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Edcon Results Announcement - 6 months ended 29 September 2012
Edcon Proprietary Limited
(Incorporated in the Republic of South Africa)
(Registration No. 2007/003525/07)
Company code: BIEDC1
(“Issuer” or “Edcon”)
EDCON HOLDINGS PROPRIETARY LIMITED (“EDCON”)
SUMMARY OF GROUP TRADING RESULTS FOR THE SIX-MONTH PERIOD
ENDED 29 SEPTEMBER 2012
SUMMARY OF FINANCIAL AND OTHER DATA
The following Summary of Financial and Other Data should be read in conjunction with the
Consolidated Condensed Financial Statements and related notes thereto in the second half of this
notice. However, the Summary of Financial and Other Data, including the Management discussion
and analysis section, excludes the impact of consolidating OntheCards Investments II Proprietary
Limited (“OtC”). For ease of use a reconciliation of the financial information presented in the tables of
the Summary of Financial and Other Data section and the Consolidated Condensed Financial
Statements is provided directly after the tables in this section.
The unaudited historical financial data in the Summary of Financial and Other Data and the
Consolidated Condensed Financial Statements of Edcon and its subsidiaries (“the Group”) attached
hereto, relates to the three-month period ended 1 October 2011 and the three-month period ended
29 September 2012. Unless the context requires otherwise, references in this notice to (i) “second
quarter 2012” and “second quarter 2013” shall mean the 13-week period ended 1 October 2011 and
the 13-week period ended 29 September 2012, respectively, (ii) “year to date 2012” and “year to date
2013” shall mean the 26-week period ended 1 October 2011 and the 26-week period ended 29
September 2012, respectively, and (iii) “fiscal 2012” and “fiscal 2013” shall mean the 52-week period
ended 31 March 2012 and the 52-week period ending 30 March 2013, respectively.
Throughout these reports Edgars refers to the Edgars division, which comprises Edgars, Red
Square, Boardmans and Edgars Active 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 statements in this section regarding industry outlook, our expectation regarding our future
performance, liquidity and capital resources and other non-historical statements in this discussion
are forward looking statements. These forward looking statements are subject to numerous risks and
uncertainties. Our actual results may differ materially from these contained or implied by any forward
looking statements.
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Second Quarter Year to date
(in millions) (in millions)
(unaudited) (unaudited)
2012(1) 2013(1) 2012(1) 2013(1)
Comprehensive income data
Revenues R 5 666 R 5 835 R 11 756 R 12 041
Retail sales 5 400 5 531 11 216 11 453
Cost of sales (3 487) (3 578) (7 092) (7 269)
Gross profit 1 913 1 953 4 124 4 184
Other income 142 146 269 433
Store costs (1 094) (1 169) (2 188) (2 352)
Other operating costs (734) (842) (1 423) (1 663)
Additional depreciation and
(149) (114) (296) (239)
amortisation(3)
Retail trading profit/(loss) 78 (26) 486 363
Income from joint ventures 116 165 249 315
Trading profit 194 139 735 678
Net fair value movement on
(980) (261) (1 150) (449)
notes and associated derivatives
Discount on repurchase of senior
36
secured notes
(Loss)/profit before financing
(786) (122) (379) 229
costs
Net financing costs (862) (802) (1 573) (1 490)
Taxation 427 262 522 365
Loss for the period from
(1 221) (662) (1 430) (896)
continuing operations
Profit from discontinued
38 70 80 113
operations
Loss for the period (1 183) (592) (1 350) (783)
Other financial data
Adjusted EBITDA(4) 571 581 1 479 1 379
Operating lease expense 401 434 793 856
Adjusted EBITDAR 972 1 015 2 272 2 235
Capital expenditure (excluding
143 171 579 368
finance leases)
Depreciation and amortisation 291 259 576 530
Second Quarter Year to date
(unaudited) (unaudited)
2012(1) 2013(1) 2012(1) 2013(1)
Select operating data
Number of stores 1 159 1 173 1 159 1 173
Same store sales growth (%) 6.2 0.8 6.2 1.0
Average retail space (in ‘000 sqm) 1 330 1 371 1 331 1 370
Number of customer credit accounts (in ‘000s) 3 792 3 810 3 792 3 810
2
Year to Date
(in millions)
(unaudited)
(1) (1)
2012 2013
Financial position data
Working capital R 3 484 R 3 622
Total assets 32 538 33 278
Total debt at unhedged rates 23 199 23 746
Total net debt including cash and derivatives 22 641 23 171
Total shareholders’ funds including shareholder’s loan 3 750 2 778
Second Quarter Year to date
(in millions) (in millions)
(unaudited) (unaudited)
(1) (1) (1) (1)
2012 2013 2012 2013
Cash flow data
Operating cash inflow before changes in working
capital R 556 R 550 R 1 440 R 1 561
Working capital movement (153) (124) (1 150) 186
Cash generated by operating activities 403 426 290 1 747
1) All figures presented in the summary financial statements above exclude the impact of consolidating OtC.
Reconciliation of the data presented above and the Consolidated Condensed Financial Statements
The following tables reconcile financial information which is presented in the Consolidated Condensed
Financial Statements attached hereto which consolidate OtC, to the data presented in the Summary of
Financial and Other Data above. Also refer to note 5 in the Consolidated Condensed Financial Statements for
the impact of consolidating OtC.
Second Quarter
(in millions)
(unaudited)
2013
Consolidation
Including adjustments Excluding
OtC for OtC OtC
Comprehensive income data
(2)
Revenues R 5 846 R 11 R 5 835
Profit from discontinued operations, net of tax 161 91 70
Other financial data
(4)
Adjusted EBITDA R 709 R 128 R 581
Cash flow data
Operating cash inflow before changes in working
capital R 678 R 128 R 550
Working capital movement 142 266 (124)
3
Year to date
(in millions)
(unaudited)
2013
Consolidation
Including adjustments Excluding
OtC for OtC OtC
Comprehensive income data
(2)
Revenues R 12 062 R 21 R 12 041
Profit from discontinued operations, net of tax 237 124 113
Other financial data
(4)
Adjusted EBITDA R 1 551 R 172 R 1 379
Financial position data
Total debt at unhedged rates R 28 046 R 4 300 R 23 746
Total net debt including cash and derivatives 26 333 3 162 23 171
Cash flow data
Operating cash inflow before changes in working
capital R 1 733 R 172 R 1 561
Working capital movement 495 309 186
Second Quarter
(in millions)
(unaudited)
2012
Consolidation
Including adjustments Excluding
OtC for OtC OtC
Comprehensive income data
(2)
Revenues R 5 675 R 9 R 5 666
Profit from discontinued operations, net of tax 169 131 38
Other financial data
(4)
Adjusted EBITDA R 755 R 184 R 571
Cash flow data
Operating cash inflow before changes in working
capital R 740 R 184 R 556
Working capital movement (9) 144 (153)
4
Year to date
(in millions)
(unaudited)
2012
Consolidation
Including adjustments Excluding
OtC for OtC OtC
Comprehensive income data
(2)
Revenues R 11 772 R 16 R 11 756
Profit from discontinued operations, net of tax 275 195 80
Other financial data
(4)
Adjusted EBITDA R 1 750 R 271 R 1 479
Financial position data
Total debt at unhedged rates R 27 499 R 4 300 R 23 199
Total net debt including cash and derivatives 26 027 3 386 22 641
Cash flow data
Operating cash inflow before changes in working
capital R 1 711 R 271 R 1 440
Working capital movement (984) 166 (1 150)
2) Comprises of interest earned on cash balances held by OtC.
3) This additional depreciation and amortisation relates to the amortisation of intangibles and the incremental depreciation arising
from the fair value adjustments in relation to the private equity transaction. These figures are included in “Other operating costs” in
the Condensed Consolidated Financial Statements attached hereto.
4) The following table reconciles net loss to EBITDA and adjusted EBITDA.
Second Quarter Year to date
(in millions) (in millions)
(unaudited) (unaudited)
(1) (1) (1) (1)
2012 2013 2012 2013
Loss for the period R (1 183) R (592) R (1 350) R (783)
Taxation (415) (236) (491) (321)
Net financing costs 862 802 1 573 1 490
Depreciation & amortisation 291 259 576 530
EBITDA R (445) R 233 R 308 R 916
Net fair value movement on notes and associated
(a)
derivatives 980 261 1 150 449
(b)
Transitional projects related expenditure 34 83 52 139
(c)
Edcon Master Card termination receipt 2 (141)
(d)
Discount on repurchase of senior secured notes (36)
(e)
Net asset write-off 2 2 5 16
(f)
Adjusted EBITDA R 571 R 581 R 1 479 R 1 379
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a) We have executed currency and interest rate derivatives to hedge the repayment of the interest and principal on the respective
floating and fixed rate notes. This adjustment relates to the revaluation of the notes to the spot exchange rate and change in the fair
value of the related cross currency swaps.
b) This relates to consulting costs incurred for various transitional projects.
c) This is the settlement that was received from Standard Bank Group Limited as a result of the termination of the Edcon Master Card
agreement.
d) During May 2011, the Group completed a repurchase of a portion of the senior secured floating rate notes with a nominal value of €39
million for €35 million, being 90% of the face value. As a result of the buy-back, the Group recognised a gain, net of associated fees,
of R36 million.
e) This adjustment relates to assets written off net of related proceeds.
f) Adjusted EBITDA includes the results of discontinued operations as follows:
Second Quarter Year to date
(in millions) (in millions)
(unaudited) (unaudited)
2012(1) 2013(1) 2012(1) 2013(1)
EBITDA for discontinued operations R 51 R 97 114 160
Depreciation in above number 1 2 3 3
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Management discussion and analysis of financial condition
Overview
Salient features pertaining to the second quarter 2013 compared to the prior comparative quarter
include:
? Retail sales up 2.4%
? Same store sales up 0.8%
? Adjusted EBITDA up 1.8%
Retail sales growth for the second quarter 2013 was marginally improved when compared to that of
the first quarter 2013. In the second quarter 2013 the financial services and credit divisions also
showed enhanced profitability when compared to the prior comparative period. This resulted in a
positive growth in Adjusted EBITDA of 1.8% for the current quarter compared with the 12.1% decline
in Adjusted EBITDA in the first quarter 2013. Adjusted EBITDA includes discontinued operations but
excludes transitional costs. Transitional costs include those relating to the closing of the sale of the
private label store card portfolio to Absa Bank Limited (“Absa”) as well as other one-off strategic
initiatives to improve Edcon’s business in the medium term.
Some of these investments in transitional projects were rewarded after the end of the reporting
period when, on 1 November 2012, all conditions required for the first closing of the South African
portion of the private label store card portfolio were satisfied and R8.8 billion of the South African
book was sold to Absa. Simultaneously, the long term commitment to provide future retail credit to
existing and new qualifying South African customers became effective.
Other strategic and operational initiatives being implemented by Edcon are in various stages of
implementation. The “Thank U” store card loyalty programme continues to exceed expectations with
over 7.35 million cards in issue at the end of the second quarter 2013 and over 69% of our retail
sales now earning loyalty points. Improved product and sourcing strategies through increased use of
quick response and direct sourcing continue to be implemented but are only expected to have a
meaningful impact in the future.
The Edgars division is showing some positive signs on its specific strategic interventions but the
complexity and size of the chain requires time to fully implement the plans and see the financial
benefits. An important milestone in these plans for Edgars is the recent completion of the first phase
of the refurbishment of 72 Edgars stores. Another exciting development is the launch of the 950m2
flagship TOPSHOP TOPMAN store in Sandton City on 22 November 2012. The next store is
expected to launch in December 2012 at the Gateway shopping centre. Shop in shop rollout of
TOPSHOP TOPMAN in Edgars will only be implemented in the next financial year as the focus on
new brands increases in Edgars.
The Discount division initiatives are more advanced in their implementation and delivering a
satisfactory financial performance. These include the various pricing interventions, store refits and
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store optimisation projects. However, there is more opportunity to fully realise the potential of the
division, which is being explored. Finally, the sound growth in our African operations continues to
convince us of the importance of this initiative.
The Edgars division grew total retail sales by 4.9% from the second quarter 2012 to the second
quarter 2013 boosted by the rollout of the Edgars Active format. As at the end of the second quarter
2013 there were 102 Edgars Active stores, 84 more than at the end of the second quarter 2012. On
a like-for-like basis there was a 2.4% reduction in retail sales in the Edgars division from the second
quarter 2012 to the second quarter 2013. Although aggressive winter stock clearance markdowns,
which continued from the first quarter 2013, have resulted in the divisional gross margin reducing
from 40.3% in the second quarter 2012 to 38.9% in the second quarter 2013, carry over winter stock
levels are less than half the value at the same time last year. The year to date 2013 gross margin
decreased from 41.4% to 40.0%, while total retail sales growth was 3.3% higher and like-for-like
sales were 2% lower than the prior comparative period.
Like-for-like sales in the Discount division increased by 4.9% from the second quarter 2012 to the
second quarter 2013, in line with that achieved in the first quarter 2013. Total retail sales decreased
by 0.1% from the second quarter 2012 to the second quarter 2013, as the Discount division
continued to be negatively affected by the conversions of the Discom stores completed in June 2012.
Positively, gross margin for the second quarter 2013 increased from 29.8% in the prior comparative
period to 31.3%. The year to date 2013 gross margin increased from 31.6% to 32.7%, while total
retail sales growth was 0.9% higher and like-for-like sales were 4.7% higher than the prior
comparative period.
CNA increased like-for-like sales by 2.7% from the second quarter 2012 to the second quarter 2013,
while total retail sales were 1.2% down. This is in part due to the net reduction in the number of CNA
stores from 203 at the end of the second quarter 2012 to 193 at the end of the second quarter 2013.
Gross margin remained basically flat at 30.7% for the second quarter 2013 from 31.0% in the second
quarter 2012. The year to date 2013 gross margin increased from 32.1% to 32.2%, while total retail
sales growth was 0.3% higher and like-for-like sales were 3.3% higher than the prior comparative
period.
Profit from the provision of credit and income from the insurance joint ventures (reflected in both
continued and discontinued operations) increased by R95 million to R261 million pre taxation from
the second quarter 2012 to the second quarter 2013.
In the current reporting period the provision of credit by Edcon has been disclosed as a discontinued
operation and the prior period numbers restated. Receivables have been classified as assets held for
sale. The Standard Bank Master Card relationship was terminated in the first quarter 2013 in
anticipation of the strategic Absa relationship. After the end of the reporting period the notes in OtC
were unwound as part of delivering the R8.8 billion of receivables to Absa. The results of the
remaining R1.1 billion of private label store card portfolio will be disclosed under discontinued
operations until sold.
8
The South African Revenue Service (“SARS”) recently notified Edcon that it is considering the
issuance of an additional tax assessment. While Edcon has challenged the position it is currently
engaged in constructive discussion with SARS to explore a possible settlement, if this is in the best
interests of Edcon. Although these discussions are not finally concluded, a potential settlement is
expected to fall well within Edcon's financial capacity.
Retail sales
Retail sales increased by R131 million, or 2.4%, from R5,400 million in the second quarter 2012 to
R5,531 million in the second quarter 2013, with same store sales increasing by 0.8%. For year to
date 2013 retail sales increased by 2.1%, from R11,216 million in year to date 2012 to R11,453
million, with like-for-like sales increasing by 1.0%.
Credit sales for the last twelve months to the end of the second quarter 2013 increased from 49.9%
in the prior comparable period to 51.4% of total retail sales.
Gross profit
Gross profit increased by R40 million, or 2.1%, from R1,913 million in the second quarter 2012 to
R1,953 million in the second quarter 2013. Gross margin decreased marginally from 35.4% in the
second quarter 2012 to 35.3% in the second quarter 2013. For the year to date 2013 gross profit
increased by 1.5% from R4,124 million in the year to date 2012 to R4,184 million and gross margin
decreased from 36.8% to 36.5%.
Store costs
Store costs increased by R75 million, or 6.9%, from R1,094 million in the second quarter 2012 to
R1,169 million in the second quarter 2013. The primary drivers of this increase were rentals,
electricity and water costs as well as assessment rates. For year to date 2013 store costs increased
by R164 million, or 7.5%, from R2,188 million in year to date 2012 to R2,352 million.
Other operating costs
Other operating costs increased by R108 million, or 14.7%, from R734 million in the second quarter
2012 to R842 million in the second quarter 2013. This significant increase is primarily as a result of
IT costs relating to the modification of the debtors system for the sale of the receivables included in
transitional costs as well as higher head office costs relating to divisional management.
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Depreciation and amortisation
As a result of a change in the mix of assets and their respective useful lives, depreciation and
amortisation decreased by R32 million, or 11.0%, from R291 million in the second quarter 2012 to
R259 million in the second quarter 2013.
Credit and financial services operating profit
Credit and financial services operating profit (reflected in both continued and discontinued
operations) increased by R95 million, or 57.2%, in the second quarter 2013 compared to the second
quarter 2012 to R261 million pre taxation. This increase was primarily due to 42.2% higher income
from the insurance joint ventures following increased insurance sales, and pleasing results from the
credit book. The consolidated impairment of receivables for the rolling 12 months ended 29
September 2012 as a percentage of average receivables was 7.1%. This is an increase from the
6.7% reported in the first quarter 2013 but meaningfully lower than the 8.9% recorded in the second
quarter 2012. The consolidated provision for impairment of receivables increased to 8.6% for second
quarter 2013 from 8.1% in the second quarter 2012 due to a rise in arrear accounts following our
recruitment of new credit accounts in the past twelve months. The number of active accounts rose by
approximately 18 000, or 0.5%, from the second quarter 2012 to the second quarter 2013.
Net financing costs
Net financing costs decreased by R60 million, or 7.0%, from R862 million in the second quarter 2012
to R802 million in the second quarter 2013. This decrease is primarily as a result of a reduction in the
prime interest rate. Our strategy is to hedge approximately 60% of the principal of the foreign
denominated notes utilising cross currency swaps and 100% of the associated coupon payments
through to March 2014. Interest on foreign floating notes has been swapped into fixed rates.
Cash flow
Operating cash inflow before changes in working capital decreased by R6 million from R556 million
in the second quarter 2012 to R550 million in the second quarter 2013.
Working capital increased by R124 million in the second quarter 2013, compared to an increase of
R153 million in the second quarter 2012 attributable to:
(i) an increase in total receivables of R58 million in the second quarter 2013 compared to an
increase of R169 million in the second quarter 2012;
(ii) an increase in inventory of R143 million in the second quarter 2013 compared to an increase
of R534 million in the second quarter 2012; and
(iii) an increase in payables of R77 million in the second quarter 2013 compared to an increase of
R550 million in the second quarter 2012.
10
Primarily due to the positive effect of the working capital movement, operating activities generated
cash of R426 million, as opposed to the R403 million generated in the second quarter of 2012. For
the year to date 2013 operating activities generated cash of R1,747 million compared to R290 million
for the year to date 2012 mainly due to a lower investment in inventories and accounts receivable
and payment cycle shift resulting in a lower cashflow requirement for working capital.
Capital expenditure increased by R28 million, or 19.6%, to R171 million in the second quarter 2013,
from R143 million in the second quarter 2012. In the second quarter 2013 we opened 34 new stores
(including 10 conversions) and closed 12 stores which, combined with store refurbishments, resulted
in investments in store fixtures of R119 million, compared to the second quarter 2012 where we
opened 16 new stores (including 10 conversions) and closed 48 stores (including 10 conversions)
that resulted in investment in store fixtures of R81 million.
We invested R52 million in information systems infrastructure in the second quarter 2013 compared
to R62 million in the second quarter 2012.
Liquidity and capital resources
Our primary source of short-term liquidity is cash on hand, our revolving credit facility and, until
settlement of the note obligations on 31 October 2012 (after the end of the reporting period) the
receivables backed notes issued by OtC. The OtC note obligations were settled and the receivable
assets sold to Edcon for onward sale to Absa on 1 November 2012. The amount of cash on hand
and the outstanding balance of our 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, and tax payment requirements.
Our working capital requirements fluctuate during each month, depending on when we pay our
suppliers and collect receivables, and throughout the year depending on the seasonal build-up of
inventory and accounts receivable. We fund peaks in the working capital cycle with cash flows from
operations and drawings under our revolving credit facility. At 29 September 2012 our total net debt
including cash and derivatives (excluding OtC) of R23,171 million consisted of (i) the carrying value
of Floating Rate Notes of R16,099 million, (ii) the carrying value of Fixed Rate Notes of R5,329
million, (iii) super senior secured notes of R1,010 million, (iv) borrowings under the revolving credit
facility of R976 million, (v) finance lease liability of R332 million, less (vi) net derivative assets of
R144 million, and (vii) cash and cash equivalents of R431 million. In addition, OtC’s net debt of
R3,162 million consisted of (i) Receivables-Backed Notes issued of R4,300 million, less (ii) cash and
cash equivalents of R1,138 million.
At 29 September 2012, the total limit under the Super Senior Revolving Credit Facility was R3,967
million. The maximum utilisation of the revolving credit facility during the second quarter 2013 was
R1,148 million. This facility matures on 31 March 2014.
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As discussed in the “Overview” above, we concluded the first closing of the agreements with Absa
which includes inter alia the sale of the accounts and receivables relating to our private label store
card portfolio for a cash consideration of R8.8 billion.
We believe that operating cash flows and amounts available under the Super Senior Revolving
Credit Facility will be sufficient to fund our debt service obligations and operations, including capital
expenditure and contractual commitments, through to 30 March 2013.
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CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
In preparing our Consolidated Condensed Financial Statements, our management is required to
make estimates and assumptions that affect reported income, expenses, assets, liabilities and
disclosure of contingent assets and liabilities. Actual results in the future could differ from these
estimates, and this may be material to our Consolidated Condensed Financial Statements.
Significant estimates and judgments made relate to credit risk valuation adjustments in determining
the fair value of derivative instruments to reflect non-performance risk, a provision for impairment of
receivables, allowances for slow-moving inventory, residual values, useful lives and depreciation
methods for property, equipment and vehicles, pension fund and employee benefit obligations,
operating leases, loyalty points deferred revenue, intangible asset impairment tests, deferred tax
asset and the derecognition of financial instruments. Other judgments made relate to classifying
financial assets and liabilities into categories.
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. 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.
Revenue comprises retail sales of merchandise, manufacturing sales, club fees, revenue from joint
ventures, dividends, interest and finance charges accrued to the Group.
Sales of merchandise
Revenue from the 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,
the fair value of loyalty points, value-added and general sales tax. The Group chains that contribute
to the revenue from the sale of merchandise are the Edgars division, CNA division and the Discount
division.
Loyalty points programme
The Group operates a loyalty points programme 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 of points which
includes the expected redemption rate attributed to the credits awarded, is deferred as a provision
and recognised as revenue on redemption of the vouchers by customers.
Manufacturing sales
Revenue from manufacturing and other operations is recognised when the sale transactions giving
rise to such revenue are concluded.
13
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.
Revenue from joint ventures
Group customers are offered Edgars and Jet branded insurance products, in pursuance of a joint
venture 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 joint venture sells to both
credit customers and cash customers. The joint venture is managed by a dedicated team of people
from both Hollard and the Group. The interest in joint ventures is accounted for using the equity
method. Under the provision of the joint venture agreement, the Group charges the joint venture a
fee for the continued management of the debtors and maintenance of systems. The Group also
charges the joint venture a fee for the use of the Group’s brands in the marketing of the insurance
products.
The profit share is shared on a product by product basis applying 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
Limited. Europ Assistance provides risk management and policy fulfillment services. Under the
provisions of the joint venture agreement, if the policy premiums exceed the claims and expenses,
the net profit is distributed as a dividend. New business on the Legal Plans is underwritten by Hollard
as from 13 April 2011.
Dividends
Dividends are recognised when the right to receive payment is established.
Interest received
Interest received is recognised using the effective interest rate method.
Trade and other receivables
Subsequent to initial measurement, receivables are recognised at amortised cost less a provision for
impairment of receivables. A provision for impairment is made when there is objective evidence
(such as default or delinquency of interest and the principal) that the Group will not be able to collect
all amounts due under the original terms of the trade receivable transactions. Impairments are
recognised in profit or loss as incurred. Delinquent accounts are impaired by applying the Group’s
14
impairment policy recognising both contractual and ages of accounts. Age refers to the number of
months since a qualifying payment was received. 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. The Group assesses whether objective evidence of impairment exists individually for
receivables that are individually significant, and individually or collectively for receivables that are not
individually significant. If it is determined that no objective evidence of impairment exists for an
individually assessed receivable, whether significant or not, the receivable is included in a group of
receivables with similar credit risk characteristics and that group of receivables is collectively
assessed for impairment. Receivables 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 in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised, the previously
recognised impairment loss is reversed. Any subsequent reversal of an impairment loss is
recognised in profit or loss; to the extent the carrying value of the receivable does not exceed its cost
at the reversal date.
Leases
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. 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.
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.
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.
15
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.
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.
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.
Financial instruments
Financial instruments are initially measured 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. Where the Group can legally do so, and the Group intends to settle on a net basis, or
simultaneously, related positive and negative values of financial instruments are offset.
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. The Group’s financial liabilities include trade and other payables, loans and borrowings
and derivative financial instruments and are classified as either loans and borrowings and derivatives
at fair value through profit or loss or derivatives designated as hedging instruments in an effective
hedge, as appropriate.
The Group determines the classification of its financial assets and financial liabilities at initial
recognition. All regular way purchases and sales of financial assets are recognised on the date of
trade, being the date on which the Group commits to purchase or sell the asset.
16
Derivative Financial instruments
The Group uses derivative financial instruments such as foreign currency contracts, 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. For hedge
accounting purposes, derivative financial instruments are designated at inception as fair value, cash
flow or net investment hedges as appropriate.
The fair value of forward exchange contracts 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.
For the purposes of hedge accounting, hedges are classified as either fair value hedges where they
hedge the exposure to changes in the fair value of a recognised asset or liability; or cash flow
17
hedges where they hedge exposure to variability in cash flows that is either attributable to a
particular risk associated with a recognised asset or liability or a forecasted transaction.
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 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.
For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in
fair value are taken directly to profit or loss for the period.
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.
Derecognition of financial instruments
Financial assets are derecognised when the Group transfers the rights to receive cash flows
associated with the financial asset. Derecognition normally occurs when the financial asset is sold or
all the cash flows associated with the financial asset are passed to an independent third party.
Where the contractual rights to receive the cash flows of certain receivables are retained but a
contractual obligation is assumed to pay those cash flows to a third party, those receivables are
derecognised provided:
there is no obligation to pay amounts to the third party, unless equivalent amounts are
collected from the original receivable;
the Group is prohibited from selling or pledging the original asset other than as security to the
eventual recipients for the obligation to pay them cash flows; and
the Group has an obligation to remit any cash flows it collects on behalf of the third party
without material delay and is not entitled to reinvest such cash flows except for investments in
cash and cash equivalents during the short settlement period, from the collection date to the
date of required remittance to the third party and the interest earned on such investments, is
passed on to the third party.
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
18
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.
Business Combinations and Goodwill
Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value
and the amount of any non-controlling interest in the acquiree. For each business combination, the
acquirer measures the non-controlling interest in the acquiree either at fair value or at the
proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed
and included in other operating costs.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree.
If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s
previously held equity interest in the acquiree is remeasured to fair value at the acquisition date
through profit or loss.
Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the
acquisition date. Subsequent changes to the fair value of the contingent consideration which is
deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss
or as a change to other comprehensive income. If the contingent consideration is classified as equity,
it should not be remeasured until it is finally settled within equity.
Goodwill is initially measured at cost being the excess of the aggregate of the consideration
transferred and the amount recognised for non-controlling interest over the net identifiable assets
acquired and liabilities assumed.
If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the
difference is recognised in profit or loss.
After initial recognition, goodwill is measured at cost less any accumulated impairment losses. 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-generating units that are expected to benefit
from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned
to those units.
Where goodwill forms part of a cash-generating unit and part of the operation within that unit is
disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation. Goodwill
19
disposed of in this circumstance is measured based on the relative values of the operation disposed
of and the portion of the cash-generating unit retained.
Properties, fixtures, equipment and vehicles
Properties are initially measured at cost and subsequently revalued by recognised professional
valuers, to net realisable open-market value using the alternative or existing-use basis as
appropriate, ensuring carrying amounts do not differ materially from those which would be
determined using fair value at the reporting date. Any revaluation surplus is recorded in other
comprehensive income and hence, credited to the asset revaluation 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.
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.
Fixtures, equipment and vehicles are carried at cost less accumulated depreciation and impairment
loss, and are depreciated on a straight-line basis to their expected residual values over the estimated
useful lives.
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 cost 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.
A previously recognised impairment will be reversed in so far as estimates change as a result of an
event occurring after the impairment was recognised. This assessment is made at each reporting
date. An impairment is reversed only to the extent that the asset’s carrying amount does not exceed
the carrying amount that would have been determined had no impairment been recognised. A
reversal of impairment is recognised in profit or loss.
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
20
as the difference between the net disposal proceeds and the carrying amount of the property,
fixtures, equipment or vehicles at the date of sale.
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 programmes. 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.
Packaged software and the direct cost associated with the development and installation thereof are
capitalised as computer software and are an integral part of computer hardware.
Intangible assets
Intangible assets acquired separately are measured on initial recognition 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 on a straight line basis over the 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 are
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. 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.
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.
21
Expenditure on internally developed and maintained intangible assets is expensed through profit or
loss. Expenditure incurred to maintain brand names is charged in full to profit or loss as incurred.
Provisions
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.
Loyalty points deferred revenue
The Group operates a loyalty points programme 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 through profit
or loss 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 is 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.
Non-current assets held for sale and discontinued operations
Non-current assets and disposal groups classified as held for sale are measured at the lower of their
carrying amount and fair value less costs to sell. Non-current assets and disposal groups are
classified as held for sale if their carrying amounts will be recovered principally through a sale
transaction rather than through continuing use. This condition will be met if the sale is highly
probable and the asset or disposal group is available for immediate sale in its present condition.
Management must be committed to the sale and the sale must be expected to qualify for recognition
as a completed sale within one year from the date of classification.
In the statement of comprehensive income, income and expenses from discontinued operations are
reported separately from income and expenses from continuing operations, down to the level of profit
22
after taxes. The resulting profit or loss net of tax is reported separately in the statement of
comprehensive income.
Income taxes
Income tax payable on profits, based on the applicable tax laws, is recognised as an expense in the
period in which profits arise. Current income tax relating to items recognised directly in other
comprehensive income is recognised in other comprehensive income and not in profit or loss. The
tax rates and tax laws used to compute the amount are those that are enacted or substantively
enacted by the reporting date.
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 temporary differences arising between the
carrying amounts of assets and liabilities at the reporting date and their amounts as measured for tax
purposes, irrespective of whether it will result in taxable amounts in future periods, unless the
deferred tax liability arises from the initial recognition of goodwill.
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.
Neither a deferred tax asset nor liability is recognised where it arises from a transaction, which is not
a business combination, and, at the time of the transaction, affects neither accounting profit or loss
nor taxable profit or loss. 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.
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 in respect of foreign dividends receivable.
23
Employee benefits – post retirement 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. Current contributions incurred with respect to the defined contribution
provident funds, are charged against profit or loss when incurred.
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. Favorable experience adjustments are retained within the funds. Net benefit assets are
only brought into account when it is certain that economic benefits will be available to the Group.
Actuarial gains or losses are recognised in the period in which they occur in total comprehensive
income.
24
Consolidated Condensed Financial Statements
Edcon Holdings Proprietary Limited (“Edcon”)
25
Consolidated Condensed Statement of Financial Position (unaudited)
2012 2012 2011
29 September 31 March 1 October
Rm Rm Rm
ASSETS
Non-current assets
Properties, fixtures, equipment and vehicles 2 469 2 471 2 450
Intangible assets 17 317 17 481 17 816
Employee benefit asset 154 154
Equity accounted investment in joint ventures 23 67 9
Derivative financial instruments 1 306 472 797
Deferred tax 1 409 1 030 1 500
Total non-current assets 22 678 21 675 22 572
Current assets
Inventories 3 252 3 170 3 198
Trade, other receivables and prepayments 333 10 426 9 584
Derivative financial instruments 5 338
Cash and cash equivalents 1 569 1 083 1 287
5 159 14 679 14 407
Assets of disposal group classified as held for sale 9 914
Total current assets 15 073 14 679 14 407
Total assets 37 751 36 354 36 979
EQUITY AND LIABILITIES
Equity attributable to shareholders
Share capital and premium 2 153 2 153 2 148
Other reserves (712) (688) (795)
Retained loss (7 662) (6 887) (6 243)
Shareholder’s loan – equity 8 290 8 290
Total equity 2 069 2 868 (4 890)
Non-current liabilities – shareholder’s loan
Shareholder’s loan 750 659 8 627
Total equity and shareholder’s loan 2 819 3 527 3 737
Non-current liabilities – third parties
Interest bearing debt 22 438 23 533 26 828
Finance lease liability 294 301 37
Lease equalisation 416 399 456
Derivative financial instruments 39 63 367
Employee benefit liability 186 182 134
23 373 24 478 27 822
Total non-current liabilities 24 123 25 137 36 449
Current liabilities
Interest-bearing debt 5 276 2 901 600
Finance lease liability 38 28 34
Current taxation 252 241 251
Deferred revenue 201 80
Derivative financial instruments 1 128 797 583
Trade and other payables 4 664 4 302 3 952
Total current liabilities 11 559 8 349 5 420
Total equity and liabilities 37 751 36 354 36 979
Total managed capital per IAS 1 30 865 30 290 31 236
26
Consolidated Condensed Quarterly Statement of Comprehensive Income (unaudited)
2012 2011
13 weeks to 13 weeks to
29 September 1 October
Note Rm Rm
Continuing operations
Total revenues 5 846 5 675
Revenue - retail sales 5 531 5 400
Cost of sales (3 578) (3 487)
Gross profit 1 953 1 913
Other income 146 142
Store costs (1 169) (1 094)
Other operating costs (956) (883)
Retail trading (loss)/profit (26) 78
Income from joint ventures 165 116
Trading profit 139 194
Discount on repurchase of senior secured notes
Derivative (loss)/ gain (2) 5
Foreign exchange loss (259) (985)
Foreign exchange loss on foreign notes (698) (2 254)
Foreign exchange gain on cash flow hedges 439 1 269
Loss before net financing costs (122) (786)
Interest received 14 18
Loss before financing costs (108) (768)
Financing costs (899) (959)
Loss before taxation (1 007) (1 727)
Taxation 286 450
Loss for the period from continuing operations (721) (1 277)
Discontinued operations
Profit for the period from discontinued operations, net of tax 4 161 169
LOSS FOR THE PERIOD (560) (1 108)
Attributable to:
Owners of the parent (560) (1 108)
Other comprehensive income after tax:
Exchange differences on translating foreign operations (3) 10
Cash flow hedges 17 (36)
Other comprehensive income for the period, net of tax 14 (26)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (546) (1 134)
Total comprehensive income attributable to:
Owners of the parent (546) (1 134)
27
Consolidated Condensed Half-year Statement of Comprehensive Income (unaudited)
2012 2011
26 weeks to 26 weeks to
29 September 1 October
Note Rm Rm
Continuing operations
Total revenues 3 12 062 11 772
Revenue - retail sales 11 453 11 216
Cost of sales (7 269) (7 092)
Gross profit 4 184 4 124
Other income 433 269
Store costs (2 352) (2 188)
Other operating costs (1 902) (1 719)
Retail trading profit 363 486
Income from joint ventures 315 249
Trading profit 678 735
Discount on repurchase of senior secured notes 36
Derivative loss (1) (3)
Foreign exchange loss (448) (1 147)
Foreign exchange loss on foreign notes (1 014) (2 703)
Foreign exchange gain on cash flow hedges 566 1 556
Profit/(loss) before net financing costs 229 (379)
Interest received 25 38
Profit/(loss) before financing costs 254 (341)
Financing costs (1 676) (1 772)
Loss before taxation (1 422) (2 113)
Taxation 410 567
Loss for the period from continuing operations (1 012) (1 546)
Discontinued operations
Profit for the period from discontinued operations, net of tax 4 237 275
LOSS FOR THE PERIOD (775) (1 271)
Attributable to:
Owners of the parent (775) (1 271)
Other comprehensive income after tax:
Exchange differences on translating foreign operations - 8
Cash flow hedges (24) (203)
Other comprehensive income for the period, net of tax (24) (195)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD (799) (1 466)
Attributable to:
Owners of the parent (799) (1 466)
Consolidated Condensed Statements of Changes in Equity (unaudited)
Share Foreign Cash flow Revaluation Retained Sharehol- Total
capital currency hedging surplus loss der’s equity
28
and translation reserve Rm Rm loan Rm
premium reserve Rm Rm
Rm Rm
26 weeks to 1
October 2011
Balance at
2 April 2011 2 148 (35) (568) 3 (4 972) (3 424)
Total comprehensive
income for the period 8 (203) (1 271) (1 466)
Loss for the period (1 271) (1 271)
Other comprehensive
income for the period 8 (203) (195)
Balance at
1 October 2011 2 148 (27) (771) 3 (6 243) (4 890)
26 weeks to 29
September 2012
Balance at
31 March 2012 2 153 (30) (661) 3 (6 887) 8 290 2 868
Total comprehensive
income for the period - (24) (775) (799)
Loss for the period (775) (775)
Other comprehensive
income for the period - (24) (24)
Balance at
29 September 2012 2 153 (30) (685) 3 (7 662) 8 290 2 069
29
Consolidated Condensed Quarterly Statement of Cash Flows (unaudited)
2012 2011
13 weeks to 13 weeks to
29 September 1 October
Rm Rm
Cash retained from operating activities
Loss before taxation from continuing operations (1 007) (1 727)
Profit before taxation from discontinued operations 223 234
Interest received (14) (18)
Financing costs 899 959
Depreciation 182 186
Amortisation 77 105
Foreign exchange loss 259 985
Derivative loss/(gain) 2 (5)
Other non-cash items 57 21
Operating cash inflow before changes in working capital 678 740
Working capital movement 142 (9)
Inventories (143) (534)
Trade accounts receivable 181 (41)
Other receivables and prepayments 30 30
Trade and other payables 74 536
Cash inflow from operating activities 820 731
Interest received 14 18
Financing costs paid (935) (975)
Taxation paid (39) (36)
Net cash outflow from operating activities (140) (262)
Cash utilised in investing activities
Net investment in fixtures, equipment and vehicles (171) (143)
Net cash outflow from investing activities (171) (143)
Cash effects of financing activities
Increase in interest bearing debt 766 343
(Decrease)/increase in finance lease liability (1) 71
Net cash inflow from financing activities 765 414
Increase in cash and cash equivalents 454 9
Cash and cash equivalents at the beginning of the period 1 115 1 248
Currency adjustments 30
Cash and cash equivalents at the end of the period 1 569 1 287
30
Consolidated Condensed Half-year Statement of Cash Flows (unaudited)
2012 2011
26 weeks to 26 weeks to
29 September 1 October
Rm Rm
Cash retained from operating activities
Loss before taxation from continuing operations (1 422) (2 113)
Profit before taxation from discontinued operations 329 382
Interest received (25) (38)
Financing costs 1 676 1 772
Depreciation 366 368
Amortisation 164 208
Foreign exchange loss 448 1 147
Derivative loss 1 3
Discount on repurchase of senior secured notes (36)
Other non-cash items 196 18
Operating cash inflow before changes in working capital 1 733 1 711
Working capital movement 495 (984)
Inventories (82) (572)
Trade accounts receivable 94 (465)
Other receivables and prepayments 84 78
Trade and other payables 399 (25)
Cash inflow from operating activities 2 228 727
Interest received 25 38
Financing costs paid (1 572) (1 535)
Taxation paid (40) (67)
Net cash inflow/(outflow) from operating activities 641 (837)
Cash utilised in investing activities
Net investment in fixtures, equipment and vehicles (368) (353)
Net investment in property (226)
Net cash outflow from investing activities (368) (579)
Cash effects of financing activities
Increase in interest bearing debt 226 600
Issue of super senior secured notes 1 010
Settlement of super senior secured term loan (985)
(Decrease)/increase in finance lease liability (13) 71
Buy back of senior secured notes (338)
Net cash inflow from financing activities 213 358
Increase/(decrease) in cash and cash equivalents 486 (1 058)
Cash and cash equivalents at the beginning of the period 1 083 2 315
Currency adjustments 30
Cash and cash equivalents at the end of the period 1 569 1 287
31
Notes to the Consolidated Condensed Financial Statements (unaudited)
1. Basis of preparation
Basis of Accounting
Edcon Holdings Proprietary Limited’s Consolidated Condensed Financial Statements (“Financial
Statements”) are prepared in accordance with International Financial Reporting Standards (“IFRS”)
and stated in Rands (“R”).
These Financial Statements are presented in accordance with IAS 34 Interim Financial Reporting.
Accordingly, certain information and note disclosures normally included in the annual financial
statements have been condensed or omitted.
These Financial Statements have not been audited or reviewed by an auditor. In the opinion of
management, all adjustments necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods have been made.
In preparing these Financial Statements, the same accounting principles and methods of computation
are applied as in the Audited Group Financial Statements of Edcon Holdings Proprietary Limited on 31
March 2012 and for the period then ended.
These Financial Statements should be read in conjunction with the audited Financial Statements as at
and for the period ended 31 March 2012 as included in the 2012 Audited Group Annual Financial
Statements of Edcon Holdings Proprietary Limited.
Going concern
The going concern assumption has been considered after including the Shareholder’s loan in the
assessment. To the extent required to maintain the solvency of the Group, the Shareholder’s loan is
subordinated to the claims of all of the creditors of the Group.
Derivative assets and liabilities
The Group’s net derivative balance moved from a liability of R388 million at 31 March 2012 to an asset
of R144 million at 29 September 2012; resulting in a net favourable movement of R532 million. This is
attributable to the following:
The unwinding of a portion of the derivative liabilities balance due to the payment of coupons to
which the hedges relate, i.e., swap and forward settlements;
Favourable changes in foreign currency exchange rates resulting in a considerable increase in
derivative assets; and
Increase in derivative liabilities largely as a result of unfavourable movements in interest rates.
32
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
1. Basis of preparation (continued)
Derivative assets and liabilities (continued)
The favourable movements in foreign exchange rates relate to the depreciation of the ZAR against the
USD and EUR over the period 1 April 2012 to 29 September 2012 (ZAR:EUR spot rate moved from
10.2 to 10.7; whilst ZAR:USD spot rate moved from 7.7 to 8.3). The unfavourable movement in interest
rates is as a result of a decrease in the floating Euribor rates receivable on the interest rate swap and
cross currency swaps.
The individual movements in derivative balances, particularly for non-current derivative financial
instrument assets in the Statement of Financial Position, are larger than the net movement explained
above due to the non-current balances predominantly reflecting the favourable foreign currency effect
of the exchange of the notional amount of cross currency swap contracts at maturity (in March and
June 2014), the passage of time, credit value adjustments and reclassification of balances (e.g., a
movement in a particular valuation cash flow from non-current to current, or from asset to liability).
33
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
2012 2011
26 weeks to 26 weeks to
29 September 1 October
Rm Rm
2. SEGMENTAL RESULTS
2.1 Revenues
Edgars 6 190 5 983
CNA 869 866
Discount 4 645 4 596
Manufacturing 41 40
Financial Services 314 265
Group Services 3 22
12 062 11 772
2.2 Retail sales
Edgars 6 053 5 859
CNA 869 866
Discount 4 531 4 491
11 453 11 216
2.3 Number of stores
Edgars 359 270
CNA 193 203
Discount 621 686
1 173 1 159
2.4 Operating profit/(loss)
Edgars 1 110 1 229
CNA 11 30
Discount 397 461
Manufacturing 1 (2)
Financial Services 644 632
(1)
Group Services (1 605) (2 347)
558 3
Discontinued operations (329) (382)
229 (379)
(1)
Included in the allocation to the Group Services segment is corporate overheads, derivative gain or loss, transitional projects related
expenses, discount on notes buy back, foreign exchange gain or loss and amortisation of intangible assets and additional
depreciation as a result of the private equity transaction in 2007.
3. REVENUES
Retail sales 11 453 11 216
Club fees 251 229
Income from joint ventures 292 249
Interest received 25 38
Manufacturing sales to third parties 41 40
12 062 11 772
34
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
4. DISCONTINUED OPERATIONS
On 6 June 2012, Edcon announced the intended sale of its private label store card portfolio to Absa Bank
Limited (“Absa”) as well as the proposed implementation of a long term strategic agreement. In terms of the
strategic agreement Absa will provide retail credit to Edcon customers, while Edcon continues to be
responsible for all customer-facing activities, including sales and marketing, customer services and
collections. Accordingly, the provision of credit by Edcon has been disclosed as a discontinued operation, the
prior year numbers adjusted and receivables classified as assets held for sale (refer to note 5 for the portion
of the discontinued operations reflected below that relate to OtC and to note 6 for further details on events
after the reporting period).
The results of the discontinued operations are as follows:
2012 2011
13 weeks to 13 weeks to
29 September 1 October
Rm Rm
Total revenues 537 529
Income from credit 537 529
Expenses from credit (314) (295)
Trading profit and profit before taxation 223 234
Taxation (62) (65)
Profit from discontinued operations per statement of
comprehensive income 161 169
2012 2011
26 weeks to 26 weeks to
29 September 1 October
Rm Rm
Total revenues 1 086 1 014
Income from credit 1 086 1 014
Expenses from credit (757) (632)
Trading profit and profit before taxation 329 382
Taxation (92) (107)
Profit from discontinued operations per statement of
comprehensive income 237 275
35
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
2012 2011
13 weeks to 13 weeks to
29 September 1 October
Rm Rm
5. Consolidation of OntheCards Investments II Proprietary Limited
Included in the Consolidated Condensed Statement of Comprehensive
Income by line, are the following amounts:
Quarterly Statement of Comprehensive Income
Continuing operations
Total revenues 11 9
(a)
Interest received 11 9
Profit before financing costs 11 9
Financing costs (94) (88)
Loss before taxation (83) (79)
Taxation 24 23
Loss for the period from continuing operations (59) (56)
Discontinued operations
Profit for the period from discontinued operations, net of tax 91 131
Profit for the period 32 75
2012 2011
26 weeks to 26 weeks to
29 September 1 October
Rm Rm
Half-year Statement of Comprehensive Income
Continuing operations
Total revenues 21 16
(a)
Interest received 21 16
Profit before financing costs 21 16
Financing costs (182) (177)
Loss before taxation (161) (161)
Taxation 45 45
Loss for the period from continuing operations (116) (116)
Discontinued operations
Profit for the period from discontinued operations, net of tax 124 195
Profit for the period 8 79
(a) Comprises of interest earned on cash balances
36
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
2012 2012 2011
29 September 31 March 1 October
Rm Rm Rm
5. Consolidation of OntheCards Investments II
Proprietary Limited (continued)
Included in the Consolidated Condensed Statement of
Financial Position by line, are the following balances:
ASSETS
Non-current assets
Intangible assets 79 79 79
Held-to-maturity investments (78)
Loan – Edcon Proprietary Limited (2 062) (2 062) (2 062)
Deferred tax 51 53 88
Total non-current assets (1 932) (1 930) (1 973)
Current assets
Held-to-maturity investments (78) (78)
Trade, other receivables and prepayments 5 708 5 500
Cash and cash equivalents 1 138 818 914
1 060 6 448 6 414
Assets of disposal group classified as held for sale 5 345
Total current assets 6 405 6 448 6 414
Total assets 4 473 4 518 4 441
EQUITY AND LIABILITIES
Equity attributable to shareholders
Retained profit/(loss) 41 33 (13)
Total equity 41 33 (13)
Non-current liabilities – third parties
Interest-bearing debt 2 150 4 300
Total non-current liabilities 2 150 4 300
Current liabilities
Interest bearing debt 4 300 2 150
Trade and other payables 132 185 154
Total current liabilities 4 432 2 335 154
Total equity and liabilities 4 473 4 518 4 441
Total managed capital per IAS 1 4 341 4 333 4 287
37
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
. 2012 2011
13 weeks to 13 weeks to
29 September 1 October
Rm Rm
5. Consolidation of OntheCards Investments II Proprietary Limited
(continued)
Included in the Consolidated Condensed Statement of Cash Flows by
line, are the following amounts:
Quarterly Statement of Cash Flows
Loss before taxation from continuing operations (83) (79)
Profit before taxation from discontinued operations 128 184
Interest received (11) (9)
Financing costs 94 88
Operating cash inflow before changes in working capital 128 184
Working capital movement 266 144
Trade accounts receivable 269 158
Trade and other payables (3) (14)
Cash inflow from operating activities 394 328
Interest received 11 9
Financing costs paid (94) (89)
Increase in cash and cash equivalents 311 248
Cash and cash equivalents at the beginning of the period 827 666
Cash and cash equivalents at the end of the period 1 138 914
38
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
. 2012 2011
26 weeks to 26 weeks to
29 September 1 October
Rm Rm
5. Consolidation of OntheCards Investments II Proprietary Limited
(continued)
Included in the Consolidated Condensed Statement of Cash Flows by
line, are the following amounts:
Half-year Statement of Cash Flows
Loss before taxation from continuing operations (161) (161)
Profit before taxation from discontinued operations 172 271
Interest received (21) (16)
Financing costs 182 177
Operating cash inflow before changes in working capital 172 271
Working capital movement 309 166
Trade accounts receivable 363 146
Trade and other payables (54) 20
Cash inflow from operating activities 481 437
Interest received 21 16
Financing costs paid (182) (178)
Increase in cash and cash equivalents 320 275
Cash and cash equivalents at the beginning of the period 818 639
Cash and cash equivalents at the end of the period 1 138 914
6. Events after the reporting period
On 31 October 2012, OntheCards Investment II Proprietary Limited (“OtC”) completed an early redemption of all
of its Class A and Class B notes in issue, in accordance with the terms and conditions of its R6.5 billion
Receivables Backed Domestic Medium Term Note Programme. The notes redemption was necessary so that
OtC’s receivable assets could be sold to Edcon Proprietary Limited, and as such facilitate the sale of the Edcon’s
storecard receivable portfolio to Absa (refer to note 4 for further details on the discontinued operation).
On 1 November 2012 all conditions required for the first closing of the South African portion of the private label
store card portfolio were satisfied and R8.8 billion of the South African book was sold to Absa. Simultaneously,
the long term commitment to provide future retail credit to existing and new qualifying South African customers
became effective (refer to note 4 for further details on the discontinued operation).
39
Notes to the Consolidated Condensed Financial Statements (unaudited) continued
7. Contingent liabilities
Edcon (Pty) Limited and Edcon Holdings Limited (jointly “Edcon”) have been the subject of a tax audit by the
South African Revenue Service (“SARS”), which has recently notified Edcon that it is considering the issuance of
an additional tax assessment. Edcon has challenged the position SARS has taken and is engaged in constructive
discussions with SARS to explore whether a settlement would be in the best interests of Edcon. Although these
discussions are not finally concluded, a potential settlement could involve a limited cash payment for past periods,
substantially limit historical tax losses that can be applied in future periods and result in Edcon paying income tax
earlier than anticipated, each of which is expected to fall within Edcon's financial capacity. However, should a
settlement not be agreed, material tax liabilities could arise, as well as litigation risk.
40
Corporate Information
Edcon Holdings Proprietary Limited Trustee, Transfer Agent and Principal Paying Agent
Incorporated in the Republic of South Africa The Bank of New York Mellon Limited
Registration number 2006/036903/07 1 Canada Square
London E14 5AL
Non-executive directors United Kingdom
DM Poler* (Chairman), EB Berk*, M Levin*, ZB Ebrahim,
MMV Valentiny** Listing Agent & Irish Paying Agent
The Bank of New York Mellon (Ireland) Limited
Executive directors Hanover Building,
J Schreiber *** (Managing Director and Chief Executive Windmill Lane, Dublin 2,
Officer), MR Bower, U Ferndale Republic of Ireland
Telephone: + 353 1 900 6991
*USA **BELGIUM ***GERMANY
JSE Debt Sponsor
Group Secretary Rand Merchant Bank (a division of FirstRand Bank
CM Vikisi Limited)
1 Merchant Place
Registered office Cnr Fredman & Rivonia Road
Edgardale, Press Avenue Sandton
Crown Mines, Johannesburg, 2092 Republic of South Africa
Telephone: +27 11 495-6000 Telephone: +27 11 282-8118
Fax: +27 11 837-5019
Postal address
PO Box 100, Crown Mines, 2025
Auditors
Ernst & Young Inc.
Wanderers Office Park
52 Corlett Drive, Illovo, 2196
Private Bag X14, Northlands, 2116
Telephone: +27 11 772-3000
Fax: +27 11 772-4000
41
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