are the Group Chief Executive Officer (CEO), the Chief Financial Officer and
the Chief Operations Officer. The remuneration committee has set their remuneration with due consideration to their
performance, experience and responsibility after conducting extensive benchmarking of similar roles in companies
comparable to the Group’s size, industry and risk profile.
Jurgen Schreiber, the CEO, entered into a five year employment contract with the Group to 1 April 2016. In terms of his
contract, he is entitled to a basic annual remuneration, payment in lieu of benefits and annual performance bonus. The
employment of the CEO can be terminated by either party upon 6 months prior notice.
Toon Clerckx, the CFO, entered into a contract with the Group to 15 February 2019. In terms of his contract, he is entitled to
a basic annual remuneration, loyalty bonus and annual performance bonus. His employment can be terminated by either
party upon 6 month prior notice.
Mark R. Bower, the Deputy CEO and CFO, entered into a contract with the Group to 1 July 2017. In terms of his contract, he
is entitled to a basic annual remuneration, loyalty bonus and annual performance bonus. Mark retired from Edcon with effect
from 6 June 2014 and stepped down from the various boards of the Edcon Group on 31 March 2014.
Dr Urin Ferndale, the COO, entered into a five year contract with the Group to 1 July 2017. In terms of his contract, he is
entitled to a basic annual remuneration, loyalty bonus and annual performance bonus. The employment of the COO can be
terminated by either party upon 6 months prior notice.
104
30.
30.2
30.2.1
Directors emoluments (continued)
Executive Management
Garth Napier, the Chief Executive of the Discount division was appointed into his new role in February 2014. In
terms of his contract, his is entitled to a basic annual remuneration and annual performance bonus. His employment
can be terminated by either party upon 6 months prior notice.
Birgitt Gebauer, the Chief Executive of Edgars division entered into a five year employment contract with the Group
to 19 November 2018. In terms of her contract, she is entitled to a basic annual remuneration and annual
performance bonus. Her employment can be terminated by either party upon 6 months prior notice.
Christo Claassen, the previous Chief Executive of the Discount division, resigned from the employment of Edcon in
February 2014, and was bound by a restraint of trade agreement until June 2014. He entered into a non-fixed term
contract with the Group effective 1 December 2011. In terms of his contract, he was entitled to a basic annual
remuneration and annual performance bonus.
2014
Name
Fees
R000
Remueration
R000
Retirement,
medical,
accident
and death
benefits
R000
Relocation
R000
Performance
bonus
R000
Other
Bonuses1
R000
Other
benefits
R000
Total
R000
ZB Ebrahim
610
610
DH Brown
470
470
TF Mosololi
400
400
LL Von Zeuner
400
400
Total
1 880
Executive
directors and
prescribed
Months
officers
paid
J Schreiber
12
2
11 801
74
11 875
T Clerckx
2
634
4
10 000
MR Bower
12
4 670
1 023
700
Dr. U Ferndale
12
3 077
656
2 350
G Napier3
2
448
106
5
1 556
52
11 000
12
2 830
542
2 000
B Gebauer
4
C Claasen
10 638
6 393
79
6 162
554
12 608
5 372
53 602
55 482
Total emoluments
89
55 571
1
2
An amount of R12.7 million was receivable in 2015.
3
An amount of R5 million was receivable in 2015.
4
An amount of R11 million was receivable in 2015.
105
30.
30.2
30.2.1
Directors emoluments (continued)
2013
Name
Fees
R000
Remueration
R000
Retirement,
medical,
accident
and death
benefits
R000
Relocation
fee
R000
Performance
bonus
R000
Other
bonuses1
R000
Other
benefits
R000
Total
R000
ZB Ebrahim
468
468
DH Brown
100
100
TF Mosololi
100
100
Total
668
Executive
directors and
prescribed
officers
Months
paid
J Schreiber
12
SM Ross
2
11 059
66
824
6
8 093
MR Bower
12
Dr. U Ferndale
SR Binnie
C Claassen
H Witvoet
11 125
8 923
4 367
954
1 700
7 021
12
2 635
572
350
96
3 653
3
516
126
350
89
1 081
12
2 480
478
5
1 267
247
2 958
1 830
8 279
11 623
46 384
Total emoluments
47 052
85
47 137
1
106
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
2013
52 weeks to
30 March
Rm
Actuarially determined amounts recognised in profit or loss:
Current service cost
Finance income (note 31.1)
(3)
14
(3)
11
(2)
13
Net gain recognised in profit or loss
11
8
11
30.
30.3
Employee benefit asset
The Edcon Pension Fund is a defined benefit fund that offers,
amongst other benefits, a pension of 2% of final pensionable
salary per year of service at retirement for 10 active members.
A statutory valuation of the Fund as of 31 December 2002 was
carried out by Alexander Forbes Financial Services, using the
projected unit method of valuation. The actuarial value of
liabilities for all pensioners and members was R328 million and
the contingency reserves were determined at R60 million. The
fair value of the assets calculated by reference to the market
value was R644 million. The fund was accordingly fully funded
and showed a surplus of R256 million. The Group is required to
contribute at a rate of 19.1% of salaries.
In the current period an actuarial estimate was performed using
the projected unit credit method, and the fair value of the assets
and liabilities is reflected below. The actuarial estimate was
based on the principle assumptions as set out in note 30.3.6.
The main risks associated with the Fund are as follows:
Risk of underfunding.
Longevity risk: The Fund has purchased annuities from
a registered insurer to provide monthly pensions to
pensioners.
Risk of insurer default on pension payments: Should
the insurer default on the pension payments, the Fund
would still be liable for the monthly pensions.
Edcon Pension Fund
The contribution for the 2015 financial period is estimated to be
approximately R1 million.
Actuarially determined amounts recognised in other
comprehensive income:
Actuarial gain/(loss) on plan assets
Actuarial (loss)/gain on defined benefit obligation
Change in the effect of limiting the net benefit to the asset ceiling
3
(19)
(10)
112
-
(59)
(50)
117
Net amount recognised in other comprehensive income for the period
(16)
102
8
Total cumulative gain recognised in other comprehensive
income
248
264
162
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
30.3.1 Analysis of net defined benefit asset – pension fund
Defined benefit obligation
Fair value of plan assets
Effect of the asset ceiling
Net asset
(651)
764
(3)
(633)
815
(4)
(739)
915
(4)
110
178
172
107
2015
52 weeks to
28 March
Rm
30.
30.3
Employee benefit asset (continued)
30.3.2
Reconciliation of defined benefit obligation
30.3.3
2013
52 weeks to
30 March
Rm
Finance cost
Actuarial loss/(gain) in other comprehensive income - financial
adjustments
Benefits paid
633
3
59
739
3
67
808
2
59
19
(63)
(112)
(64)
50
(180)
651
633
739
815
73
(64)
(61)
915
79
(103)
(64)
1 075
81
1
(180)
3
(2)
764
(10)
(2)
815
(59)
(3)
915
143
43
56
522
229
21
65
500
336
10
78
491
764
815
915
4
4
-
113
9
(1)
-
(118)
3
4
Reconciliation of fair value plan assets
Finance income
Employer contributions
Benefits paid
Actuarial gain/(loss) in other comprehensive income - financial
adjustments
Expenses and premiums
The assets of the Edcon Pension Fund were invested
as follows:
Cash
Equity
Bonds
Property and other
30.3.4
2014
52 weeks to
29 March
Rm
Reconciliation of the effect of the asset ceiling –
pension fund
Interest on asset ceiling
Change in the effect of limiting the net defined benefit asset
to the asset ceiling
4
108
30.
30.3
Employee benefit asset (continued)
30.3.5
Surplus apportionment
As reported in the previous period, proposals were submitted to the Financial Services Board (FSB) in 2002 to offer pensioners
an enhanced pension in exchange for assuming all their medical aid liabilities. Similarly, a portion of the surplus was to be
utilised to pay the lump sum to medical aid members’ provident fund accounts to meet the existing post-retirement medical aid
liability for service rendered to date.
The FSB did not accept the proposal and therefore a formal surplus apportionment scheme was prepared in accordance with
Section 15B of the Pension Fund Act. The aim of the scheme was to distribute the surplus as at 31 December 2002 between the
various stakeholders of the fund. This surplus scheme was submitted to the Financial Services Board for consideration in
January 2011 and it was approved in February 2012. On completion of the surplus apportionment, the statutory valuations
subsequent to 31 December 2002 have been prepared and are in the process of approval.
The surplus scheme showed a total surplus of R256 million as at 31 December 2002, which corresponds with the statutory
valuation of the fund at the same date. Of this surplus, Edcon Limited was apportioned with R100 million and members and
former members were apportioned R156 million.
The funds rules were amended to allow all future surpluses to go to the employer. The member surplus of the Edcon pension
fund amounted to R97 million as at 28 March 2015.
30.3.6
Valuation assumptions used
The valuation is based on assumptions which include a discount rate of 7.9% (2014: 9.5% and 2013: 9.5%) per annum, an
inflation rate and pension increase rate of 5.7 % (2014: 7.1% and 2013: 7.1%) per annum and a salary increase rate (including
age-related merit increases) of 6.7% per annum (2014: 8.1% and 2013: 8.1%). The discount rate is determined at the reporting
date with reference to the yield curve for South African government bonds. The inflation rate assumes an underlying future rate
of consumer price inflation of 5.7% per annum based on the relationship between current conventional bond yields and current
index-linked bond yields. The inflation assumption was calculated as the difference between discount rate and a real bond yield
and adjusted for an inflation risk premium which was assumed to be 0.5%. The salary increase is based on the assumption that
the increase will be 1% above inflation. The Fund has adopted a pension increase policy that targets 100% of inflation and, as a
result, a pension increase of 5.7% is used in the valuation.
30.3.7
The defined benefit obligation is largely insensitive to changes in the assumptions as the majority of the liabilities are in respect
of outsourced pensioners, where the liabilities have been set equal to the annuity values provided by the insurer.
The sensitivity results below were calculated using an approximate formula to estimate the impact of a change in the
assumptions:
Central assumption
Inflation rate
sensitivity
Defined benefit
obligation Rm
Discount
Rate sensitivity
Defined benefit
obligation Rm
2015
2014
2013
5.7%
7.1%
7.1%
651
633
739
7.9%
9.5%
9.5%
651
633
739
2015
2014
2013
Decrease 1%
646
628
639
2014
2013
Increase 1%
735
Decrease 1%
659
2015
659
640
746
Increase 1%
746
646
628
735
109
30.
30.4
Defined contribution plans
Contributions to the Group's significant defined contribution funds are at a rate of 17.3% of benefit salary and where
funds are contributory, members pay a maximum of 7.5%. The employer's portion is charged against profit or loss.
Separate funds, independent of the Group, provide retirement and other benefits for all permanent employees and their
dependents. During the period there were three defined contribution funds of significance, namely Edcon Provident
Fund, SACCAWU National Provident Fund and FEDCRAW Provident Fund. A defined contribution fund is available to
employees in Namibia, Botswana, Swaziland and Zambia, namely Edcon Namibia Retirement Fund, Edcon Botswana
Retirement Fund, Swaziland Provident Fund and Zambia Provident Fund.
Pensioners
Number
Members
Number
Contributions
Rm
967
10
12 323
1 573
564
622
125
514
220
1
272
3
1
5
1
-
967
15 951
283
1 003
14
14 488
829
542
952
177
601
118
1
277
3
1
6
2
-
1 003
17 721
290
1 032
15
15 438
777
435
1 181
216
552
69
1
266
3
1
6
2
-
1 032
18 683
279
Membership of, and employer contributions to each of the
funds were:
2015 at 28 March
Edcon Pension Fund
Edcon Provident Fund
Edcon Namibia Retirement Fund
Botswana Retirement Fund
SACCAWU National Provident Fund
FEDCRAW Provident Fund
Swaziland Provident Fund
Zambia Provident Fund
2014 at 29 March
Edcon Pension Fund
2013 at 30 March
Edcon Pension Fund
110
30.
30.4
Defined contribution plans (continued)
All funds are subject to the Pension Funds Acts of the various
countries and, where required by law, actuarial valuations are
conducted every three years. The market value of investments of
the various Edcon funds as at 28 March 2015 was R3 626 million
(2014: R3 798 million and 2013: R3 825 million).
30.5
Employee benefit liability
The Group operates a defined benefit medical aid scheme for the
benefit of permanent employees. Effective 1 January 2012 the
Group amalgamated this scheme with Discovery Health. The
contributions of the short-term benefit for current employees
amounted to R71 million for the period ending 28 March 2015
(2014: R67 million and 2013: R60 million). Membership of the
medical aid scheme is voluntary for all employees. Total
membership currently stands at 3 598 principal members.
In terms of employment contracts and the rules of the schemes
certain post-retirement medical benefits are provided to 885
current and past employees by subsidising a portion of the
medical aid contribution of members, after retirement. The
medical aid payments for these employees for 2015 are
estimated to be approximately R9 million. The actuarial valuation
was based on the main assumptions set out in note 30.5.4.
30.5.1
30.5.2
30.5.3
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
2013
52 weeks to
30 March
Rm
3
16
4
15
3
15
19
19
18
Actuarially determined amounts recognised in other
Actuarial gain recognised in other comprehensive income for the
period
31
19
2
Total cumulative gain/(loss) recognised in other
comprehensive income
14
(17)
(36)
176
3
16
184
4
15
182
3
15
(41)
(12)
(24)
10
(9)
(7)
(8)
22
(14)
Actuarially determined amounts recognised in profit or loss:
Financing costs (note 31.2)
The status of the Edcon Medical Aid Fund liability determined
in terms of IAS 19 is as follows:
Reconciliation of employee benefit liability:
Financing cost
Actuarial gain in other comprehensive income – demographic
changes
Actuarial loss/(gain) in other comprehensive income – financial
adjustments
Employee benefit payments
Recognised employee benefit liability
155
176
184
111
30.
30.5
Employee benefit liability (continued)
30.5.4
Employee benefit liability valuation assumptions
The valuation is based on assumptions which include a discount rate of 8.5% (2014: 9.4% and 2013: 8.6%) per
annum, inflation rate of 6.3% (2014: 6.8% and 2013: 6.3%) per annum, income at retirement would increase by
7.8% (2014: 8.3% and 2013: 7.8%) per annum, demographic assumptions based on a standard set of best
estimate demographic assumptions, membership continuation and an expected retirement age of 63. The
discount rate is based on current bond yields with an average term of 15 years, gross of tax and is primarily
determined by reference to current market yields on government bonds in South Africa. The inflation rate is
based on the relationship between current conventional bond yields and current index-linked bond yields. The
inflation risk premium is assumed to be 0.5% and the future rate of the consumer price index inflation will be
6.3%. It was assumed that health care cost inflation would be the same as CPI inflation and that remuneration
increases, including promotional increases would exceed inflation by 1.5% over the long-term and that income
at retirement would be 60% of final salary. It was further assumed that no current in-service members eligible
for benefits would discontinue membership upon reaching retirement with the Group and that they would retire
on their current medical scheme option and no changes would occur on retirement.
30.5.5
The valuation results are extremely sensitive to the assumptions used. The value of the liability could turn out
to be overstated or understated depending on the extent to which actuarial experience differs from the above
assumptions.
Central assumption
Inflation (CPI and health
care costs) sensitivity
Accrued liability – Rm
Current service and
interest cost – Rm
2015
2014
2013
6.3%
6.8%
6.3%
155
176
184
137
155
161
177
202
214
15
19
18
13
17
15
17
22
21
Retirement age sensitivity
Discount rate sensitivity
Post-employment
mortality tables sensitivity
30.5.6
63 years
176
184
8.5%
9.4%
8.6%
155
176
184
PA (90) ult rated down 1 year
to 0.75% improvement p.a.
from 2006
176
2014
2013
2015
Decrease 1%
184
159
181
202
2013
One year older
192
152
Decrease 1%
177
2014
Increase 1%
One year younger
155
155
2015
171
177
Increase 1%
214
138
155
161
PA (90) ult rated down 2 years
with 1% improvement p.a. from
2006
165
186
195
28 March
2015
Rm
29 March
2014
Rm
30 March
2013
Rm
155
176
184
Analysis of employee benefit liability
Accrued liability for post-retirement medical aid
112
2015
52 weeks to
28 March
Rm
31.
FINANCING INCOME AND COSTS
31.1
Finance income
Interest received from independent third parties
Employee benefits (note 30.3)
Notional interest received
Financing costs
Interest on super senior secured term notes (note 18.1)
Interest on senior secured floating rate notes (note 18.2)
Interest on senior floating rate notes (note 18.3)
Interest on senior fixed rate notes (note 18.4)
Interest on senior secured fixed rate notes (note 18.5 to 18.7)
Interest on other facilities
Interest on senior secured term loan – ZAR 4 120 million (note
1
18.8)
Notional interest charged on shareholder’s loan (note 17)
Fees amortised on senior secured floating rate notes (note 18.2)
Fees amortised on senior floating rate notes (note 18.3)
Fees and discount amortised on senior secured fixed rate notes
(note 18.5 to 18.7)
Fees amortised on senior fixed rate notes (note 18.4)
Fees amortised on senior secured term loan – ZAR 4 120 million
(note 18.8)
Notional interest on deferred option premium (note 19)
Employee benefits (note 30.5.1)
1
2013
52 weeks to
30 March
Rm
25
11
4
40
102
13
119
1 310
403
889
1 182
298
115
18
266
330
1 059
210
594
439
65
23
46
142
90
17
71
37
65
14
26
33
109
16
28
40
15
15
3 414
2 668
3 144
19
14
33
31.2
2014
52 weeks to
29 March
Rm
120
115
602
420
Included in 2015 is capitalised interest of R42 million as per the loan
agreement (note 18.8).
32.
TAXATION
32.1
Taxation charge
Current taxation
- current year
- prior years
(130)
-
(150)
(2)
10
226
(130)
(152)
236
129
(241)
856
106
691
(2 028)
Total deferred taxation (expenses)/income
(112)
962
(1 337)
Total taxation (expense)/income
(242)
810
(1 101)
Comprising:
South African normal taxation
Foreign taxes
(101)
(141)
910
(100)
(1 045)
(56)
(242)
810
(1 101)
Total current taxation income/(expense)
Deferred taxation
-
current year
prior years
113
2015
52 weeks to
28 March
Rm
32.
TAXATION (continued)
32.2
Taxation charge to other comprehensive income
2014
52 weeks to
29 March
Rm
Restated & represented
2013
52 weeks to
30 March
Rm
(7)
(11)
(233)
Current income tax related to items charged or credited directly
to other comprehensive income:
Unrealised (gain) on cash flow hedges
Deferred income tax related to items charged or credited
directly to other comprehensive income:
32.3
Unrealised loss on cash flow hedges
48
(29)
Employee benefits tax expense
(4)
(33)
(3)
Income tax credit/(expense) reported in other comprehensive income
44
(69)
(247)
(1)
20
(177)
Deferred income tax comprises:
Arising on deferred tax assets (note 7)
Provision for stock losses
3
(2)
-
46
(73)
21
Leave pay accrual
(2)
3
1
32
15
15
31
Other payables
Income received in advance
(3)
28
Finance leases
13
(11)
Employee benefits liability
Assessed loss
3
44
194
578
(8)
Cash flow hedges
3
Restraint of trade
3
Other
5
232
-
(4)
(1 507)
77
(7)
Arising on deferred tax liabilities (note 7)
Section 24C allowances
Intangible assets
(26)
(14)
75
92
159
(22)
25
24
Prepayments
(21)
(18)
1
14
23
Employee benefits asset
Forward exchange contracts – application of Section 24I
Call option premium
Foreign currency call options – application of Section 24I
(29)
(76)
(320)
22
Interest – application of Section 24J
(20)
Cross currency swaps – application of Section 24I
(25)
Interest rate hedges
(16)
14
Unearned finance income
Other
Net deferred tax movement (expense)/income
32.4
38
(3)
22
(112)
962
28
28
22
(1 337)
Reconciliation of rate of taxation (%)
Standard rate – South Africa
28
Adjusted for:
Profit share from insurance business
-
(1)
3
Disallowable expenditure
(20)
(4)
(14)
Adjustments relating to prior periods
(14)
3
(44)
(8)
(1)
Foreign taxes
Effective tax rate
(14)
25
(27)
114
32.
32.5
Section 24I application
In terms of section 24I of the Income Tax Act, the ruling exchange rate to be used in determining the foreign exchange
gains/losses on currency swaps, foreign currency forward contracts and forward exchange contracts (forward
exchange contracts) on translation, is the market related forward rate for the remaining period of the forward exchange
contract. Refer to tax settlement note below.
32.6
Tax Settlement
On 31 August 2012, the South African Revenue Service (“SARS”) notified the Group that it was considering the
issuance of an income tax assessment primarily in connection with our tax treatment of interest payable on the
financing of the acquisition of the Group by Bain Capital. We challenged SARS’s position and we believe that we were
in compliance with applicable South African tax laws and regulations. Nevertheless, we perceived it to be beneficial to
engage in settlement discussions and we entered into a settlement agreement with SARS in relation to the matters in
dispute on 14 December 2012 in order to avoid protracted litigation with SARS.
The agreement addresses the tax treatment of the issues in dispute for financial periods since the acquisition of the
Group by Bain Capital, being financial periods 2008 through 2014, as well as future financial periods. Pursuant to the
settlement, no cash outflow in relation to tax payments due will be required until September 2014. However, as a result
of the settlement, the Group is likely to pay income tax earlier than was anticipated prior to the entering into of the
settlement. We believe that our cash flows should allow us to satisfy the additional income tax payments that may
result from the settlement.
The main terms of the settlement agreement are as follows:
x
for the financial period 2008 through to 2014, we agreed to reduce our tax losses carry forward by approximately
R9 billion;
x
for the financial period from the beginning of 2014 until an initial public offering or an issuance of securities
representing 20% or more of the Group’s equity (if any), we agreed to limit the deduction for tax purposes of
interest payable on the senior secured floating rate notes and the senior floating rate notes or any refinancing
thereof (the “acquisition indebtedness”) to 50% of such interest, on an aggregate principal amount of
indebtedness of approximately €1.3 billion or the equivalent thereof in rand or U.S. dollars, subject to certain
adjustments. Interest on the portion, if any, of the acquisition indebtedness exceeding such cap will not be
deductible for tax purposes. As at 28 March 2015 acquisition indebtedness amounted to €1 billion and therefore
was in compliance with this cap;
x
for the period following an initial public offering or an issuance of securities representing 20% or more of the
Group’s equity (if any), we agreed that interest payable on the acquisition indebtedness would be fully deductible
for tax purposes, up to an aggregate principal amount of indebtedness of approximately €711.1 million or the
equivalent thereof in rand or U.S. dollars. Interest on the portion, if any, of the acquisition indebtedness exceeding
approximately €711.1 million or the equivalent thereof in rand or U.S. dollars will not be deductible for tax
purposes; and
x
for the period from and following the 2014 financial period, interest payable on the shareholder’s loan, if any, will
not be deductible for tax purposes.
The settlement is without prejudice to future changes in applicable South African tax legislation and does not relate to
any matter other than those in connection with the acquisition of the Group by Bain Capital. SARS has notified the
Group that it is reviewing certain other tax matters.
115
2015
52 weeks to
28 March
Rm
33.
CASH FLOW
33.1
Medical aid buy-out
Provident fund holiday
Gain on sale of trade receivables
Government grants amortised – deferred revenue
33.2
Decrease/(increase) in inventories
(Increase)/decrease in trade accounts receivable
1
Proceeds from sale of trade accounts receivable
(Increase)/decrease in other receivables
Increase in trade and other payables
Employee benefits payments
1
33.3
33.4
33.5
2014
52 weeks to
29 March
Rm
Restated &
re-presented
2013
52 weeks to
30 March
Rm
124
(23)
65
(42)
(18)
(6)
38
57
102
100
193
81
(181)
356
(79)
396
(635)
39
575
(306)
220
(7)
(497)
(4)
8 667
36
280
573
(114)
8 482
(37)
(10)
(243)
(130)
(152)
236
17
(98)
(7)
(4)
29
10
39
The consolidated amount of R356 million at 28 March 2015
incorporates R42 million from continuing operations and R314
million from discontinued operations (note 12).
Taxation paid
Taxation liability at the beginning of the period
Current taxation recognised in profit or loss from
continuing operations (note 32.1)
Current taxation recognised in profit or loss from
discontinued operations (note 12.1.3)
Current taxation recognised in other comprehensive
income (note 32.2)
Non-cash adjustment
Taxation liability at the end of the period
Investment to maintain operations
Replacement of properties, fixtures, equipment and
vehicles
Proceeds on disposal of properties, fixtures,
equipment and vehicles
Investment to expand operations
Additions to leased premises
Additions to properties, fixtures, equipment and
vehicles
33.6
33.6.1
Business combination - 2015
The Group acquired the following companies, effective 3
August 2014:
x
x
8
3
19
37
(11)
4
10
(137)
(115)
(102)
(586)
(892)
(566)
132
10
(454)
(882)
(566)
(137)
(192)
(87)
(261)
(196)
(122)
(398)
(388)
(209)
-
Rowmoor Investments 582 Proprietary Limited (Lingerie
retailer)
Kamnandi Retail Proprietary Limited (Accessory retailer)
These companies form part of the ALI group of companies
that was acquired by the Group in the prior year (note
33.6.2).
116
1
Fair value
2015
Rm
33.
CASH FLOW (continued)
33.6
Business combination (continued)
33.6.1
Business combination - 2015 (continued)
The Group effectively owns 75.5% of each of the acquired companies. Based on the contractual
arrangements between the Group and the other investors, the Group has the power to appoint and
remove the majority of the board of directors. The relevant activities of each company are determined
by the board of directors based on simple majority votes. Therefore the directors of the Edcon
Holdings Group concluded that the Group has control over these companies and as such have been
consolidated.
The fair value of the net assets acquired at effective date of acquisition of the companies was as
follows:
Non-current assets
Deferred tax
1
1
Current assets
Inventories
Trade and other receivables
Current taxation
Current liabilities
1
1
2
(2)
(2)
Total identifiable assets acquired and liabilities assumed
Goodwill recognised on acquisition
Cost of business combination
Settled by way of:
Cash
1
1
1
2
(2)
The carrying values of the acquisition approximated the fair values.
Impact of the acquisitions on the results of the Group
The goodwill recognised of R1 million is attributable to the benefits expected to be derived from
combining the assets and activities of the businesses acquired with those of the Group, including
expected synergies, revenue growth and future market development. These benefits are not
recognised separately from goodwill as the future economic benefits arising cannot be reliably
measured.
33.6.2
The Group acquired the following companies, effective 1 September 2013, collectively being the ALI
group of companies:
x
x
x
Rosyco Retail Proprietary Limited (Lingerie retailer)
Cosyro Retail Proprietary Limited (Cosmetic retailer)
Quinmatro Retail Proprietary Limited (Accessory retailer)
The Group owns 50.1% of each of the acquired companies. Based on the contractual arrangements
between the Group and the other investors, the Group has the power to appoint and remove the
majority of the board of directors of the ALI group of companies. The relevant activities of each
company is determined by the board of directors based on simple majority votes. Therefore the
directors of the Edcon Holdings Group concluded that the Group has control over these companies
and as such have been consolidated.
Under the sale agreement the minority shareholders have a put option (note 22) exercisable no
sooner than 2 April 2016.
117
1
Fair value
2014
Rm
33.
33.6
Business combination (continued)
33.6.2
The fair value of the net assets acquired at effective date of acquisition of the ALI Group of companies
was as follows:
Non-current assets
Deferred tax
19
4
23
Current assets
Inventories
Current taxation
37
1
38
Current liabilities
(3)
(3)
(7)
(33)
(40)
Total identifiable assets acquired and liabilities assumed
Intangible assets recognised on acquisition
Goodwill recognised on acquisition
Cost of business combination
Settled by way of:
Cash
Put option liability at acquisition date
18
20
12
50
(25)
25
Total cost of business combination comprised of the following:
Cash
Put option liability at acquisition date
Total cost of acquisition
1
25
25
50
The carrying values of the acquisition approximated the fair values.
Impact of the acquisitions on the results of the Group
The acquired businesses collectively contributed to revenues and net profits as presented for the 7
months in the financial period to 29 March 2014. Had this business combination been effected on 31
March 2013, the Group revenues would have been R27 million higher and the net loss reported would
have been increased by R1 million.
The goodwill recognised of R12 million is attributable to the benefits expected to be derived from
combining the assets and activities of the businesses with those of the Group including expected
synergies, revenue growth and future market development. These benefits are not recognised
separately from goodwill as the future economic benefits arising cannot be reliably measured.
118
2015
52 weeks to
28 March
Rm
33.7
33.8
Senior secured floating rate notes repurchased (note 18.2)
Senior floating rate notes repurchased (note 18.3)
Senior fixed rate notes issued (note 18.4)
Fees paid for senior fixed rate notes issued (note 18.4)
Senior secured fixed rate notes issued (note 18.7)
Discount on senior secured fixed rate notes issued (note
18.7)
Fees paid for senior secured fixed rate notes issued (note
18.7)
Senior secured term loan – ZAR 4 120 million (note 18.8)
Fees paid for senior secured term loan – ZAR 4 120 million
(note18.8)
Edgars Stores Limited Zimbabwe debt (note 18.9)
ALI group of companies debt (note 18.9)
21
14
Increase/(decrease) in non-current interest-bearing debt
32
(4 626)
(5 280)
5 905
(236)
(8 901)
3 598
(126)
(83)
4 120
(140)
(37)
(294)
110
(5 402)
33.9
(3)
2014
52 weeks to
29 March
Rm
Restated &
re-presented
2013
52 weeks to
30 March
Rm
826
1 658
Receivables-backed notes - decrease
1
Repurchase of receivables-backed notes
1 072
(4 300)
(4 300)
1
On 31 October 2012, OtC completed an early redemption of all its
Class A and Class B notes in issue, in accordance with the terms
and conditions of its R6 500 million Receivables Backed Domestic
Medium Term Note Program.The notes redemption was necessary
so that OtC’s receivables asset could be sold to Edcon Limited,
and as such, facilitate the sale of the Group’s private label store
card portfolio to Absa. As from 31 October 2012 OtC became
dormant.
33.10
33.11
Current interest-bearing debt - increase/(decrease)
Current interest-bearing debt (note 20)
1 679
(260)
600
1 679
(260)
600
(312)
(51)
(312)
(51)
Deferred option premium paid (note 19)
(310)
Call option premium paid (note 6.2)
(289)
(599)
119
2015
52 weeks to
28 March
Rm
33.
33.12
Capitalised finance lease – decrease
Capitalised finance lease
33.13
Cash and cash equivalents – increase/(decrease)
Cash on hand
Cash on deposit
34.
FINANCIAL INSTRUMENTS BY CATEGORY
The accounting policies for financial instruments have been
applied to the line items below:
34.1
Financial assets by category
Loans and
receivables
Rm
At 28 March 2015
Derivative financial instruments (note
36.8)
Trade receivables (note 9)
Sundry receivables (note 10)
Cash and equivalents (note 11)
2013
52 weeks to
30 March
Rm
(40)
(40)
(34)
(40)
(40)
(34)
6
872
(176)
(124)
(3)
159
(535)
(3)
878
(303)
(379)
Available –
for-sale
Rm
Total
Rm
Fair value
through other
comprehensive
income
Rm
Fair value
through
profit or
loss
Rm
816
816
473
543
1 288
816
3 120
1 252
2 021
473
543
1 288
2 304
At 29 March 2014
36.8)
(continued)
2014
52 weeks to
29 March
Rm
769
323
323
Sundry receivables (note 10)
619
619
410
410
1 352
At 30 March 2013
36.8)
(note 10)
Cash and cash equivalents (note11)
769
1 252
3 373
166
941
1 107
373
373
453
453
710
1 536
710
166
941
2 643
120
34.
FINANCIAL INSTRUMENTS BY CATEGORY (continued)
34.2
Financial liabilities by category
Financial
liabilities at
amortised
cost
Rm
At 28 March 2015
Shareholder’s loan (note 17)
Interest-bearing debt (note 18 and 20)
Derivative financial instruments (note 36.8)
Deferred option premium (note 19)
Option liability (note 22)
Trade and other payables (note 23)
Finance lease (note 21.2)
103
1 076
73
5 582
364
73
103
797
23 643
24
1 102
67
5 321
273
31 136
At 30 March 2013
Fair value
through other
comprehensive
income
Rm
841
24 450
32 313
At 29 March 2014
Fair value
through
profit or
loss
Rm
(continued)
67
24
801
20 775
11
68
11
68
305
4 574
313
26 768
Total
Rm
841
24 450
103
1 076
73
5 582
364
32 489
797
23 643
24
1 102
67
5 321
273
31 227
801
20 775
79
305
4 574
313
26 847
121
35.
MANAGEMENT OF CAPITAL
The Group considers share capital including ordinary and preference shares, share premium, the shareholder’s loan,
reserves and interest-bearing debt as capital.
The shareholder’s loan is considered to be capital as the amount is repayable in May 2037 and all notional interest is
capitalised. The “A” and “B” preference shares are cumulative and redeemable at the option of the issuer and are
therefore regarded as capital. The long-term interest-bearing debt primarily consists of:
x
x
x
x
Super senior secured notes, maturing April 2016 (note 18.1);
Senior secured term loan maturing May 2017 (note 18.8);
Senior secured fixed rate notes, maturing March 2018 (note 18.5 to 18.7); and
Senior fixed rate notes maturing June 2019 (note 18.4).
The senior secured floating rate notes (note 18.2) and the senior floating rate notes (note 18.3) were issued to finance
the purchase of the assets from Edgars Consolidated Stores Proprietary Limited. The senior secured floating rate notes
were refinanced through the issue of the senior secured fixed rate notes maturing March 2018 (note 18.7) and the senior
secured term loan (note 18.8) maturing May 2017. The senior floating rate notes were refinanced in December 2013
through the issue of the senior fixed rate notes maturing June 2019 (note 18.4). As such the senior secured fixed rate
notes (note 18.7) and term loan are regarded as permanent capital.
The senior secured fixed rate notes (note 18.5 and 18.6) issued during the 2011 financial period and the super senior
secured notes (note 18.1) were issued to finance the settlement of the negative mark-to-market positions on the foreign
currency swap contracts, which hedged the foreign currency exposure on the principal of the senior secured and the
senior floating rate notes in issue at that time.
The objectives in managing this capital are to:
x
x
x
x
Ensure appropriate access to equity debt markets.
Ensure sufficient resilience against economic turmoil.
Safeguard the Group’s ability to continue as a going concern, be flexible and take advantage of opportunities that
are expected to provide an adequate return to shareholders.
Optimise weighted average cost of capital, given inherent constraints.
The Group manages its capital and makes adjustments to it, in light of changes in economic conditions. No changes
were made in the objectives, policies or processes during the current period.
The notes and banking facilities contain substantially the same covenants and events of default, other than the senior
secured term loan which contains its own facility specific maintenance covenants. Covenants are set out in the Offering
Memorandum for the senior secured fixed rate notes dated 22 February 2011 and 8 February 2013, the Program
Memorandum for the super senior secured notes dated 31 March 2011 and the Offering Memorandum for the senior
fixed rate notes dated 8 November 2013. During the period there have been no defaults.
The Group takes cognisance of select rating agency ratios that evaluate the ability of the capital to absorb losses and the
flexibility that a combination of capital instruments provide. The value placed on the corporate rating is important as the
Group has issued notes on the Irish Stock Exchange and the Johannesburg Securities Exchange.
36.
FINANCIAL RISK MANAGEMENT
36.1
Treasury risk management
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate
risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program
focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s
financial performance. The Group uses derivative financial instruments to moderate certain risk exposures.
122
36.
FINANCIAL RISK MANAGEMENT (continued)
36.1
Treasury risk management (continued)
A treasury workgroup consisting of senior management meets on a regular basis to update treasury policies and
objectives, analyse currency and interest rate exposures and re-evaluate treasury management strategies against
revised economic forecasts. Compliance with Group Treasury policies and objectives of the Board and exposure limits is
reviewed at meetings of the Risk Management Workgroup.
36.2
Hedging strategy
The foreign denominated floating and fixed rate notes expose the Group to both interest rate risk and/or foreign
exchange risk. The Group has executed the following hedging strategy:
Euro Denominated Senior Secured Floating Rate Notes due 2014
In February 2011, cross currency swaps were entered into which, (i) protect against interest rate variability in future
interest cash flows on liabilities, (ii) protect against variability in future interest cash flows that are subject to fluctuations
based on foreign exchange rates, and (iii) hedges the repayment of €963 million in principal on the notes of 15 March
2014 and €178 million to 15 June 2014. The hedges create an effective annual average fixed interest rate of 13.96%
over the period of cover. The cross currency swaps have been designated as a cash flow hedge up to 2 February 2013,
when hedge accounting was discontinued on the basis that it became highly probable that the underlying hedged
transaction would not occur. On 13 February 2013 cross currency swaps with a notional value of €754 million were
terminated immediately prior to the repurchase of the related amount of senior secured floating rate notes (note 18.2).
The remaining cross currency swap with a notional value of €387 million hedged the outstanding principal at an effective
annual interest rate of 12.86% until 17 May 2013 when the cross currency swaps were terminated as a consequence of
the repurchase of the senior secured floating rate notes.
Euro Denominated Senior Floating Rate Notes due 2015
In February 2011, based on a notional value of €303 million, an interest rate swap was entered into at a swap rate of
pay of 2.343% fixed, receive three months EURIBOR, quarterly. Settlement dates match the quarterly payment dates
for coupons on the notes up to 15 March 2014. The transaction hedges the interest rate risk on the cash flows occurring
during the three years of the senior floating rate notes (note 18.3) and have been designated as a cash flow hedge up
to 2 November 2013, when hedge accounting was discontinued on the basis that it became highly probable that the
underlying hedged transaction would not occur.
Based on a notional value of €303 million, a series of foreign currency forward contracts were entered into to buy EUR
and sell ZAR corresponding to the EUR scheduled payments on the fixed leg of the interest rate swap above at each
payment date up to 15 March 2014. Settlement dates match the payment dates of the interest rate swap. These foreign
currency forward contracts therefore hedge the EUR/ZAR currency risk on the combined cash flows of the interest rate
swap and the three years of anticipated interest payments on the senior floating rate notes and have been designated as
a cash flow hedge up to 2 November 2013, when hedge accounting was discontinued on the basis that it became highly
probable that the underlying hedged transaction would not occur.
A cross currency swap was entered into which, (i) protects against interest rate variability in future interest cash flows on
liabilities, (ii) protects against variability in future interest cash flows that are subject to fluctuations based on foreign
exchange rates, and (iii) hedges the repayment of €75 million in principal on the notes to 15 March 2014. The hedges
create an effective annual average fixed interest rate of 17.29% over the period of cover. The cross currency swaps have
been designated as a cash flow hedge up to 2 November 2013, when hedge accounting was discontinued on the basis
that it became highly probable that the underlying hedge transaction would not occur.
During November and December 2013, Edcon Holdings Limited terminated these cross currency swaps, interest rate
swaps, and currency forwards as a consequence of the redemption of the senior floating rate notes to which they were
related.
123
36.
36.2
Hedging strategy (continued)
Euro Denominated Senior Secured Fixed Rate Notes due 2018
In February 2011, a series of cross currency swaps were entered into which protect against variability in future interest
cash flow that are subject to fluctuations based on foreign exchange rates. The notional value of the hedge is €317
million and provides cover on the coupon of the notes up to 15 March 2014. The hedges created an effective annual
average fixed interest rate of 10.86% over the period of cover. The cross currency swaps have been designated as a
cash flow hedge.
In December 2012 a series of foreign currency call options were entered into which hedge the repayment of €150 million
in principal on the notes to 31 March 2014. The premiums payable on the option contracts have been deferred to
between March and April 2014 (note 19). The foreign currency call options have not been designated as cash flow
hedges.
At 30 March 2013, the Group had entered into a foreign currency forward contract for €347 million to partially protect
against the variability in foreign exchange rate exposure on the undercovered principal on the euro denominated notes.
The forward contract matures 5 April 2013 and has not been designated for hedge accounting.
In April 2013, a cross currency swap was entered into which protect against variability in future interest cash flows that
are subject to fluctuations based on foreign exchange rates. The notional value of the hedge was €70 million and
provides cover on the coupon of the notes up to 15 March 2015. The hedge creates an effective annual average fixed
interest rate of 10.2% over the period of cover. The cross currency swap has been designated as a cash flow hedge.
In April 2013, cross currency swaps were entered into which, (i) protect against interest rate variability in future interest
cash flow on liabilities, (ii) protect against variability in future interest cash flows that are subject to fluctuation based on
foreign exchange rates, and (iii) hedge the repayment of €230 million in principal and interest on notes to 15 March 2015.
The hedges create an effective annual average fixed interest rate of 15.55% over the period of cover. The cross currency
swaps have been designated as a cash flow hedge.
In April 2013, foreign currency call options were entered into which hedge the repayment of €237 million in principal on
the notes to 12 March 2015. These premiums payable on the foreign currency call options of R317 million have been
deferred to 13 March 2015. These options have not been designated as cash flow hedges.
In October 2013, a series of derivative contracts were entered into to extend, by a further twelve months, the maturity of
hedge cover on the coupon payments relating to the senior secured fixed rate notes. Cross currency swaps were entered
into, which protects against variability in future interest cash flows that are subject to fluctuations based on foreign
exchange rates. The notional values for the hedges are €317 million, and provide cover on the coupons of these notes
up to 15 March 2015. The hedges created an effective annual average fixed interest rate of 10.2% over the period of
cover. The cross currency swaps were designed as cash flow hedges.
In December 2013, Edcon Limited restructured foreign currency call options with notional values of €150 million by early
terminating these derivative contracts that were due to mature in March 2014 and entered new foreign currency call
options to extend the tenor of hedge cover to 15 December 2015 on the principal debt of the senior secured fixed rate
notes. The premiums payable on the option contracts have been deferred to 31 December 2015 (note 19). The foreign
currency call options have not been designated as cash flow hedges.
124
36.
36.2
In September and November 2014, the Group restructured a series of cross currency swaps and foreign currency call
options with notional values of €230 million and €237 million, respectively, by early terminating these derivative contracts
that were due to mature in March 2015 and entered new foreign currency call options to partially hedge both interest with
a notional value of €44 million and principal with a notional value of €385 million on the senior secured fixed rate notes,
extending hedge cover to March 2016. R204 million of the premiums payable on the option contracts have been deferred
to July 2015 (R50 million) and March 2016 (R154 million) (note 19), respectively. These foreign currency call options
have not been designated as cash flow hedges.
Additionally, the Group entered into foreign currency forward contracts maturing 15 September 2015 and 15 March 2016,
respectively, each for a notional value of €7 million to partially hedge the coupon payments due under the €300 million
senior secured fixed rate notes. These foreign currency forward contracts have been designated as cash flow hedges.
Euro Denominated Senior Fixed Rate Notes due 2019
In December 2013, cross currency swaps were entered into which protects against variability in future interest cash flows
that are subject to fluctuations based on foreign exchange rates. The notional value of the hedge was €425 million and
provides cover on the coupon of the notes up to 31 December 2015. The hedge creates an effective annual average
fixed interest rate of 14.65% over the period of cover. The cross currency swaps have been designated as cash flow
hedges.
US Dollar Denominated Senior secured Fixed Rate Notes due 2018
In February 2011, a cross currency swap was entered into which protects against variability in future interest cash flows
that are subject to fluctuations based on foreign exchange rates. The notional value of the hedge is US$190 million and
provides covers on the coupon of the notes up to 15 March 2014. The hedge creates an effective annual average fixed
interest rate of 10.99% over the period of cover. The cross currency swap has been designated as a cash flow hedge.
In February 2011, a series of foreign currency forward contracts were entered into, with a notional value of
US$60`million, to buy USD and sell ZAR corresponding to the USD scheduled fixed rate interest payments on the senior
secured 9.5% fixed rate notes at each payment date. These foreign currency forward contracts have been designated
as a cash flow hedge.
In October 2013, a series of derivative contracts were entered into to extend, by a further twelve months, the maturity of
hedge cover on the coupon payments relating to the senior secured fixed rates notes. Cross currency swaps were
entered into, which protects against variability in future interest cash flows that are subject to fluctuations based on
foreign exchange rates. The notional values of the hedges are US$250 million, and provide cover on the coupons of
these notes up to 15 March 2015. The hedges created an effective annual average fixed interest rate of 10.2% over the
period of cover. The cross currency swaps were designated as cash flow hedges.
In December 2012, a series of foreign currency call options were entered into which hedge the repayment of US$250
million in principal on the notes of 31 March 2014. The premiums payable on the option contracts have been deferred to
between March and April 2014 (note 19). The foreign currency call options have not been designated as cash flow
hedges.
125
36.
36.2
In December 2013 and January 2014, Edcon Limited restructured foreign currency call options with notional values of
US$250 million by early terminating those derivative contracts that were due to mature in March 2014 and entered new
foreign currency call options to extend the tenor of hedge cover to 15 December 2015 on the principal debt of the senior
secured fixed rates notes. The premiums payable on the option contracts have been deferred to 18 December 2015
(note 19). The foreign currency call options have not been designated as a cash flow hedges.
In November 2014, the Group entered into new foreign currency call options with a notional value of $24 million to
partially hedge interest on the senior secured fixed rate notes, extending hedge cover to March 2016 (note 6.5). These
foreign currency call options have not been designated as cash flow hedges.
36.3
36.3.1 Sensitivity analysis of non-derivative financial liabilities
The Group recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might
impact the value of its variable rate financial liabilities and also the amounts recorded in its other comprehensive income
and its profit or loss for the period. Therefore the Group has assessed:
(a)
(b)
what would reasonably be possible changes in the risk variables at the reporting date; and
the effects on profit or loss and other comprehensive income if such changes in the risk variables were to occur.
The sensitivity analysis takes into account the incremental change in value arising from a parallel fall or rise in the
interest rate and the exchange rate. The table on the following page shows the approximate interest rate and exchange
rate sensitivities of variable rate financial liabilities and the resulting impact on profit or loss, and other comprehensive
income for financial liabilities held at the reporting date:
126
36.
36.3
Sensitivity analysis (continued)
36.3.1
Sensitivity analysis of non-derivative financial liabilities (continued)
28 March 2015
Non-derivative
financial liabilities
ZAR denominated
EUR denominated
USD denominated
Index
JIBAR
JIBAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
USD-ZAR
USD-ZAR
USD-ZAR
USD-ZAR
Sensitivity
-50bps
+50bps
-10%
-5%
5%
10%
-10%
-5%
5%
10%
Other
comprehensive
income
Rm
Profit or loss
effect
Rm
40
(40)
1 367
684
(684)
(1 367)
301
151
(151)
(301)
29 March 2014
Non-derivative
ZAR denominated
EUR denominated
USD denominated
Index
JIBAR
JIBAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
USD-ZAR
USD-ZAR
USD-ZAR
USD-ZAR
Sensitivity
-50bps
+50bps
-10%
-5%
5%
10%
-10%
-5%
5%
10%
Other
comprehensive
income
Rm
Profit or loss effect
Rm
31
(31)
1 515
757
(757)
(1 515)
264
132
(132)
(264)
30 March 2013
Non-derivative
ZAR denominated
EUR denominated
USD denominated
Index
JIBAR
JIBAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
USD-ZAR
USD-ZAR
USD-ZAR
USD-ZAR
Sensitivity
-50bps
+50bps
-10%
-5%
5%
10%
-10%
-5%
5%
10%
Other
comprehensive
income
Rm
Profit or loss effect
Rm
12
(12)
1 628
814
(814)
(1 628)
229
115
(115)
(229)
127
36.
36.3
36.3.2
Sensitivity analysis of derivatives
The Group recognises that movements in certain risk variables (such as interest rates or foreign exchange rates) might
impact the value of its derivatives and also the amounts recorded in its other comprehensive income and its profit or
loss for the period. Therefore the Group has assessed:
(a) what would be reasonably possible changes in the risk variables at the reporting date; and
(b) the effects on profit or loss and other comprehensive income if such changes in the risk variables were to occur.
The sensitivity analysis takes into account the incremental change in value arising from a parallel fall or rise in the yield
curve and the exchange rate.
The table considers sensitivities to forward interest rate curves, of +/- 50 and +/-100 basis points respectively. If these
sensitivities were to occur, the impact on the profit or loss, and other comprehensive income for each category of
financial instrument held at the reporting date is shown below:
28 March 2015
Index
Cross currency
swaps
Cross currency
swaps
Forward
exchange
contracts
Foreign currency
call options
1
Derivative asset /
(liability)
Rm
Sensitivity
Other
Comprehensive
income
Rm
EURIBOR
-100bps
-
-
EURIBOR
-50bps
-
-
EURIBOR
+50bps
-
-
EURIBOR
+100bps
1
(1)
EUR-ZAR
-10%
(75)
75
EUR-ZAR
-5%
(37)
37
EUR-ZAR
5%
37
(37)
EUR-ZAR
10%
75
(75)
EUR-ZAR
-10%
(18)
18
EUR-ZAR
-5%
(9)
9
EUR-ZAR
5%
9
(9)
(18)
Profit or
loss effect
Rm
EUR-ZAR
10%
18
EUR-ZAR
-10%
(190)
EUR-ZAR
-5%
(113)
113
EUR-ZAR
5%
154
(154)
EUR-ZAR
10%
350
(350)
190
USD-ZAR
-10%
(269)
269
Foreign currency
USD-ZAR
-5%
(142)
142
call options
USD-ZAR
5%
151
(151)
USD-ZAR
10%
306
(306)
The above table assumes all designated hedges will change in fair value through other comprehensive income.
128
36.
36.3
36.3.2
Sensitivity analysis of derivatives (continued)
29 March 2014
Index
Cross currency
swaps
Cross currency
swaps
Cross currency
swaps
Foreign currency
call options
Foreign currency
call options
1
Derivative asset /
(liability)
Rm
Sensitivity
Other
Comprehensive
income
Rm
Profit or
loss effect
Rm
EURIBOR
-100bps
(32)
32
EURIBOR
-50bps
(8)
8
EURIBOR
+50bps
(4)
4
EURIBOR
+100bps
(9)
9
EUR-ZAR
-10%
(593)
593
EUR-ZAR
-5%
(297)
297
EUR-ZAR
5%
297
(297)
EUR-ZAR
10%
593
(593)
USD-ZAR
-10%
(25)
25
USD-ZAR
-5%
(13)
13
USD-ZAR
5%
13
(13)
USD-ZAR
10%
25
(25)
EUR-ZAR
-10%
(415)
415
EUR-ZAR
-5%
(220)
220
EUR-ZAR
5%
237
(237)
EUR-ZAR
10%
486
(486)
USD-ZAR
-10%
(164)
164
USD-ZAR
-5%
(88)
88
USD-ZAR
5%
97
(97)
USD-ZAR
10%
201
(201)
129
36.
36.3
36.3.2
30 March 2013
Index
Interest rate swaps
Cross currency
swaps
Cross currency
swaps
Cross currency
swaps
Foreign currency
call options
Foreign currency
call options
Foreign currency
forward contracts
Foreign currency
forward contracts
1
Derivative asset /
(liability)
Rm
Sensitivity
Other
Comprehensive
income
Rm
Profit or
loss effect
Rm
EURIBOR
-100bps
(8)
8
EURIBOR
-50bps
(8)
8
EURIBOR
+50bps
14
(14)
EURIBOR
+100bps
27
(27)
EURIBOR
-100bps
(42)
7
35
EURIBOR
-50bps
(19)
3
16
EURIBOR
+50bps
16
(3)
(13)
EURIBOR
+100bps
31
(5)
(26)
EUR-ZAR
-10%
(599)
EUR-ZAR
-5%
(299)
64
EUR-ZAR
5%
299
(64)
(235)
EUR-ZAR
10%
599
(128)
(471)
USD-ZAR
-10%
(16)
16
USD-ZAR
-5%
(8)
8
USD-ZAR
5%
8
(8)
(16)
128
471
235
USD-ZAR
10%
16
EUR-ZAR
-10%
(78)
78
EUR-ZAR
-5%
(45)
45
EUR-ZAR
5%
57
(57)
EUR-ZAR
10%
124
(124)
USD-ZAR
-10%
(110)
USD-ZAR
-5%
(63)
USD-ZAR
5%
77
(77)
USD-ZAR
10%
166
(166)
EUR-ZAR
-10%
(436)
27
409
EUR-ZAR
-5%
(218)
14
204
EUR-ZAR
5%
218
(14)
(204)
EUR-ZAR
10%
436
(28)
(408)
USD-ZAR
-10%
(5)
5
USD-ZAR
-5%
(3)
3
USD-ZAR
5%
3
(3)
USD-ZAR
10%
5
(5)
110
63
130
36.
36.4
Foreign currency management
Material foreign currency forward contracts, cross currency swaps and foreign currency call options at 28 March 2015
are summarised below. Foreign currency call options are only purchased as a cost-effective alternative to forward
exchange contracts.
Foreign
currency
Derivative
fair value
Rm
Contract
equivalent
Rm
Average
rate
Foreign currency exposure against Rand
hedged import forward orders
2015 US dollar
8
3
87
11.58
2014 US dollar
35
22
387
11.05
2013 US dollar
Foreign currency exposure against Rand
hedged notes
50
5
456
9.12
2015 Euro
1 019
178
14 952
14.67
2014 Euro
1 429
1 612
19 090
13.36
2013 Euro
733
900
1
7 571
10.33
2015 US dollar
274
535
2 899
10.58
2014 US dollar
500
386
5 062
10.12
2013 US dollar
277
196
2 512
9.07
1
Included in the fair value are cross currency swaps of RNil million (2014: RNil million and 2013: R648million) hedging the senior
secured floating rate notes, RNil million (2014: RNil million and 2013: R115 million) hedging the senior floating rate notes, which
also hedges the interest rate risk on the floating rate notes.
The Group, in terms of approved policy limits, manages short-term foreign currency exposures relating to trade
imports and exports. Net uncovered Rand transaction exposures to the US dollar at 28 March 2015 amounted to RNil
million (2014: RNil million and 2013: RNil million). The Group policy is to restrict the net aggregate cover to between
100% and 145% of total foreign order exposure.
At 28 March 2015, in respect of future import commitments, if the South African Rand had weakened 5% against the
US dollar, with all other variables held constant, profit or loss for the period would have increased by R4 million (2014:
R19 million and 2013: R20 million). Conversely at 28 March 2015, in respect of future import commitments, if the
South African Rand had strengthened by 5% against the US dollar, with all other variables held constant, profit or loss
for the period would have decreased by R4 million (2014: R19 million and 2013: R20 million). Changes in the
Rand/US dollar exchange rates of foreign currency creditors are largely offset by fair value changes on the forward
exchange contracts.
Approximately 90% of the principal on the fixed rate notes (nominal value of €617 million and US$250 million), have
been hedged through foreign currency call options (note 6). The interest cash flows payable semi-annually for the
€317 million, US$250 million and €300 million of senior secured fixed rate notes maturing in 2018 and the €425
million senior fixed rate notes maturing in 2019, have been hedged (note 6 and 36.2).
At 28 March 2015, in respect of the notes exposures, if the South African Rand had weakened 5% against the Euro
and US dollar, with all other variables held constant, profit or loss for the period would have decreased by R684
million (2014: R889 million and 2013: R814 million). Conversely, at 28 March 2015, in respect of the notes
exposures, if the South African Rand had strengthened 5% against other currencies, with all other variables held
constant, profit or loss for the period would have increased by R684 million (2014: R889 million and 2013: R814
million). Gains and losses on translation of the floating and fixed rate notes will be offset by foreign exchange gains
and losses on the cross currency swaps, foreign currency forward contracts and all foreign currency call options to
the extent hedges are in place.
131
36.
36.5
Interest rate management
As part of the process of managing the Group's fixed and floating rate interest-bearing debt and cash and cash
equivalents mix, the interest rate characteristics of new and the refinancing of existing loans are positioned according to
expected movements in interest rates. The maximum interest rate exposure and the repricing profile is summarised as
follows:
Short-term
Rm
28 March 2015
Rate %
29 March 2014
Rate %
30 March 2013
Rate %
Fixed Rate
Long-term
Rm
Short-term
Rm
Floating Rate
Long-term
Rm
14 284
Refer to note 18
2 964
Refer to note 20
5 285
Refer to note 18
14 284
Refer to note 18
1 270
Refer to note 20
5 243
Refer to note 18
8 379
Refer to note 18
1 516
Refer to note 20
8 430
Refer to note 18
At 28 March 2015, if all interest rates on local borrowings had been 100 basis points lower, with all other variables held
constant, profit or loss would have been R80 million (2014: R63 million and 2013: R28 million) higher. Conversely, at 28
March 2015, if all interest rates on local borrowings had been 100 basis points higher with all other variables held
constant, profit or loss would have been R80 million (2014: R63 million and 2013: R28 million million) lower.
At 28 March 2015, if all interest rates on interest-bearing trade receivables and short-term cash investments at that date
had been 100 basis points lower, with all other variables held constant, profit or loss would have been R22 million (2014:
R14 million and 2013: R18 million) lower. Conversely, at 28 March 2015, if all interest rates at that date had been 100
basis points higher, with all other variables held constant, the profit or loss would have been R22 million (2014: R14
million and 2013: R18 million) higher. This sensitivity is due to the high value of trade receivables attracting the Usury
rate interest income.
132
36.
36.5
Interest rate management (continued)
Cash and cash equivalents are held as follows:
2015
Cash and cash equivalents by currency
US dollar
Mozambican Metical
Bangladeshi Taka
Botswana Pula
Zambian Kwacha
Swazi Lilangeni
Namibian Dollar
Lesotho Loti
Ghanaian Cedi
South African Rand
2014
US dollar
Mozambican Metical
Bangladeshi Taka
Botswana Pula
Zambian Kwacha
South African Rand
2013
US dollar
Mozambican Metical
Bangladeshi Taka
Botswana Pula
Zambian Kwacha
South African Rand
Total
Rm
Floating rate
Rm
1
10
13
1
8
6
6
17
4
4
1 218
1
10
13
1
8
6
6
17
4
4
1 218
5
7
42
1
15
52
288
5
7
42
1
15
52
288
41
5
6
1
26
1
630
41
5
6
1
26
1
630
133
36.
36.5
Interest rate management (continued)
The following cross currency swaps, forward exchange contracts, call option contracts and interest rate swaps are in
place to hedge against interest rate risk exposures:
Notes notional amount
hedged
Rm
2015
Pay fixed / receive
floating interest rate
hedges > 1 yearSenior secured
floating rate notes
Pay fixed / receive
floating interest rate
hedges > 1 yearSenior floating rate
notes
x Cross currency
swaps
x Interest-rate swaps
Coupon hedgesSenior fixed rate
notes
x Cross currency
swaps
Coupon hedgesSenior secured fixed
rate notes
x Foreign currency
call options (EUR
317m)
x Forward exchange
contracts and
foreign currency call
options (EUR
300m)
x Foreign currency
call options (USD
250m)
2014
2013
Notes fixed interest
% payable
2015
2014
2013
Fair value of the
interest rate hedges
asset/(liability)
Rm
2015
2014
2013
1
3 698
12.86
648
714
2 892
17.29
9.43
115
(68)
1
5 905
5 905
14.65
14.65
(79)
(1)
3 044
3 044
15.05
10.19
10
24
3 598
3 598
15.35
14.30
(19)
711
1 737
1 737
11.99
10.17
21
12
Refer to note 36.2 for details of hedging strategy.
1
Included in the fair value are cross currency swaps of RNil million (2014: RNil million and 2013: R648 million), hedging the Senior secured floating rate notes
and RNil million (2014: RNil million and 2012: R115 million), hedging the Senior floating rate notes, which also hedges the foreign currency risk on the
principle on the floating rate notes.
134
36.
36.6
Credit risk management
Maximum exposure to credit risk is represented by the carrying amounts of derivative assets, trade accounts receivable
and assets held-for-sale and short-term cash investments in the Consolidated Statement of Financial Position. The
Group only deposits short-term cash surpluses with financial institutions of high-quality credit standing. Credit limits per
financial institution are established within the Group’s treasury policies and are approved by the Risk Management
Workgroup. Trade accounts receivable and the assets held-for-sale comprise a large, widespread customer base and
risk exists on delinquent accounts and possible defaults by customers. The Group performs ongoing credit evaluations
of the financial condition of customers. The granting of credit is controlled by application and behavioural scoring
models and the assumptions therein are reviewed and updated on an ongoing basis.
At 28 March 2015, 29 March 2014 and 30 March 2013, the Group did not consider there to be any material
concentration of credit risk.
The derivatives are held with several counterparties of high credit worthiness. The credit worthiness is assessed on a
regular basis. At period end all counterparties were classified as investment grade.
36.7
Liquidity risk
2015
28 March
Rm
The Group has minimised risk of working capital illiquidity as
shown by its substantial banking facilities and reserve borrowing
capacity.
Total banking and loan facilities
Actual borrowings (note 20)
Unutilised borrowing facilities
2014
29 March
Rm
2013
30 March
Rm
3 967
(1 210)
3 967
(1 456)
852
2 757
2 511
3 717
250
1
3 717
3 717
(2 865)
Total banking and loan facilities of the Group comprise:
Revolving credit facility – Tranche B1
1
3 717
250
2
3 717
3 967
3 967
¹Includes R2 550 million ancillary facilities.
2
Includes R2 700 million ancillary facilities.
The maturity dates of the facilities are:
x
Revolving credit facility
- Tranche B1
- Tranche B2
- Tranche B3
x
Revolving credit ancillary facilities
December 2013
March 2014
December 2016
Reviewed
annually
December 2013
March 2014
December 2016
Reviewed
annually
December 2013
March 2014
Reviewed
annually
135
36.
36.7
Liquidity risk (continued)
36.7.1
Maturity analysis of derivative financial instruments’ cash flows
2015
28 March
Rm
2014
29 March
Rm
2013
30 March
Rm
Due within one year
1 113
8 004
10 152
Total due within one year
1 113
8 004
10 152
5 635
4 118
Cash outflows
After one year but within two years
After two years but within three years
Total due after one year
5 635
4 118
1 113
13 639
14 270
Cash inflows
Due within one year
967
9 321
10 920
967
9 321
10 920
6 318
4 269
6 318
4 269
967
15 639
15 189
Net cash (outflows)/inflows
Due within one year
(146)
1 316
768
(146)
1 316
768
683
151
683
151
1 999
919
Total
Total
Total
(146)
The maturity analysis of derivative financial instruments’ cash flows reflects the expected cash outflows and
inflows of the Group using undiscounted cash flows, settlement terms and expected movements in floating rates.
36.7.2
Maturity analysis of non-derivative financial liabilities (including interest payments)
1
1
Interest-bearing debt due within one year
5 582
1 154
3 210
5 321
317
3 095
4 574
36
3 328
9 946
8 733
7 938
After three years but within four years
After four years but within five years
After 5 years
6 613
17 603
825
6 381
9 156
3 829
4 906
16 777
873
15 799
5 469
5 459
2 018
10 575
9 252
40 578
42 184
32 773
Total debt
50 524
50 917
40 711
Includes interest on all notes in issue (note 18), finance lease payments
and interest, as well as short-term interest bearing debt (note 20)
including interest.
136
36.
36.7
Liquidity risk (continued)
36.7.2
Maturity analysis of non-derivative financial liabilities (including interest payments) (continued)
The maturity analysis of non-derivative financial liabilities is prepared on an undiscounted cash flow basis. The
contractual maturity of the hedged coupon cash flows of the foreign denominated notes are calculated using
forward Euribor rates (where applicable) and the exchange of principal at the derivative hedged rate. In respect
of the cash flows that are not hedged and subsequent to the hedge maturing, the period end floating interest
rates and foreign exchange rates are used to calculate the cash flows of the foreign denominated notes.
36.8
Fair value of financial instruments
The Group uses a three-level hierarchy to prioritise the inputs used in measuring fair value. The levels within the
hierarchy are described below with level 1 having the highest priority and level 3 having the lowest. Fair value is
principally applied to financial assets and financial liabilities. These are measured at fair value on a recurring
basis as of 28 March 2015, aggregated by the level in the fair value hierarchy within which these measurements
fall.
The following table presents the Group’s assets and liabilities that are measured at fair value at the period end:
Fair value measurement using
Total
Rm
Level 1 (a)
Rm
Level 2 (b)
Rm
Level 3 (c)
Rm
28 March 2015
Financial assets
816
816
Total financial assets
816
816
Financial liabilities
73
24
24
79
79
176
103
Total financial liabilities
73
73
29 March 2014
Financial assets
769
769
1 252
1 252
2 021
2 021
67
24
24
67
91
24
813
813
292
292
2
2
1 107
1 107
67
30 March 2013
Financial assets
Interest rate swaps
68
68
11
11
79
79
137
36.
36.8
Fair value of financial instruments (continued)
a) Level 1 - Based on quoted market prices in active markets.
b) Level 2 - Based on observable inputs other than Level 1 prices, such as quoted prices for similar financial assets or
financial liabilities, or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the financial assets or financial liabilities.
c) Level 3 - Based on unobservable inputs that are supported by little or no market activity and are financial instruments
whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well
as instruments for which the determination of fair value requires significant judgement or estimation.
All financial instruments have been recognised in the statement of financial position and there is no material difference
between their fair values and carrying values, except for the notes issued. There have been no transfers between levels
during the current and prior periods.
The following methods and assumptions were used by the Group in establishing fair values:
Liquid resources, trade accounts receivable and loans: the carrying amounts reported in the statement of financial
position approximate fair values due to the short period to maturity of these instruments.
Short-term interest-bearing debt: the fair values of the Group’s loans are estimated using discounted cash flow
analyses applying the RSA yield curve. The carrying amount of short-term borrowings approximates their fair value, due
to the short period to maturity of these instruments.
Notes issued: the notes issued are fair valued based on the exchange rate ruling at the reporting date. The market
values are disclosed in note 18 and have been determined based on the closing prices of the relevant stock exchange.
Derivative financial instruments: foreign currency forward exchange contracts are entered into to cover import orders,
and fair values are determined using foreign exchange market rates at 28 March 2015. Foreign currency forward
contracts, foreign currency call options and cross currency swaps are entered into to hedge interest rate and foreign
exchange rate exposure of interest-bearing debt and fair values are determined using market related rates at 28 March
2015.
37.
RELATED-PARTY TRANSACTIONS
The Consolidated Financial Statements include the financial statements of Edcon Holdings Limited and its subsidiaries
and equity accounted earnings. Related party relationships exist within the Group. During the period all purchasing and
selling transactions were concluded at arm’s length. Edcon Holdings Limited is the ultimate South African parent entity
and the ultimate parent of the Group is Edcon (BC) S.A.R.L. (“Bain Capital”). The following table provides the total
amount of transactions, which have been entered into with related parties:
2015
Fee paid to
related parties
Rm
Loan including interest to shareholder (Bain Capital) –
recognised in non-current liabilities
recognised in equity
Fees paid to PCA (South Africa) Limited (Bain Capital
affiliate) for consulting fees
Share of after tax profits from insurance business with
Hollard
Amounts
owed to
related parties
Rm
Share of
profits
Rm
841
8 311
39
747
138
37.
RELATED-PARTY TRANSACTIONS (continued)
2014
Paid to
related parties
Rm
Loan including interest to shareholder (Bain Capital)
Fees paid to PCA (South Africa) Limited (Bain Capital
Hollard
Amounts owed
to
related parties
Rm
Share of
profits
Rm
797
8 290
100
739
2013
Paid to
related parties
Rm
Fee paid to PCA (South Africa) Limited (Bain Capital
Hollard
37.1
Amounts owed
to
related parties
Rm
Share of
profits
Rm
801
8 290
241
666
Compensation relating to key management
personnel2
52 weeks to
28 March
2015
Total including
directors and
prescribed
officers
Rm
Remuneration
Retirement, medical, accident and death benefits
Relocation
Performance bonus
1
Other bonuses
Other benefits
Comprising:
Short-term employee benefits
Post-employment benefits
52 weeks to
29 March
3
2014
Total including
directors and
prescribed
officers
Rm
52 weeks to
30 March
3
2013
Total including
directors an
prescribed
officers
Rm
55
6
1
12
52
1
42
5
36
5
2
40
-
19
-
127
87
62
121
6
82
5
57
5
1
2
Key management personnel include directors and prescribed officers (note 30.2.1) and members of the Chief Executive’s Forum.
3
The comparatives have been restated to include bonuses receivable in the period.
139
2015
28 March
Rm
38.
2014
29 March
Rm
2013
30 March
Rm
CONSOLIDATION OF EDGARS STORES LIMITED
Edgars Stores Limited is listed on the stock exchange in Zimbabwe.
Edgars Stores Limited is separately managed and has a December
period end. Although the Group has only a 38% ownership in Edgars
Stores Limited, the directors concluded that the Group has a sufficiently
dominant voting interest to direct the relevant activities of Edgars Stores
Limited on the basis of the Group’s absolute size of and dispersion of the
shareholdings owned by other shareholders, as well as voting patterns at
previous shareholders’ meetings. Non-controlling interest in the
Consolidated Statement of Financial Position relates to the minority
shareholding in Edgars Stores Limited.
The effect on the Consolidated Statement of Financial Position,
Consolidated Statement of Comprehensive Income and Consolidated
Cash Flows of consolidating Edgars Stores Limited is detailed below.
Included in the Consolidated Statement of Financial Position by line are
the following balances relating to the consolidation of Edgars Zimbabwe:
ASSETS
Non-current assets
Intangible assets
109
1
75
2
47
110
77
47
Current assets
Inventories
Trade receivables
138
397
13
1
549
116
244
6
5
371
79
192
9
41
321
Total assets
659
448
368
Total equity
31
86
117
146
263
19
63
82
93
175
(9)
44
35
68
103
Deferred tax
139
46
185
110
29
139
122
21
143
Current liabilities
Current taxation
96
4
111
60
211
659
134
448
122
368
498
345
285
EQUITY AND LIABILITIES
Other reserves
Retained profit
74
60
(2)
64
140
38.
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
861
673
520
799
(432)
367
62
(143)
(185)
646
(332)
314
29
(138)
(127)
501
(254)
247
18
(86)
(111)
Trading profit
Finance income
101
78
68
1
Profit before financing costs
Financing costs
Taxation
101
(21)
80
(24)
56
78
(17)
61
(17)
44
69
(17)
52
(14)
38
2013
52 weeks to
30 March
Rm
(continued)
Included in the Consolidated Statement of Comprehensive
Income by line are the following amounts relating to the
consolidation of Edgars Zimbabwe:
Total revenues
Revenue – retail sales
Cost of sales
Gross profit
Other income
Store costs
141
2015
52 weeks to
28 March
Rm
38.
2014
52 weeks to
29 March
Rm
2013
52 weeks to
30 March
Rm
(continued)
Included in the Consolidated Statement of Cash Flows by line
are the following amounts relating to the consolidation of
Edgars Zimbabwe:
Cash retained from operating activities
Profit before taxation from continuing operations
80
61
Finance income
52
(1)
Financing costs
21
17
17
Depreciation
11
9
7
Amortisation
1
-
Net gain on disposal of asset
-
18
Operating cash inflow before changes in working capital
113
87
93
(89)
(44)
(28)
(5)
(18)
(11)
(106)
(13)
(25)
Increase in inventories
Increase in trade accounts receivables
(Increase)/decrease in other receivables and prepayments
(5)
4
(1)
Increase/(decrease) in trade and other payables
27
(17)
9
Cash inflow from operating activities
24
43
65
1
(21)
(17)
(17)
Taxation paid
(10)
(10)
(12)
(7)
16
37
Investment to maintain operation
(34)
(13)
(6)
Net cash outflow from investing activities
(34)
(13)
(6)
12
(30)
110
Current interest-bearing debt
25
(10)
(105)
Net cash inflow/(outflow) from financing activities
37
(40)
5
(Decrease)/increase in cash and cash equivalents
(4)
(37)
36
5
41
3
1
2
5
41
Net cash (outflow)/inflow from operating activities
Cash utilised in investing activities
Cash and cash equivalents at the beginning of the period
1
142
39.
EVENTS AFTER THE REPORTING PERIOD
On 19 June 2015, the Group signed a Commitment Letter for a Term loan facility with Goldman Sachs Lending
Partners LLC for R1 billion available to be utilised in EUR or ZAR currency for general corporate and working capital
purposes of the Group including the exchange, repurchase or redemption of any indebtedness of the Group. The
Super Senior Liquidity Facility (“the SSLF”) will rank pari passu with the Revolving Credit facility (note 20 and 36.7)
and the Super Senior Secured notes due 4 April 2016 (note 18.1). The SSLF has an initial termination date of 30
September 2016 subject to the exercise of the Extension Option which allows the Group to extend the termination
date by a period of up to and including the earlier of:
(i) six months following the initial termination date and;
(ii) the termination date in respect of the revolving credit facility (note 20 and 36.7).
The SSLF shall accrue PIK interest monthly at the applicable JIBAR/EURIBOR with a 0% floor plus a margin of 9%
and is secured by substantially all the assets of Edcon Holdings Limited and its subsidiaries. The SSLF is subject to
the preparation, execution and delivery of the Facility Documents by no later than 17 August 2015.
143
Audited Company Annual Financial Statements
144
Company Statement of Financial Position
Note
2015
28 March
Rm
2014
29 March
Rm
ASSETS
Non-current assets
Loans owing by subsidiary
1
8 449
9 013
Investment in subsidiaries
2
8 366
8 350
Investment in Hollard Business Partners
3
367
367
Deferred taxation
4.1
23
5
17 182
17 753
3 405
3 174
-
1
Current-assets
Loans owing by subsidiaries
6
Current taxation
7
Total assets
-
-
3 405
3 175
20 587
20 928
EQUITY AND LIABILTIES
Share capital
8.7
-
-
Share premium
8.7
2 975
2 975
Cash flow hedges
9
Retained profit
Shareholder’s loan - equity
10.1
Total equity
(57)
(1)
2 821
2 557
8 311
8 290
14 050
13 821
841
797
14 891
14 618
5 948
Non-current liabilities – shareholder’s loan
Shareholder’s loan
10.2
Total equity and shareholder’s loan
Non-current liabilities – third parties
11
5 381
Deferred taxation
5
23
5 404
5 948
6 245
6 745
1
1
Current liabilities
Loans owing to subsidiaries
12
4.2
79
24
Sundry payables
13
212
337
292
362
20 587
20 928
20 272
20 566
19
145
Company Statement of Comprehensive Income
Note
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Total revenues
14
699
1 789
Derivative losses
Foreign exchange gain/(loss) loss on notes issued and settled
Foreign exchange gain on cash flow hedge
Dividend income
Profit/(loss) before interest received
Finance income
Profit before financing costs
Financing costs
Taxation
4.4
15
601
601
(4)
(928)
(1 075)
147
258
(674)
1 531
857
(657)
200
200
9
16.1
16.2
17
230
831
469
1 300
(990)
310
(46)
264
Other comprehensive income after tax:
Items that may be reclassified subsequently to profit or loss:
(Loss)/gain on cash flow hedges
Other comprehensive income for the period, after tax
(56)
(56)
73
73
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
208
273
Profit attributable to:
264
200
Total comprehensive income attributable to:
208
273
146
Company Statement of Changes in Equity
Balance at 30 March 2013
Other comprehensive income for
the period
Total comprehensive income
Issue of shares
Other comprehensive income for
the period
Total comprehensive income
Reclassification from non-current
liabilities shareholder’s loan
Note
Share
capital
Rm
Share
premium
Rm
-
2 973
Cash flow
hedging
reserve
Rm
(74)
Retained
profit
Rm
2 357
200
Shareholders
loan
Rm
8 290
73
73
-
2
-
2 975
(1)
2 975
8.7
8.7
200
2 557
264
273
2
8 290
13 821
264
(56)
(56)
264
(57)
2 821
9
13 546
200
73
(56)
-
Total
Rm
208
21
8 311
21
14 050
10.1
147
Company Disclosure of Tax Effects on Other Comprehensive Income
Note
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Disclosure of tax effects relating to each component of other
Before tax amount
Cash flow hedges
(78)
101
Other comprehensive income for the period before tax
(78)
101
22
(28)
22
(28)
Cash flow hedges
(56)
73
Other comprehensive income for the period after tax
(56)
73
Cash flow hedges
9
After tax amount
148
Company Statement of Cash Flows
Note
Cash from operating activities
Finance income
Financing costs
Foreign exchange (gain)/loss
Derivative losses
Dividends received
Operating cash before changes in working capital
Loans to subsidiary
Decrease in sundry payables
Net cash outflow from operating activities
Taxation paid
Net cash outflow
Cash effects of investing activities
Dividends received
Net cash outflow
Senior fixed rate notes issued
Senior floating rate notes repurchased
Fees paid on issue of senior fixed rate notes
Proceeds on termination of derivatives
Net cash inflow
Increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of the period
16.1
16.2
15
4.4
14
2015
52 weeks to
28 March
Rm
310
(469)
990
(601)
(230)
(222)
(8)
(230)
1 005
(1 005)
18.1
(230)
18.2
230
-
11.1
11.2
18.3
2014
52 weeks to
29 March
Rm
200
(1 531)
657
928
4
(258)
(1 076)
(1 076)
284
(284)
(1)
(1 077)
258
(819)
5 905
(5 280)
(236)
319
708
-
(111)
111
-
149
Notes to the Company Financial Statements
1.
2015
28 March
Rm
2014
29 March
Rm
614
7 835
8 449
581
8 432
9 013
The interest-free loan owing by Edcon Limited comprises:
Principal
Cumulative notional interest charged
Interest-free loan owing by Edcon Limited principal and notional interest
461
153
614
477
104
581
Reconciliation of interest-free loan owing by Edcon Limited:
Notional interest charged
Reclassification to investments in subsidiaries (note 2)
581
49
(16)
614
581
-
NON-CURRENT LOANS OWING BY SUBSIDIARY
Interest-free loan owing by Edcon Limited, shareholder’s loan advanced
Interest-bearing loan owing by Edcon Limited
581
Loan recognised in investments in subsidiaries (note 2)
Total principal loan, loan in investments and notional interest at the end of the
period
6 398
6 382
7 012
6 963
Total principal loan at the end of the period excluding notional interest
6 859
6 859
8 432
6 476
794
1 528
(366)
8 432
The interest-bearing loan with Edcon Limited comprises:
Principal and interest at the beginning of the period
Loan issued to Edcon Limited
Interest capitalised during the period
Settlement during the period
Principal and interest at the end of the period
420
(1 017)
7 835
Total principal loans interest-free and interest-bearing owing by Edcon
Limited
14 694
15 291
Interest-free loan owing by Edcon Limited, shareholder’s loan advanced
In June 2007, the Company advanced R5 057 million from the proceeds of the initial shareholder’s loan from Edcon
(BC) S.A.R.L. to Edcon Limited. Interest accrued daily at prime plus 2.25% p.a. up to and including 7 February 2012.
From 8 February 2012, the terms of the loan were changed and the loan accrued interest of 0% as from that date up
to and including the date of repayment. The loan is repayable by no later than 25 May 2037. As a result of the change
to the terms of the loan, R6 859 million was derecognised on 8 February 2012, R6 382 million recognised in
investments in subsidiaries and a R477 million principal loan recognised in non-current assets in accordance with the
principles of IAS 39.
During the current financial period, R16 million was reclassified to
principal of the interest-free loan owing from Edcon Limited due to
subsidiaries (note 2) and the principal portion of the interest-free loan
should have been recognised in investments from subsidiaries (note
current assets at that date.
investments in subsidiaries (note 2) from the
a misclassification between the investment in
at 8 February 2012. As a result, R6 398 million
2) and a R461 million loan recognised in non-
Interest-bearing loan owing by Edcon Limited
The proceeds raised of R6 250 million on the issuance of the senior floating rate notes were advanced to Edcon
Limited on 1 June 2007. In November and December 2013, a further R791 million from the proceeds on termination of
the derivatives (R488 million) which hedged the senior floating rate notes and proceeds from the over-raise on the
senior fixed rate notes (R303 million) was advanced to Edcon Limited. Another R3 million was on-lent to Edcon
Limited during the 2014 financial period from excess cash reserves. Interest accrues on the outstanding amount as
agreed between the parties from time to time but shall at least be equal to the aggregate of the following:
a) interest incurred by the lender;
b) foreign exchange differences incurred by or accrued to the lender;
c) any amounts incurred by or accrued to the lender in respect of interest rate agreement or option contracts that are
taken out by the lender as hedging arrangements in relation to the debt; and
d) a 25 point basis premium to the amounts in a) to c) above.
150
Notes to the Company Financial Statements (continued)
1.
2015
28 March
Rm
2014
29 March
Rm
1 968
6 398
8 366
1 968
6 382
8 350
367
367
367
367
NON-CURRENT LOANS OWING BY SUBSIDIARY (continued)
The interest, as set out in a) to c) above, is payable 5 business days prior to the
date that the corresponding amounts fall due by the lender. The interest, as set
out in d) above is payable 5 business days after payment by the lender. The
lender pays interest quarterly in arrears. The principal amount becomes due on
the day it becomes payable by the lender, i.e. the notes mature on 30 June
2019.
To the extent required to maintain the solvency of Edcon Limited, these loans
are subordinated to the claims of all of the creditors of Edcon Limited.
2.
INVESTMENT IN SUBSIDIARIES
100% holding in Edcon Acquisition Proprietary Limited
Loan advanced to Edcon Limited recognised in investments (note 1)
Total investment in subsidiaries
During the current financial period, R16 million was reclassified from the interestfree loan owing by Edcon Limited. Details of the reclassification are contained
within note 1.
3.
INVESTMENT IN HOLLARD BUSINESS PARTNERS
Hollard Business Partners Proprietary Limited (HBP)
The HBP investment was acquired on 2 January 2013 from Edcon Limited
through the granting of a loan from Edcon Limited of R367 million. The loan
bore interest at 0% and was fully repaid in the 2014 financial period from cash
distributions received from HBP.
4.
DERIVATIVE FINANCIAL INSTRUMENTS
4.1
Non-current derivative assets
4.2
4.3
Current derivative liabilities
Total derivatives
Cross currency swaps liability
Credit risk valuation adjustments
Total derivatives before credit risk valuation adjustments
Cross currency swaps liability
4.4
Derivative gains/(losses)
23
23
(79)
(79)
(24)
(24)
(79)
(79)
(1)
(1)
(5)
(5)
(3)
(3)
(84)
(84)
(4)
(4)
-
(4)
151
2015
28 March
Rm
5.
DEFERRED TAXATION
Balance at the beginning of the period – deferred taxation liability/(asset)
Recognised in profit or loss – current period (note 17.1)
Recognised in profit or loss – current period (note 17.1)
Cash flow hedges (note 17.2)
Balance at the end of the period – deferred taxation liability/(asset)
Deferred taxation comprises:
Deferred taxation liability
Cash flow hedges
Deferred taxation asset
Net deferred taxation liability
6.
2014
29 March
Rm
39
6
(22)
23
(29)
29
(-)
20
25
45
(22)
(22)
23
CURRENT LOANS OWING BY SUBSIDIARIES
Edcon Limited
Edgars Consolidated Stores Proprietary Limited
1 051
2 354
3 405
820
2 354
3 174
The loans are interest-free and payable on demand by the lender Edcon Holdings
Limited. During the current period, R230 million was advanced to Edcon Limited
from cash distributions received from the HBP investment (note 3).
7.
CASH AND CASH EQUIVALENTS
Cash on deposit
8.
SHARE CAPITAL AND PREMIUM
8.1
Authorised ordinary share capital
1 000 000 000 “A “ordinary shares with a par value of R0.00001 each
100 000 000 “B” ordinary shares with a par value of R0.00001 each
1 000 000 000 “C” ordinary shares with a par value of R0.00001 each
1 000 000 000 “D” ordinary shares with a par value of R0.00001 each
1 000 000 000 “E” ordinary shares with a par value of R0.00001 each
8.2
8.3
Authorised preference share capital
1 000 000 000 “A” preference shares of R0.00001 each
1 000 000 000 “B” preference shares of R0.00001 each
Ordinary shares in issue
Number of ordinary shares in issue comprise:
A ordinary shares issued
B ordinary shares issued
C ordinary shares issued
D ordinary shares issued
E ordinary shares issued
-
-
-
-
-
-
2015
28 March
Number
2014
29 March
Number
500 133
69 213
23 035
23 035
23 035
638 451
500 133
69 213
23 035
23 035
23 035
638 451
152
8.
SHARE CAPITAL AND PREMIUM (continued)
8.4
Number of preference shares in issue
“A” preference shares of R0.00001 each
“B” preference shares of R0.00001 each
8.5
2015
28 March
Rm
2014
29 March
Rm
200 866
200 866
55 841
55 841
256 707
256 707
2 975
2 973
Voting rights of ordinary and preference shares
Each “A” ordinary share shall entitle the holder thereof to 1 000 votes on all
matters upon which shareholders have the right to vote.
Each “A” redeemable cumulative preference Share shall not entitle the holders
thereof to receive notice of or to attend or vote at any general meeting of the
Company, save where a resolution affecting a matter contemplated in section
37(3)(a) of the Companies Act of South Africa is proposed.
The total “B” ordinary shareholder of the company at any time shall, in
aggregate, have the right to exercise such number of votes as is equal to 10.6%
of the aggregate voting rights of the total “A” ordinary shares then in issue.
Each “B” redeemable cumulative preference share shall not entitle the holders
thereof to receive notice of or to attend or vote at any general meeting of the
Company, save where a resolution affecting the matter contemplated in section
37(3)(a) of the Companies Act of South Africa is proposed.
Each “C”, “D” and “E” Ordinary Share shall entitle the holder thereof to one vote
on all matters upon which shareholders have the right to vote.
8.6
Redemption of Preference Shares
The “A” and “B” Preference Shares may not be redeemed within three years and
one day of their date of issue and will thereafter be redeemed at a date fixed by
the Company.
The Company shall pay to the member, all monies payable in respect of the
redemption of such “A” and “B” Preference Shares as calculated in accordance
with the provisions of the Memorandum of Incorporation of the Company.
The “A” and “B” Preference Shares shall not confer on the holders thereof any
further rights to participate in the profits or assets of the Company.
8.7
Issued share capital and premium
Ordinary shares issued – share capital
-
Ordinary shares issued – share premium
2
Comprising:
Share capital
Share premium
2 975
2 975
-
-
2 975
2 975
2 975
2 975
During the 2014 financial period the Company issued “C” ordinary shares with a
par value of R0.00001 per share at a premium of R863 per share, “D” ordinary
shares with a par value of R0.00001 per share at a premium of R198 per share
and “E” ordinary shares with a par value of R0.00001 per share at a premium of
R27 per share.
153
2015
28 March
Rm
9.
2014
29 March
Rm
CASH FLOW HEDGING RESERVE
Balance at the beginning of the period – net of tax
(1)
(74)
(176)
(148)
Movements
Cash flow hedges recognised in other comprehensive income
Ineffective portion of cash flow hedges, released to derivative gains/(losses) as
hedge ineffectiveness
Cash flow hedges released to financing costs
98
Cash flow hedges released to foreign exchange gain
93
(147)
Cash flow hedges released due to discounted hedge accounting
Tax impact of cash flow hedges (note 17.2)
-
303
22
(28)
(57)
(1)
(57)
(1)
Comprising:
The foreign denominated floating rate notes expose the Company to both
interest rate risk and foreign exchange risk. The foreign denominated fixed rate
notes expose the Company to foreign exchange risk. Derivative instruments
were executed to limit the exposure to both interest rate risk and foreign
exchange risk. These derivative instruments were designated as a cash flow
hedge. Refer to note 20.2 for details of the hedging strategy.
10.
SHAREHOLDER’S LOAN
10.1
Loan recognised in equity
8 311
8 290
8 290
8 290
Loan recognised in equity comprises:
Principal at the beginning of the period
Reclassification from loan recognised in non-current liabilities
Principal at the end of the period
10.2
21
8 311
8 290
841
797
Principal
638
659
Cumulative notional interest
203
138
Loan recognised on non-current liabilities
841
797
797
801
65
(4)
Loan recognised in non-current liabilities comprises:
Reconciliation of loan recognised in non-current liabilities:
Notional interest charged for the period
10.3
Reclassification to loan recognised in equity
(21)
841
797
8 949
8 949
Total principal recognised in equity and non-current liabilities excluding
notional interest to Edcon (BC) S.A.R.L
154
10.
2015
28 March
Rm
2014
29 March
Rm
5 381
5 948
5 381
5 948
5 905
5 905
SHAREHOLDER’S LOAN (continued)
In June 2007 the parent company, Edcon (BC) S.A.R.L., provided a
shareholder loan for R5 057 million as proceeds of capital investment into the
Company. The loan is denominated in South African Rands and accrued
interest at the South African prime rate plus 2% p.a. up to and including 7
February 2012. Thereafter, no interest will accrue up to and including the date
of repayment. The principal is repayable in May 2037. As a result of the loan
being interest-free, the terms of the loan were substantially different and it was
necessary to derecognise the loan in terms of IAS 39 on 8 February 2012.
Applying initial measurement in terms of IAS 39 at that date, resulted in
R8 290 million being recognised in equity and R659 million being recognised in
non-current liabilities in the 2013 financial period.
During the current financial period, R21 million was reclassified from the
shareholder’s loan recognised in non-current liabilities to the shareholder’s
loan recognised in equity due to a misclassification between equity and noncurrent liabilities at 8 February 2012. As a result, the amount that should have
been recognised in equity at 8 February 2012 was R8 311 million and R638
million in non-current liabilities at that date.
This shareholder’s loan is regarded as capital for IAS 1 purposes (note 19). To
the extent required to maintain the solvency of the Edcon Holdings Limited
Group, the shareholder’s loan is subordinated to the claims of all of the
creditors of the Edcon Holdings Limited Group.
11.
NON-CURRENT INTEREST-BEARING DEBT
Senior secured fixed rate notes – €425 million
11.1
Senior fixed rate notes €425 million
Notes issued
Foreign currency
Fees capitalised
(328)
(196)
5 381
Fees capitalised
Fee amortised
(230)
5 948
5 948
Notes issued
273
5 905
(601)
(3)
273
(244)
37
14
5 381
5 948
On 14 November 2013, Edcon Holdings Limited issued senior fixed rate
notes with a nominal value of €425 million. Interest is payable semi-annually
in arrears at a rate of 13.375% per annum and the notes mature 30 June
2019.
The market value of the senior fixed rate notes at 28 March 2015 was R1 301
million (2014: R5 560 million). There were no defaults or breaches of the
principal of interest during the period.
155
2015
28 March
Rm
11.
11.2
Senior floating rate notes
2014
29 March
Rm
Notes issued
3 606
Foreign currency
1 674
Repurchased
(5 280)
4 406
828
Fees amortised
46
Repurchased notes
(5 280)
12.
CURRENT LOANS OWING TO SUBSIDIARIES
Edcon Acquisition Proprietary Limited
1
1
1
1
The loan with Edcon Acquisition Proprietary Limited was interest-free and
payable on demand.
13.
SUNDRY PAYABLES
Interest accrued on senior fixed rate notes (note 20.7.2 and 21)
212
Value added taxation payable
329
8
212
337
2015
52 weeks to
28 March
Rm
2014
52 weeks to
29 March
Rm
Finance income
469
1 531
Dividends received
230
258
699
1 789
The sundry payables are interest-free and mature no later than one year.
Interest accrued is settled quarterly.
14.
15.
TOTAL REVENUES
FOREIGN EXCHANGE GAIN/(LOSS)
Senior fixed rate notes (note 11.1)
601
Senior floating rate notes (notes 11.2)
(828)
Foreign exchange gain on cash flow hedge
147
Foreign exchange gain realised on settlement of senior floating rate notes
(273)
26
601
(928)
156
16.
FINANCE INCOME AND FINANCE COSTS
16.1
Finance income
Notional interest received on shareholder’s loan
Notional interest received from Edcon Limited
Interest received from Edcon Limited
16.2
Finance costs
Notional interest on shareholder’s loan
Interest on senior floating rate notes
Interest on senior secured fixed rate notes
Fees amortised on senior floating rate notes
Fees amortised on senior secured fixed rate notes
Other finance costs
17.
TAXATION
17.1
Taxation (expense)/income
Current taxation - current period
Current taxation - prior period
Total current taxation (expense)/income
17.2
17.4
2014
52 weeks to
29 March
Rm
49
420
469
4
1 527
1 531
65
888
37
990
266
330
46
14
1
657
(1)
(1)
-
Deferred taxation - current period (note 5)
Deferred taxation - prior period (note 5)
Total deferred taxation (expense)/income
(39)
(6)
(45)
-
Total taxation (expense)/income
(46)
-
Comprising:
South African normal taxation (expense)/income
(46)
-
Taxation charge to other comprehensive income
Current income taxation related to items charged or credited
Unrealised loss/(gain) on cash flow hedges
Deferred income taxation related to items charged or credited
Unrealised loss/(gain) on cash flow hedges (note 5)
Income taxation credit/(expense) reported in other comprehensive income (note
9)
17.3
2015
52 weeks to
28 March
Rm
Deferred income tax comprises
Arising on deferred taxation assets
Deferred taxation expense
Reconciliation of rate of taxation (%)
Standard rate – South Africa
Adjusted for:
Non-taxable income
Disallowable expenditure
Prior year
Effective tax rate
1
22
(29)
22
(28)
(20)
(25)
(45)
28
28
(22)
7
2
15
(36)
8
157
2015
52 weeks to
28 March
Rm
17.
17.5
Tax settlement
On 31 August 2012, the South African Revenue Service (“SARS”) notified The
Company that it was considering the issuance of an income tax assessment
primarily in connection with our tax treatment of interest payable on the financing
of the acquisition of the Group by Bain Capital. We challenged SARS’s position
and we believe that we were in compliance with applicable South African tax
laws and regulations. Nevertheless, we perceived it to be beneficial to engage in
settlement discussions and we entered into a settlement agreement with SARS
in relation to the matters in dispute on 14 December 2012 in order to avoid
protracted litigation with SARS.
2014
52 weeks to
29 March
Rm
The agreement addresses the tax treatment of the issues in dispute for financial
periods since the acquisition of the Group by Bain Capital, being financial
periods 2008 through 2014, as well as future financial periods and in relation to
both Edcon Holdings Limited and Edcon Limited. The terms of the agreement
cannot be bifurcated between both companies and needs to be viewed
holistically.
18.
CASH FLOW
18.1
Taxation paid
Taxation asset at the beginning of the period
Current taxation recognised in profit or loss
Non-cash adjustment
Current taxation provided in other comprehensive income
Taxation asset at the end of the period
18.2
Dividends received
18.3
Decrease in cash and cash equivalents
Cash on deposit
1
(1)
-
230
-
4
(4)
(1)
(1)
258
(111)
(111)
158
19.
MANAGEMENT OF CAPITAL
The Company considers share capital including ordinary and preference shares, share premium, the shareholder’s
loan and interest-bearing debt as capital.
The shareholder’s loan is repayable in May 2037. The “A” and “B” preference shares are cumulative and redeemable
at the option of the issuer and are therefore regarded as capital. Long-term interest-bearing debt consists of:
Senior fixed rate notes, maturing 30 June 2019.
The senior fixed rate notes refinanced the senior floating rate notes which were issued to finance the purchase of
Edgars Consolidated Stores Limited in the 2008 financial period. As such, these senior fixed rate notes are regarded
as permanent capital.
The objectives in managing this capital are to:
Ensure appropriate access to other comprehensive income debt markets.
Ensure sufficient resilience against economic turmoil.
Safeguard the Company’s ability to continue as a going concern, be flexible and take advantage of opportunities that
are expected to provide an adequate return to shareholders.
Optimise weighted average cost of capital, given inherent constraints.
The Company manages its capital and makes adjustments to it in light of the changes in economic conditions. No
changes were made in the objectives, policies or processes during the current period. The notes contain substantially
the same covenants and events of default as set out in the Offering Memorandum for the senior fixed rate notes dated
8 November 2013. During the period there have been no defaults.
The Company takes cognisance of select rating agency ratios that evaluate the ability of the capital to absorb losses
and the flexibility that a combination of capital instruments provide. The value placed on the corporate rating is
important as the Company has issued notes on the Irish Stock Exchange to facilitate funding.
20.
FINANCIAL RISK MANAGEMENT
20.1
Treasury risk management
The Company’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest
rate risk, cash flow interest rate risk and price risk), credit risk and liquidity risk. The Company’s overall risk
management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse
effect on the Company’s financial performance. The Company uses derivative financial instruments to moderate
certain risk exposures.
A treasury workgroup consisting of senior management meets on a regular basis to update treasury policies and
objectives, analyse currency and interest rate exposures and re-evaluate treasury management strategies against
revised economic forecasts. Compliance with Company Treasury policies and objectives of the Board and exposure
limits is reviewed at meetings of the Risk Management Workgroup.
20.2
Hedging strategy
Euro Denominated Senior Fixed Rate Notes due 2019
In December 2013, cross currency swaps were entered into which protects against variability in future interest cash
flows that are subject to fluctuations based on foreign exchange rates. The notional value of the hedge was €425
million (note 11.1) and provides cover on the coupon of the notes up to 31 December 2015. The hedge creates an
effective annual average fixed interest rate of 14.65% over the period of cover. The cross currency swaps have been
designated as a cash flow hedge.
20.3
20.3.1
Sensitivity analysis of non-derivative financial liabilities
The Company recognises that movements in certain risk variables (such as interest rates or foreign exchange rates)
might impact the value of its variable rate financial liabilities and also the amounts recorded in its other comprehensive
income and its profit or loss for the period. Therefore the Company has assessed:
a) what would be reasonably possible changes in the risk variables at the reporting date; and
b) the effects on profit or loss and other comprehensive income if such changes in the risk variables were to occur.
159
20.
20.3
20.3.1
Sensitivity analysis of non-derivative financial liabilities (continued)
The sensitivity analysis takes into account the incremental change in value arising from a parallel fall or rise in the
interest rate and the exchange rate. The following table shows the approximate interest rate and exchange rate
sensitivities of variable rate financial liabilities and the resulting impact on profit or loss, and other comprehensive income
for financial liabilities held at the reporting date:
28 March 2015
Floating rate liabilities
EUR denominated
Index
EUR-ZAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
Sensitivity
-10%
-5%
5%
10%
Other
comprehensive
income
Rm
Profit or (loss)
effect
Rm
558
279
(279)
(558)
29 March 2014
Floating rate liabilities
EUR denominated
Index
EUR-ZAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
Sensitivity
-10%
-5%
5%
10%
Other
comprehensive
income
Rm
Profit or loss
effect
Rm
618
309
(309)
(618)
The impact of changes in interest rates on profit or loss relating to the foreign denominated senior fixed rate notes, after
considering the effect of the hedging instruments which hedge the coupon payments, is nil.
20.3.2 Sensitivity analysis of derivatives
The Company recognises that movements in certain risk variables (such as interest rates or foreign exchange rates)
might impact the value of its derivatives and also the amounts recorded in its other comprehensive income and its profit
or loss for the period. Therefore the Company has assessed:
-
what would be reasonably possible changes in the risk variables at the reporting date; and
the effects on profit or loss and other comprehensive income if such changes in the risk variables were to occur.
The sensitivity analysis takes into account the incremental change in value arising from a parallel fall or rise in the yield
curve and the exchange rate. The following table assumes all designated hedges will change in fair value through other
comprehensive income (100% effective), and considers sensitivities to forward interest rate curves, of +/- 50 and +/-100
basis points respectively. If these sensitivities were to occur, the impact on profit or loss, and other comprehensive
income for each category of financial instrument held at the reporting date is shown on the following page:
160
20.
20.3
20.3.2
28 March 2015
Sensitivity
Derivative
asset/
(liability)
Rm
EURIBOR
EURIBOR
EURIBOR
EURIBOR
-100bps
-50bps
+50bps
+100bps
1
(1)
EUR-ZAR
-10%
(75)
75
EUR-ZAR
EUR-ZAR
EUR-ZAR
-5%
5%
10%
(37)
37
75
37
(37)
(75)
Sensitivity
Derivative
asset/
(liability)
Rm
Index
Cross currency
swaps
Cross currency
swaps
Other
Rm
Profit or loss
effect
Rm
29 March 2014
Index
Cross currency
swaps
Cross currency
swaps
EURIBOR
-100bps
(9)
EURIBOR
EURIBOR
EURIBOR
EUR-ZAR
EUR-ZAR
EUR-ZAR
EUR-ZAR
-50bps
+50bps
+100bps
-10%
-5%
5%
10%
(2)
(134)
(67)
67
134
Other
Rm
Profit or loss
effect
Rm
9
2
134
67
(67)
(134)
Material cross currency swap contracts at 28 March 2015 are summarised below. Currency options are only purchased as
a cost-effective alternative to the cross currency swap contracts. Currently no currency options are in place.
Foreign currency against Rand hedged
notes exposure
2015 Euro
2014 Euro
Foreign
currency
€m
425
425
Derivative
fair value
Rm
79
1
Contract
equivalent
Rm
6 077
6 077
Average
rate
14.30
14.30
The interest cash flows payable semi-annually on the €425 million senior fixed rate notes maturing 2019, have been
hedged (note 4 and 20.2).
At 28 March 2015, in respect of the fixed rate notes exposures, if the South African Rand had weakened 5% against the
Euro, with all other variables held constant, profit for the period would have decreased by R279 million (2014: R309
million). Conversely, at 28 March 2015, in respect of the floating rate notes exposures, if the South African Rand had
strengthened 5% against other currencies, with all other variables held constant, profit for the period would have increased
by R279 million (2014: R309 million).
161
20.
20.4
Foreign currency management
20.5
Interest rate management
As part of the process of managing the Company’s fixed rate interest-bearing debt and cash and cash equivalents mix,
the interest rate characteristics of new and the refinancing of existing loans are positioned according to expected
movements in interest rates. The interest rate re-pricing profile is summarised as follows:
Fixed
rate
Floating
rate
Total interestbearing debt
28 March 2015
Interest-bearing debt (Rm) – non-current
5 381
5 381
100
100
5 948
5 948
100
100
% of total interest-bearing debt
29 March 2014
Interest-bearing debt (Rm) – non-current
% of total interest-bearing debt
The following interest rate swaps and cross currency swaps are in place to hedge against interest payment exposures:
al
Notes notional
amount hedged –
Rm
Notes fixed interest
% payable
2015
2014
2015
2014
5 905
5 905
14.65
14.65
Fair value of the
interest rate
hedges
(liability)/asset Rm
2015
2014
Interest rate hedges
Cross currency swaps – fixed rate notes
20.6
(79)
(1)
Credit risk management
Potential concentrations of credit risk consist principally of short-term cash investments. The Company only deposits
short-term cash surpluses with financial institutions of high-quality credit standing. Credit limits per financial institution
are established within the Group’s treasury policies approved by the Risk Management Workgroup.
The derivatives are held with three counterparties of high credit worthiness. The credit worthiness is assessed on a
regular basis. At period end these counterparties are classified as investment grade.
162
20.
20.7
Liquidity risk
The Company has minimised risk of liquidity as shown by its substantial banking facilities and reserve borrowing
capacity at a consolidated level.
20.7.1
Maturity analysis of derivative financial instruments’ cash flows
Cash outflows
Due within one year
2015
28 March
Rm
2014
29 March
Rm
890
890
1 005
1 005
890
890
Total
890
1 895
Cash inflows
Due within one year
771
771
959
959
Total
Net cash flows
Due within one year
914
914
771
(119)
(119)
Total
1 873
(46)
(46)
24
24
(119)
(22)
163
20.
20.7
Liquidity Risk (continued)
20.7.2
Maturity analysis of non-derivative financial liabilities (including interest
payments)
Sundry payables (note 13)
After three years but within four years
After four years but within five years
After five years
Total debt
2015
28 March
Rm
2014
29 March
Rm
212
891
1 103
329
1 005
1 334
746
746
746
6 323
8 949
17 510
18 613
891
827
827
827
15 542
18 914
20 248
The maturity analysis of non-derivative financial liabilities is prepared on an
undiscounted cash flow basis. The contractual maturity of the hedged coupon cash
flows of the foreign denominated notes are calculated using forward Euribor rates
(where applicable) and the exchange of principal at the derivative hedged rate. In
respect of the cash flows that are not hedged, and subsequent to the hedge
maturing, the period end fixed interest rates and foreign exchange rates are used
to calculate the cash flows of the foreign denominated notes.
20.8
Fair value of financial instruments
The Company uses a three-level hierarchy to prioritise the inputs used in
measuring fair value. The levels within the hierarchy are described in the table
below with level 1 having the highest priority and level 3 having the lowest. Fair
value is principally applied to financial assets and financial liabilities. These are
measured at fair value on a recurring basis, aggregated by the level in the fair
value hierarchy within which these measurements fall.
The following table presents the company’s assets and liabilities that are measured
at fair value at the period end:
Total
Level 1 (a)
Level 2 (b)
Level 3 (c)
Rm
Rm
Rm
Rm
28 March 2015
Financial assets
79
79
79
79
164
20.
20.8
Fair value of financial instruments (continued)
Total
Rm
Level 1 (a)
Level 2 (b)
Rm
Rm
Level 3 (c)
Rm
29 March 2014
Financial assets
23
23
23
23
24
24
24
24
Level 1 – Based on quoted market prices in active markets.
Level 2 – Based on observable inputs other than Level 1 prices, such as quoted prices for similar financial
assets or financial liabilities, or other inputs that are observable or can be corroborated by
observable market data for substantially the full term of the financial assets or financial liabilities.
Level 3 – Based on unobservable inputs that are supported by little or no market activity and are financial
instruments whose value is determined using pricing models, discounted cash flow methodologies,
or similar techniques, as well as instruments for which the determination of fair value requires
significant judgement or estimation.
All financial instruments have been recognised in the statement of financial position and there is no material difference
between their fair values and carrying values, except for the notes issued.
The following methods and assumptions were used by the Company in establishing fair values:
Liquid resources, investments and loans: the carrying amounts reported in the statement of financial position
approximate fair values due to the short period to maturity of these instruments.
Notes issued: the fixed rate notes issued are fair valued based on the exchange rate ruling at the reporting date. The
market values are disclosed in note 11.
Forward instruments: Cross currency swaps are entered into to hedge foreign exchange rate exposure of interestbearing debt and fair values are determined using market related derivative rates at 28 March 2015.
165
21.
FINANCIAL INSTRUMENTS BY CATEGORY
The accounting policies for financial instruments have been applied to the line items below:
Financial assets by category
Loans and
receivables
Rm
Fair value through
other
comprehensive
income
Rm
Total
Rm
At 28 March 2015
Non-current loans owing by subsidiary (note 1)
8 449
8 449
Current loans owing by subsidiaries (note 6)
3 405
3 405
-
-
11 854
11 854
At 29 March 2014
23
23
Non-current loans owing by subsidiary (note 1)
9 013
9 013
Current loans owing by subsidiaries (note 6)
3 174
3 174
-
-
Cash and cash equivalents (note 7)
12 187
23
12 210
Financial liabilities by category
Financial
liabilities at
amortised
cost
Rm
Fair value
through
profit
or loss
Rm
Fair value
through other
comprehensive
income
Rm
Total
Rm
At 28 March 2015
Shareholder’s loan (note 10.2)
841
841
Interest-bearing debt (note 11)
5 381
5 381
Loans owing to subsidiaries (note 12)
1
1
79
79
79
6 514
212
6 435
212
At 29 March 2014
Shareholder’s loan (note 10.2)
797
797
Interest-bearing debt (note 11)
5 948
5 948
1
1
Loans owing to subsidiaries (note 12)
24
329
7 075
24
329
24
7 099
166
22.
RELATED-PARTY TRANSACTIONS
Related party relationships exist within the Company. During the period all purchasing and selling transactions were
concluded at arm’s length. Edcon Holdings Limited is the ultimate South African parent entity and the ultimate parent of
the Company is Edcon (BC) S.A.R.L. The following table provides the total amount of transactions, which have been
entered into with related parties:
Received/(charged)
from/to related
parties
Rm
2015
Amounts
owed
by related
parties
Rm
Loan including notional interest owing to Edcon (BC) S.A.R.L –
841
Loan owing to Edcon (BC) S.A.R.L - recognised in equity
8 311
Interest-free loan owing to Edcon Acquisition Proprietary Limited
1
Interest-free loan owing by Edcon Limited
Interest-free loan owing by Edgars Consolidated Stores Proprietary
Limited
Interest-bearing loan owing by Edcon Limited – recognised in noncurrent assets
Interest-free loan owing by Edcon Limited – recognised in noncurrent assets
Interest-free loan owing by Edcon Limited – recognised in
investments
1 051
2 354
7 835
614
6 398
Interest including notional interest charged to Edcon Limited
469
Notional interest charged by Edcon (BC) S.A.R.L
(65)
Received/(charged)
from/to related
parties
Rm
2014
Amounts
owed by
related
parties
Rm
Loan including notional interest owing to Edcon (BC) S.A.R.L –
8 290
Interest-free loan owing to Edcon Acquisition Proprietary Limited
1
Interest-free loan owing to Edcon Limited
Interest-free loan owing by Edgars Consolidated Stores Proprietary
Limited
Interest-bearing loan owing by Edcon Limited – recognised in noncurrent assets
Interest-free loan owing by Edcon Limited – recognised in noncurrent assets
Interest-free loan owing by Edcon Limited – recognised in
investments
Notional interest charged by Edcon (BC) S.A.R.L
Amounts
owed
to related
parties
Rm
797
Loan owing to Edcon (BC) S.A.R.L - recognised in equity
Interest including notional interest charged to Edcon Limited
Amounts
owed
to related
parties
Rm
820
2 354
8 432
581
6 382
1 527
4
167
23.
GUARANTEES
The Company has guaranteed the following interest-bearing debt of Edcon Limited:
— the super senior secured notes of R1 010 million on a super senior secured basis;
— the senior secured fixed rate notes of €617 million and US$250 million on a senior secured basis;
— the revolving credit facility of R2 865 million on a super senior secured basis; and
— the senior secured term loan of R4 120 million, plus any interest capitalised on this loan (note 18.8), on a senior
secured basis.
24.
EVENTS AFTER THE REPORTING PERIOD
No events occurred between the financial period end and the date of this report which would have a material impact on
the Company’s Financial Statements.
168
ANNEXURE 1 – INTERESTS IN SIGNIFICANT SUBSIDIARIES
Nature
of business*
Direct investment in
subsidiaries
Edcon Acquisition
Proprietary Limited
Issued ordinary capital
% interest in capital
Book value-shares
2015
R
2014
R
2015
%
2014
%
2015
Rm
2014
Rm
A
2
2
100
100
1 968
1 968
M
R
100
897
100
897
49
100
49
100
51
5 429
51
5 429
G
2 000
2 000
100
100
7
7
R
521
521
50
50
15
15
P
P
300 000
300 000
100
100
405
405
N$
N$
1 050 000
1 050 000
100
100
264
264
L
L
1 500 000
1 500 000
100
100
136
136
M
M
200 000
200 000
100
100
-
-
ZMW
ZMW
Indirect investment in
subsidiaries
Celrose Proprietary Limited
Edcon Limited
National Security Corporation
Proprietary Limited
Quinmatro Proprietary
Limited
Incorporated in Botswana
Jet Supermarkets Botswana
Proprietary Limited
Incorporated in Namibia
Edgars Stores (Namibia)
Limited
Incorporated in Swaziland
Edgars Stores Swaziland
Limited
Incorporated in Lesotho
Edgars Stores Lesotho (Pty)
Limited
R
R
R
R
Incorporated in Zambia
Jet Supermarkets Zambia
Limited
R
5 000
5 000
100
100
-
-
Incorporated in
Mozambique
Edcon Limitada
R
MZM
50 000
MZM
50 000
100
100
-
-
Incorporated in Ghana
Jetcon Mart Ghana Limited
GHS
2 033 130
GHS
R
Incorporated in Zimbabwe
Edgars Stores Limited 1
R
USD
29 310
USD
29 310
100
38
11
38
Interest in subsidiaries
1
2
1
8 300
8 288
The Group has consolidated the financial statements of Edgars Stores Limited based on a 44% equity interest derived by excluding the
12% equity interest of the Zim D Trust.
* Nature of business A: Acquisition company, M: Manufacturing, R: Retailing, G: Group Services, D: Dormant.
169
Incorporated in the Republic of South Africa
Registration number 2006/036903/06
DM Poler* (Chairman), EB Berk*, MS Levin* (resigned 31 March
2015), ZB Ebrahim₸, RB Daniels* (appointed 7 June 2014), M
Osthoff*** (appointed 1 April 2015), DH Brown₸, TF Mosololi₸, LL
von Zeuner₸.
Executive directors
J Schreiber *** (Managing Director and Chief Executive Officer),
T Clerckx** (Chief Financial Officer), Dr U Ferndale (Chief
Operations Officer).
*USA ** BELGIUM ***GERMAN
₸ Independent Non – Executive Director
Group Secretary
CM Vikisi
Trustee, Transfer Agent and Principal Paying Agent
The Bank of New York Mellon Limited
1 Canada Square
London E14 5AL
United Kingdom
Listing Agent & Irish Paying Agent
The Bank of New York Mellon (Ireland) Limited
Hanover Building,
Windmill Lane, Dublin 2,
Republic of Ireland
Telephone: + 353 1 900 6991
JSE Debt Sponsor
Rand Merchant Bank (a division of
FirstRand Bank Limited)
1 Merchant Place
Cnr Fredman and Rivonia Road
Sandton
Republic of South Africa
Telephone: +27 11 282-8118
Registered office
Edgardale, Press Avenue
Crown Mines, Johannesburg, 2092
Telephone: +27 11 495-6000
Fax: +27 11 837-5019
Web site: www.edcon.co.za
Postal address
PO Box 100, Crown Mines, 2025
Auditors
Deloitte & Touche
Buildings 1 and 2, Deloitte Place, The Woodlands
20 Woodlands Drive, Woodmead, 2052
Private Bag X6, Gallo Manor, 2052
Telephone: +27 11 806-5000
Fax: +27 11 806-5111
170