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THE RCS GROUP CONSOLIDATEDFINANCIAL STATEMENTS 2016

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https://rcs.co.za/

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CONTENTS

Directors’ responsibility statement and company secretary statement 2

Directors’ report 3 - 5

Audit committee report 6

Independent auditor’s report 7 - 11

Consolidated statement of financial position 13

Consolidated income statement 14

Consolidated statement of comprehensive income 15

Consolidated statement of changes in equity 16

Consolidated statement of cash flows 17

Accounting policies 19 - 29

Notes to the consolidated financial statements 31 - 58

These financial statements have been prepared under the supervision of the Corporate Finance Manager: HP Fick Chartered Accountant (SA).

These financial statements represent the financial information of The RCS Group and have been audited in compliance with section 30 of the Companies Act of South Africa.

THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 01

02 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016

DIRECTORS’ RESPONSIBILITY STATEMENT

The directors are responsible for the preparation and fair presentation of the consolidated financial statements of

BNP Paribas Personal Finance South Africa limited, its subsidiaries and its associates (hereafter referred to as

“The RCS Group”), comprising the consolidated statement of financial position as at 31 December 2016, and the

consolidated income statement, the consolidated statements of comprehensive income, changes in equity and cash flows

for the year then ended, and the notes to the consolidated financial statements, which include a summary of significant

accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards (IFRS)

and the requirements of the Companies Act of South Africa. In addition, the directors are responsible for preparing the

directors’ report.

The directors are also responsible for such internal control as the directors deem necessary to enable the

preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or

error and for maintaining adequate accounting records and an effective system of risk management.

The directors have made an assessment of the ability of The RCS Group to continue as a going concern and have no

reason to believe that the businesses will not be a going concern in the year ahead. The auditor is responsible for

reporting on whether the consolidated financial statements are fairly presented in accordance with the applicable

financial reporting framework.

APPROVAL OF THE FINANCIAL STATEMENTSThe consolidated financial statements of The RCS Group, as identified in the first paragraph, were approved by the board of

directors on 24 April 2017 and were signed by:

CP De Wit

Chief Financial officer

COMPANY SECRETARY STATEMENTI hereby confirm, in my capacity as company secretary of BNP Paribas Personal Finance South Africa limited, that for

the year ended 31 December 2016, the company has filed all required returns and notices in terms of the Companies Act,

2008 and that all such returns and notices are to the best of my knowledge and belief true, correct and up to date.

GS Harker

Company Secretary


DIRECTORS’ REPORT

The directors have pleasure in presenting their report for the year ended 31 December 2016:

1. BuSINESS ACTIVITIESThe RCS Group is an operationally independent consumer finance business that provides a broad range of financial

services under its own brand and in association with a number of retail entities in South Africa, Namibia and

Botswana. The Cards business unit offers various utility card products through participating merchant outlets, while

the loan business unit offers individual unsecured loans and insurance products (for more detail on these segments

refer to note 3 of the financial statements).

2. SuBSIDIARY COMPANIESThe RCS Group constitutes BNP Paribas Personal Finance South Africa limited (registration number:

2000/017884/06) and its subsidiaries, RCS Botswana Proprietary limited, RCS Cards Proprietary limited,

RCS Collections Proprietary limited, RCS Home loans Proprietary limited and RCS Investment Holdings Namibia

Proprietary limited (for more detail on these subsidiaries refer to note 27 of the financial statements).

The financial statements for BNP Paribas Personal Finance South Africa limited are presented in a separate set

of financial statements.

3. GENERAL REVIEw OF OPERATIONSThe results for the year ended 31 December 2016 are described in the accompanying consolidated financial

statements.

4. COMPLIANCERCS Cards Proprietary limited is a registered credit provider (NCR registration number NCRCP 38) and a registered

service provider with the financial services board (FSB registration number 44481).

5. CORPORATE GOVERNANCEThe directors endorse the Code of Corporate Practices and Conduct as suggested by King III. For the financial year

ended 31 December 2016 the directors are satisfied that The RCS Group materially applies King III, apart from the

areas noted in the table on the next page. The main areas of departure are accepted due to the fact that BNP Paribas

Personal Finance South Africa limited is a wholly owned subsidiary of the multi-national banking and financial

services group, BNP Paribas Société Anonyme, listed on the Paris Stock exchange.


DIRECTORS’ REPORT (continued)

6. CHANGE IN FINANCIAL YEAR ENDDuring the previous financial period, the financial year changed from 31 March to 31 December to align with

the year end reporting requirements of the shareholder. The prior period’s financial results are therefore only

representative of a 9-month period and accordingly are not comparative to the current year under review.

7. EVENTS AFTER THE REPORTING PERIODThe directors are not aware of any matters or circumstances arising since the end of the financial year that may

materially affect the amounts and disclosure of these financial statements.

8. DISTRIBuTION TO SHAREHOLDERA distribution to shareholder amounting to R450 million was declared after the date of the reporting period but

before the financial statements were authorised for issue (31 December 2015: R250 million).

9. DIRECTORSThe directors in office at the date of this report are:

ExEcutivE dirEctors

RF Adams South African (Chief executive officer)

CP De Wit (Appointed 1 August 2016) South African(Chief Financial officer)

NoN-ExEcutivE dirEctors

ACPM van Groenendael Belgian

BPS Cavelier French

I Perret-Noto French

VSK Khandelwal (Appointed 1 August 2016) French

SW van der Merwe South African

E Oblowitz South African

(Independent)

The board should comprise a balance of power, with a majority of non-executive directors. The majority of non-executive directors should be independent.

The majority of non-executive directors should be independent.

As The RCS Group only has one shareholder, BNP Paribas Société Anonyme, there is only one independent non-executive director who also serves as the audit committee chairman, whilst the majority non-executive directors are senior executives of the shareholder.

As The RCS Group only has one shareholder, BNP Paribas Société Anonyme, the shareholder appoints the non-executive directors.

At least one third of the non-executive directors should rotate every year.

King III PrincipleLimited Application

Recommended Practice Application

Comments


DIRECTORS’ REPORT (continued)

chaNgEs to dirEctors iN thE currENt fiNaNcial yEar

SW van der Merwe resigned as an executive director on 1 August 2016 and remains on the board in a non-executive capacity.

RF Adams was appointed as Ceo on 1 August 2016, having previously served on the board as Chief operating officer.

JJ Snyman resigned as an executive director on 1 August 2016.

oPM Renard resigned as an executive director on 1 August 2016.

VNA Kodjo Diop resigned from the board on 1 August 2016.

10. COMPANY SECRETARYThe company secretary at the date of this report is GS Harker.

11. BuSINESS/REGISTERED ADDRESS

BusiNEss addrEss

RCS Building

Golf Park

Raapenberg Road

Mowbray

7700

12. HOLDING COMPANYThe RCS Group’s immediate holding company is BNP Paribas Personal Finance Société Anonyme. The ultimate shareholder is

BNP Paribas Société Anonyme, incorporated in France and listed on the Paris Stock exchange.

13. NAME CHANGEThe RCS Group holding company, RCS Investment Holdings limited’s name changed to BNP Paribas Personal

Finance South Africa limited on 26 January 2017.

14. AuDITORSThe independent auditing firm Deloitte & Touche audited the financial statements. They were provided with

unrestricted access to all financial records and related data, including minutes of all meetings of the shareholder,

the board of directors and committees of the board. The directors believe that all representations made to

the independent auditors during their audit were valid and appropriate. Deloitte & Touche was appointed as

independent auditors effective 1 June 2016 by the RCS Board Audit Committee. The prior period’s independent

auditors was KPMG. Deloitte & Touche’s audit report is presented on pages 7 to 11.

Postal addrEss

Po Box 6523

Parow east

Cape Town

7501


AuDIT COMMITTEE REPORT

The RCS audit committee is an independent statutory

committee appointed by the board of directors in terms of

the Companies Act (Act 71 of 2008) (“the Act”).

The committee comprises of one independent non-executive

director, who is also the chairman of the audit committee,

and two non-executive directors. The audit committee met

three times during the year ended 31 December 2016.

In addition, the chairman of the audit committee held

various meetings with representatives of the internal and

external auditors during the year under review.

The committee’s responsibilities include statutory duties in

terms of the Act. The committee also applies the applicable

principles of the King III Report on Corporate Governance

for South Africa. The committee’s terms of reference are

determined by a board-approved charter. The committee

conducted its affairs in compliance with, and discharged its

responsibilities in terms of, its charter for the period ended

31 December 2016.

The committee performed, inter alia, the following duties

during the year under review:

– Satisfied itself that the external auditor is independent of

the company, as set out in section 94(9) of the Act;

– In consultation with executive management, agreed to the

terms, audit plan and budgeted fees for the

31 December 2016 financial period;

– Approved the nature and extent of non-audit services that

the external auditor may provide;

– Satisfied itself, based on the information and explanations

supplied by management and obtained through

discussions with the independent external auditor and

internal auditors, that the system of internal financial

controls is effective and forms a basis for the preparation

of reliable financial statements;

– Reviewed the accounting policies and The RCS Group

financial statements for the period ended 31 December

2016 and, based on the information provided to the

committee, considers that The RCS Group complies, in

all material respects, with the requirements of the Act

and IFRS;

– Reviewed the audit report of the external auditor that

includes the key audit matters as required by ISA 701

(Communicating Key Audit Matters in the Independent

Auditor’s Report);

– ensured that the company’s internal audit function

is independent and had the necessary resources and

authority to enable it to discharge its duties;

– Approved the internal audit plan as well as any

amendments thereto;

– Met with the external and internal auditors, separately and

together, without management being present;

– Satisfied itself that The RCS Group financial director and

the finance function has appropriate expertise, experience

and competence;

– Considered as part of the approval of the financial

statements any accounting treatments, significant unusual

transactions, or accounting estimates and judgements that

could be contentious; and

– Reviewed management’s assessment of going concern

and sustainability and made a recommendation to the

board that the going concern concept be adopted by

The RCS Group.

E Oblowitz

Audit Committee Chairman

INDEPENDENT AuDITOR’S REPORT

REPORT ON THE AuDIT OF THE FINANCIAL STATEMENTS To the shareholder of BNP Paribas Personal Finance

South Africa limited:

OPINION

We have audited the consolidated financial statements

of BNP Paribas Personal Finance South Africa limited

and its subsidiaries (“The RCS Group”) set out on

pages 13 to 58, which comprise the consolidated

statement of financial position as at 31 December

2016, the consolidated income statement, the

consolidated statement of comprehensive income,

the consolidated statement of changes in equity and

the consolidated statement of cash flows for the year

then ended, and the notes to the consolidated financial

statements, including a summary of significant

accounting policies.

In our opinion, the consolidated financial statements

present fairly, in all material respects, the consolidated

financial position of The RCS Group as at 31 December

2016, and its consolidated financial performance and

consolidated cash flows for the year then ended in

accordance with International Financial Reporting

Standards (IFRSs) and the requirements of the

Companies Act of South Africa.

BASIS FOR OPINIONWe conducted our audit in accordance with

International Standards on Auditing (ISAs). our

responsibilities under these standards are further

described in the Auditor’s Responsibilities for the

Audit of the Consolidated Financial Statements section

of our report. We are independent of The RCS Group in

accordance with the Independent Regulatory Board for

Auditors Code of Professional Conduct for Registered

Auditors (IRBA Code) and other independence

requirements applicable to performing audits of


financial statements in South Africa. We have fulfilled

our other ethical responsibilities in accordance with

the IRBA Code and in accordance with other ethical

requirements applicable to performing audits in

South Africa. The IRBA Code is consistent with the

International ethics Standards Board for Accountants

Code of ethics for Professional Accountants (Parts A

and B). We believe that the audit evidence we have

obtained is sufficient and appropriate to provide a

basis for our opinion.

KEY AuDIT MATTERSKey audit matters are those matters that, in our

professional judgement, were of most significance in

our audit of the consolidated financial statements of

the current period. These matters were addressed in

the context of our audit of the consolidated financial

statements as a whole, and in forming our opinion

thereon, and we do not provide a separate opinion on

these matters.


Compliance with laws and regulations

Impairment of card and loan receivables

Liquidity and access to adequate and affordable funding

Key Audit Matter How the matter was addressed in the audit

The global financial services industry has been the subject of significantly increased regulations in the aftermath of the global financial crisis. More recently, due to large failures in, and public outcries about practices in the unsecured lending industry, the industry has also been on the receiving end of increased scrutiny and regulation. These laws and regulations are increasingly complex and difficult to manage due to the impact it has on systems and the increased controls and training required to make sure that staff comply with the myriad of requirements in the process of originating new loans or collecting on existing loans. Recent events in South Africa have also indicated that non-compliance may result in significant fines and that reports of non-compliance, whether proven or not, may also be very damaging to the credibility of the institution impacting on its ability to retain credit ratings and gain access to further funding at affordable rates. Accordingly the compliance with laws and regulations is considered a key audit matter. The RCS Group’s compliance approach is disclosed in note 30.

Card and loan receivables after providing for impairment accounts for more than 85% of the assets of The RCS Group. These receivables are unsecured and generally provided to customers with higher levels of default compared to the more traditional and often secured loans provided by the banking industry. Default on credit granted is a necessary concomitant of unsecured lending. Due to the complexity and subjectivity of the assessment of the required impairment of card and loan receivables, it is considered a key audit matter.

As is required by the accounting standards, and disclosed notes 1.4, 5 and 30, The RCS Group use specialists to assist with inherently subjective impairment assessments of these receivables through complex modelling (using the Markov model) of expected future cash receipts from customers, also considering evidence not yet evident in the mathematical models, to inform their judgement of the final impairment amount recorded.

The nature of the business requires careful and complex liquidity analysis and management taking into account elements such as funding that matures in the 12 months after the financial year-end, the cash available from collections, new card and loan advances, the average tenure of funding agreements, the average credit collection term, expenses incurred in managing the business, and transactions with and support from the shareholder. Access to and the cost of funding is impacted by aspects such as the credit rating of The RCS Group, perceptions about the South African unsecured lending market, and market volatility. The RCS Group’s funders also define events of default and performance covenants that must be complied with. Accordingly, liquidity and access to adequate and affordable funding is considered a key audit matter.

As is disclosed in notes 17 and 30, The RCS Group manages liquidity and funding by preparing cash flow forecasts under both “normal” and “stressed” scenarios.

Our audit procedures included the following procedures:- Understanding and assessing the legal and regulatory framework

that The RCS Group operates in, the compliance culture of the organisation including the tone at the top, the processes, internal controls and governance structures that exist, how these are documented, how compliance matters are dealt with, and the adequacy of compliance disclosures to regulators and in the annual financial statements; and

- Performing tests of these and specific compliance aspects such as with the National Credit Act and its regulations.

Our audit procedures included the following:- Understanding:

• The RCS Group’s credit granting and collection strategies; • New loan origination, collections, impairment modelling, and data

management processes, systems and methodologies; and • The related governance processes and controls in place; - Obtaining the required credit and collections data and testing these

for accuracy and completeness;- Using credit and modelling specialists to develop our own

impairment model, to compare the outcome with The RCS Group’s, and to assess differences in terms of accounting standards and standard market practices;

- Assessing The RCS Group’s adjustments to model outcomes for reasonability;

- Considering the adequacy of impairment disclosure in the financial statements; and

- Retrospective testing of prior year impairment provisions.

Our audit procedures included the following:- Obtaining an understanding of:

• the liquidity management process; • the related governance processes and controls in place; • The RCS Group’s funding strategies; • future cash flow requirements; • sources of funding; and • The RCS Group’s market credibility based on: actual funding

experience over the last 12 months and its credit rating.- Testing the reasonability of management’s assessment for the

12 month period after year-end, under normal and in stressed conditions, of: • cash flow forecasts; • funding plans; • covenant compliance; and • the likelihood of events of default occurring.

- Considering the adequacy of liquidity disclosure in the financial statements; and

- Retrospective testing of prior year funding plans.


INDEPENDENT AuDITOR’S REPORT (continued)

OTHER INFORMATIONThe directors are responsible for the other information.

The other information comprises the Directors’

Responsibility Statement, Directors’ Report and

the Audit Committee’s Report, as required by the

Companies Act of South Africa, which we obtained

prior to the date of this auditor’s report. The other

information does not include the consolidated financial

statements and our auditor’s report thereon.

our opinion on the consolidated financial statements

does not cover the other information and we do not

express an audit opinion or any form of assurance

conclusion thereon.

In connection with our audit of the consolidated

financial statements, our responsibility is to read the

other information and, in doing so, consider whether

the other information is materially inconsistent with

the consolidated financial statements or our knowledge

obtained in the audit, or otherwise appears to be

materially misstated.

If, based on the work we have performed on the other

information that we obtained prior to the date of this

auditor’s report, we conclude that there is a material

misstatement of this other information, we are

required to report that fact. We have nothing to report

in this regard.

RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors are responsible for the preparation

and fair presentation of the consolidated 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 consolidated financial

statements that are free from material misstatement,

whether due to fraud or error.

In preparing the consolidated financial statements, the

directors are responsible for assessing

The RCS Group’s ability to continue as a going

concern, disclosing, as applicable, matters related

to going concern and using the going concern basis

of accounting unless the directors either intend to

liquidate The RCS Group or to cease operations, or

have no realistic alternative but to do so.



AuDITOR’S RESPONSIBILITIES FOR THE AuDIT OF THE CONSOLIDATED FINANCIAL STATEMENTSour objectives are to obtain reasonable assurance

about whether the consolidated financial statements as

a whole are free from material misstatement, whether

due to fraud or error, and to issue an auditor’s report

that includes our opinion. Reasonable assurance

is a high level of assurance, but is not a guarantee

that an audit conducted in accordance with ISAs will

always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are

considered material if, individually or in the aggregate,

they could reasonably be expected to influence the

economic decisions of users taken on the basis of

these consolidated financial statements.

As part of an audit in accordance with ISAs, we

exercise professional judgement and maintain

professional scepticism throughout the audit. We also:

– Identify and assess the risks of material

misstatement of the consolidated financial

statements, whether due to fraud or error, design

and perform audit procedures responsive to those

risks, and obtain audit evidence that is sufficient

and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement

resulting from fraud is higher than for one resulting

from error, as fraud may involve collusion, forgery,

intentional omissions, misrepresentations, or the

override of internal control.

– obtain an understanding of internal control relevant

to the audit in order to design audit procedures

that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the

effectiveness of The RCS Group’s internal control.

– evaluate the appropriateness of accounting policies

used and the reasonableness of accounting estimates

and related disclosures made by the directors.

– Conclude on the appropriateness of the directors’

use of the going concern basis of accounting and

based on the audit evidence obtained, whether

a material uncertainty exists related to events or

conditions that may cast significant doubt on The

RCS Group’s ability to continue as a going concern.

If we conclude that a material uncertainty exists,

we are required to draw attention, in our auditor’s

report, to the related disclosures in the consolidated

financial statements or, if such disclosures are

inadequate, to modify our opinion. our conclusions

are based on the audit evidence obtained up to the

date of our auditor’s report. However, future events

or conditions may cause The RCS Group to cease to

continue as a going concern.

– evaluate the overall presentation, structure and

content of the consolidated financial statements,

including the disclosures, and whether the

consolidated financial statements represent the

underlying transactions and events in a manner that

achieves fair presentation.

– obtain sufficient appropriate audit evidence

regarding the financial information of the entities or

business activities within The RCS Group to express

an opinion on the consolidated financial statements.

We are responsible for the direction, supervision

and performance of The RCS Group audit. We remain

solely responsible for our audit opinion.

We communicate with the directors regarding, among

other matters, the planned scope and timing of the

audit and significant audit findings, including any

significant deficiencies in internal control that we

identify during our audit.

We also provide the directors with a statement that

we have complied with relevant ethical requirements



regarding independence, and communicate to them all

relationships and other matters that may reasonably

be thought to bear on our independence, and where

applicable, related safeguards.

From the matters communicated with the directors, we

determine those matters that were of most significance

in the audit of the consolidated financial statements

of the current period and which are therefore the

key audit matters. We describe these matters in our

auditor’s report unless law or regulation precludes

public disclosure about the matter or when, in

extremely rare circumstances, we determine that a

matter should not be communicated in our report

because the adverse consequences of doing so would

reasonably be expected to outweigh the public interest

benefits of such communication.

REPORT ON OTHER LEGAL AND REGuLATORY REquIREMENTSIn terms of the IRBA Rule published in Government

Gazette Number 39475 dated 4 December 2015, we

report that Deloitte & Touche has been the auditor of

BNP Paribas Personal Finance South Africa limited

for 1 year.

Deloitte & Touche

Registered Auditor

Per: Danie Crowther

Partner

24 April 2017

Resilient and positioned

for further growth


CONSOLIDATED STATEMENT OF FINANCIAL POSITION

31 December 31 December 2016 2015 Notes R’000 R’000

ASSETSCash and cash equivalents 4 553 623 551 918

Card and loan receivables 5 6 277 260 5 961 948

other receivables 6 25 651 11 625

Amount receivable from insurer 7 96 535 94 850

Taxation 69 699 5 935

Property and equipment 8 62 412 68 491

Intangible assets 9 25 206 24 122

Goodwill 10 56 855 56 855

Deferred taxation 11 177 424 172 629

Total assets 7 344 665 6 948 373

EquITYStated capital 14 2 386 636 2 636 636

Accumulated profit / (loss) 149 812 (226 441)

Foreign currency translation reserve 15 4 031 9 298

Total equity 2 540 479 2 419 493

LIABILITIESFunding 17 4 325 167 4 082 400

Trade and other payables 18 479 019 446 480

Total liabilities 4 804 186 4 528 880

Total equity and liabilities 7 344 665 6 948 373

as at 31 December 2016


CONSOLIDATED INCOME STATEMENT

for the year ended 31 December 2016

12 Months ended 9 Months ended 31 December 2016 31 December 2015 Notes R’000 R’000

Interest earned 20 1 471 362 1 060 127

Interest expense (361 369) (235 420)

Net interest income 1 109 993 824 707

other income 21 789 506 526 376

Transaction fee expense (88 350) (63 075)

Net trading income 1 811 149 1 288 008

operating costs (765 538) (570 859)

Cost of risk 22 (524 902) (439 335)

Profit before taxation 23 520 709 277 814

Taxation 24 (144 456) (79 974)

Profit for the period 376 253 197 840


CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME



Profit for the period 376 253 197 840

Other comprehensive income, net of taxation

Items that are or may be reclassified to profit or loss:

Foreign currency translation differences for foreign operation 15 (5 267) 7 625

effective portion of changes in fair value of cash flow hedges 16 - (712)

Cashflow hedges - reclassified to profit or loss - (10 248)

Other comprehensive income for the period (5 267) (3 335)

Total comprehensive income for the period 370 986 194 505


CONSOLIDATED STATEMENT OF CHANGES IN EquITY


Stated Foreign Cash flow Retained Total equity capital currency hedge income / attributable translation reserve (accumulated to

parent

reserve loss) R’000 R’000 R’000 R’000 R’000

Balance at 2 636 636 1 673 10 960 (424 281) 2 224 988 1 April 2015

Total comprehensive - 7 625 (10 960) 197 840 194 505income for the period

Profit for the period - - - 197 840 197 840

other comprehensive income, net of taxation:

Foreign currency translation - 7 625 - - 7 625differences for foreign operations

effective portion of changes in - - (712) - (712)fair value of cash flow hedges

Disposal of cash flow hedge - - (10 248) - (10 248)

Balance at 2 636 636 9 298 - (226 441) 2 419 49331 December 2015

Balance at 2 636 636 9 298 - (226 441) 2 419 4931 January 2016

Total comprehensive (250 000) (5 267) - 376 253 120 986income for the period

Profit for the year - - - 376 253 376 253

Distribution of capital (250 000) - - - (250 000)

other comprehensive income, net of taxation:

Foreign currency translation - (5 267) - - (5 267)differences for foreign operations

Balance at 2 386 636 4 031 - 149 812 2 540 47931 December 2016


CONSOLIDATED STATEMENT OF CASH FLOwS



CASH FlOWS FROM OPERATING ACTIVITIES

Cash generated / (utilised) in operations 25 247 464 (38 117)

Taxation paid 26 (213 015) (158 753)

Net cash inflow / (outflow) from operating activities 34 449 (196 870)

CASH FlOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment (16 645) (19 065)

Acquisition of intangible assets (14 030) (7 352)

Proceeds from disposal of property and equipment 5 164 394

Proceeds from disposal of equity accounted investment - 1 600

Net cash outflow from investing activities (25 511) (24 423)

CASH FlOWS FROM FINANCING ACTIVITIES

Proceeds from funding 5 197 867 3 699 977

Repayment of funding (4 955 100) (3 387 877)

Distribution of capital (250 000) -

Funding repaid by group companies - 10

Decrease in amounts owing from group companies - 81

Proceeds on disposal of interest rate swaps - 14 233

Net cash (outflow) / inflow from financing activities (7 233) 326 424

Net increase in cash and cash equivalents 1 705 105 131

Cash and cash equivalents at beginning of the period 551 918 446 787

Cash and cash equivalents at end of the period 4 553 623 551 918

Optimistic and inspired

by our customers

ACCOuNTING POLICIES


1. PRESENTATION OF FINANCIAL STATEMENTSThe holding company, BNP Paribas Personal Finance

South Africa limited, is a company domiciled in South

Africa. The consolidated financial statements as at

and for the year ended 31 December 2016 comprise

the company and its subsidiaries (together referred

to as “The RCS Group”). The company has foreign

subsidiaries operating in Namibia and Botswana.

The consolidated financial statements are prepared

in accordance with IFRS and the requirements of the

Companies Act of South Africa. The accounting policies

have been consistently applied with those adopted in

the prior financial period.

During the previous financial period, the financial year

changed from 31 March to 31 December to align with

the reporting requirements of the shareholder. The prior

period financial results are therefore only representative

of a 9-month period. The current and prior period

results are therefore not comparable.

1.1 Basis of PrEParatioN

The consolidated financial statements have been

prepared on the basis that The RCS Group is a going

concern and on the historical cost basis.

The consolidated financial statements were authorised

for issue by the board of directors on 24 April 2017.

1.2 fuNctioNal aNd PrEsENtatioN currENcy

These consolidated financial statements are

presented in South African Rands, which is BNP

Paribas Personal Finance South Africa limited’s

functional and presentation currency. All amounts

have been rounded to the nearest thousand, unless

otherwise indicated.

1.3 Basis of coNsolidatioN

Subsidiaries

The financial statements of subsidiaries are prepared

for a consistent reporting period using consistent

accounting policies.

Business combination

Business combinations are accounted for using the

acquisition method as at the acquisition date, which is

the date on which control is transferred to The RCS Group.

The RCS Group controls an entity when The RCS Group

is exposed to, or has rights to, variable returns from

its involvement with the entity and has the ability to

affect those returns through its power over the entity.

Subsidiaries are fully consolidated from the date on

which control is transferred to The RCS Group. They

are consolidated until the date that control ceases.

The RCS Group measures goodwill at the acquisition

date as:

• the fair value of the consideration transferred; plus

• the recognised amount of any non-controlling interest

in the acquiree; plus

• if the business combination is achieved in stages, the

fair value of the pre-existing equity interest in the

acquiree; less

• the net recognised amount (generally fair value)

of the identifiable assets acquired and liabilities

assumed.

When the excess is negative, a gain on bargain

purchase is recognised immediately in the statement

of comprehensive income.

The consideration transferred does not include

amounts related to the settlement of pre-existing

relationships. Such amounts generally are recognised

in profit or loss.



Transaction costs, other than those associated with the

issue of debt or equity securities, that The RCS Group

incurs in connection with a business combination are

expensed as incurred.

Any contingent consideration payable is measured

at fair value at the acquisition date. If the contingent

consideration is classified as equity it is not remeasured.

otherwise, subsequent changes in the fair value of the

contingent consideration are recognised in profit or loss.

loss of Control

on the loss of control, The RCS Group derecognises

the assets and liabilities of the subsidiary, any non-

controlling interest and the other components of equity

related to the subsidiary. Any surplus or deficit arising

on the loss of control is recognised in the statement of

comprehensive income.

Investment in associates

An associate is an entity over which The RCS Group has

significant influence and which is neither a subsidiary

nor a joint arrangement. Significant influence is the

power to participate in the financial and operating

policy decisions of the investee but is not control or joint

control over those policies.

An investment in associate is accounted for using the

equity method, except when the investment is classified

as held for sale in accordance with IFRS 5 Non-current

assets held-for-sale and discontinued operations. under

the equity method, investments in associates are carried

in the consolidated statement of financial position at

cost adjusted for post acquisition changes in The RCS

Group’s share of net assets of the associate, less any

impairment losses.

losses in an associate in excess of The RCS Group’s

interest in that associate, are recognised only to the extent

that The RCS Group has incurred a legal or constructive

obligation to make payments on behalf of the associate.

Any goodwill on acquisition of an associate is included

in the carrying amount of the investment, however, a

gain on acquisition is recognised immediately in the

statement of comprehensive income.

Profits or losses on transactions between The RCS Group

and an associate are eliminated against the investment

to the extent of The RCS Group’s interest therein.

When The RCS Group reduces its level of significant

influence or loses significant influence, The RCS

Group proportionately reclassifies the related items

which were previously accumulated in equity through

other comprehensive income to profit or loss as

a reclassification adjustment. In such cases, if an

investment remains, that investment is measured to fair

value, with the fair value adjustment being recognised in

profit or loss as part of the gain or loss on disposal.

Jointly controlled operations

A jointly controlled operation is a joint arrangement

carried on by each operator using its own assets in

pursuit of the joint operations. The consolidated financial

statements include the assets that The RCS Group

controls and the liabilities that it incurs in the course

of pursuing the joint operation, and the expenses that

The RCS Group incurs and its share of the income that it

earns from the joint operation.

Jointly controlled ventures

A joint venture is a joint arrangement whereby the joint

venturers that have joint control of the arrangement,

have rights to the net assets of the arrangement. A joint

venturer shall recognise its interest in a joint venture as

an investment and shall account for the investment by

applying the equity method.

ACCOuNTING POLICIES (continued)



1.4 usE of EstimatEs aNd judgEmENts

The preparation of consolidated financial statements

in conformity with IFRS, requires management to make

judgements, estimates and assumptions that may affect

the application of policies and reported amounts of assets

and liabilities, income and expenses. The estimates

and associated assumptions are based on historical

experience and various other factors that are believed

to be reasonable under the circumstances, the results of

which form the basis of making the judgements about

carrying values of assets and liabilities that are not readily

apparent from other sources. Actual results may differ

from these estimates.

The estimates and underlying assumptions are reviewed

on an ongoing basis. Revisions to accounting estimates

are recognised in the period in which the estimate is

revised if the revision only affects that period, or in the

period of the revision and future periods if the revision

affects both current and future periods.

estimates and judgements made in applying The RCS

Group’s accounting policies, that potentially have a

significant effect on the amounts recognised in the

consolidated financial statements relate to the following:

- Card and loan receivables are disclosed net of any

accumulated impairment losses and future recoveries.

The calculation of the impairment amount is performed

using the internationally-recognised Markov model.

The Markov model uses delinquency roll rates on

customer balances to determine the inherent bad debt

in a receivables book. In addition, in terms of adopting

a conservative approach, management considers

evidence not yet evident in the mathematical models,

such as the macroeconomic environment and portfolio

maturity, to inform their judgement of the required

levels of impairment and whether to add a further

layer over and above the statistical model output. The

directors believe that the card and loan receivables

balances are being measured fairly. Refer to notes 5

and 30 for further explanation.

- The RCS Group reviews goodwill for impairment at

least annually or when events or changes in economic

circumstances indicate that impairment may have

taken place. Impairment reviews are performed by

projecting future cash flows, based upon budgets and

plans and making appropriate assumptions about

rates of growth and discounting these using a rate that

takes into account prevailing market interest rates and

the risks inherent in the business. If the present value

of the projected cash flows is less than the carrying

value of the underlying net assets and goodwill, an

impairment charge is recognised in the statement of

comprehensive income. This calculation requires the

exercise of significant judgement by management. If

the estimates prove to be incorrect or performance

does not meet expectations, which affects the amount

and timing of future cash flows, goodwill may become

impaired in future periods. Goodwill is disclosed in

note 10.

1.5 sEgmENtal rEPortiNg

An operating segment is a component of The RCS Group

that engages in business activities from which it may

earn revenues and incur expenses, including revenues

and expenses that relate to transactions with any of The

RCS Group’s other components. operating segments’

operating results are reviewed regularly by the board,

identified as the chief operating decision-maker, to make

decisions about resources to be allocated to the segment

and assess its performance and for which internal

financial information is available.

Segment results that are reported to the board include

items directly attributable to a segment as well as those

that can be allocated on a reasonable basis.




Segment capital expenditure is the total cost

incurred during the period to acquire equipment and

intangible assets.

Amounts reported in The RCS Group’s segmental

analysis are measured in accordance with IFRS.

Inter-segment pricing is determined on an arm’s length

basis.

1.6 fiNaNcial iNstrumENts

A financial instrument is recognised when The RCS

Group becomes a party to the contractual provisions of

the instrument.

Financial assets are derecognised if The RCS Group’s

contractual rights to the cash flows from the financial

assets expire or if The RCS Group transfers the

financial asset to another party without retaining

control or substantially all risks and rewards of the

asset. Regular way purchases and sales of financial

assets are accounted for at trade date, being the date

that The RCS Group commits itself to purchase or

sell the asset. Financial liabilities are derecognised if

The RCS Group’s obligations specified in the contract

expire or are discharged or cancelled.

Non-derivative financial instruments

Non-derivative financial instruments recognised on the

statement of financial position include cash and cash

equivalents, card, loan and other receivables, funding

and trade and other payables.

Initial measurement

Financial instruments are initially recognised at fair

value. For those instruments not measured at fair value

through profit or loss, directly attributable transaction

costs are included on initial measurement.

Subsequent to initial recognition, these instruments

are measured as set out below:

Cash and cash equivalents

Cash and cash equivalents comprises cash on hand

and amounts held on deposit at financial institutions.

Cash is measured at amortised cost less impairment

losses by using the effective interest method.

Card and loan receivables

Card and loan receivables are classified as loans and

other receivables and are measured at amortised cost

using the effective interest method, less accumulated

impairment losses. An impairment allowance is made

for card and loan receivables which are estimated to

be impaired at the reporting date. This impairment

allowance is estimated as discussed in note 1.4.

other receivables

other receivables are carried at amortised cost using

the effective interest rate method less accumulated

impairment losses.

Financial liabilities measured at amortised cost

Non-derivative financial liabilities including interest-

bearing funding and trade and other payables are

recognised at amortised cost comprising original debt

less principal repayments and amortisation.

Derivative financial instruments

The RCS Group uses derivative financial instruments

to hedge its exposure to interest rate risks arising from

operational, financing and investment activities. In

accordance with its treasury policy, The RCS Group

does not hold or issue derivative financial instruments

for trading purposes.

Derivative financial instruments are subsequently

measured at fair value, with the gain or loss on




remeasurement being recognised immediately in the

statement of comprehensive income. However, where

derivatives qualify for hedge accounting, recognition

of any gain or loss depends on the nature of the hedge

(refer to hedge accounting policy note 1.6).

The fair value of interest rate swaps is the estimated

amount that The RCS Group would receive or pay

to terminate the swap at the reporting date, taking

into account current interest rates and the current

creditworthiness of the swap counterparties.

Cashflow hedge accounting

Changes in the fair value of a derivative hedging

instrument designated as a fair value hedge are

recognised in the statement of comprehensive income.

The hedged item is adjusted to reflect changes in its

fair value in respect of the risk being hedged; the gain

or loss attributable to the hedged risk is recognised

in the statement of comprehensive income with an

adjustment to the carrying amount of the hedged item.

To the extent that they are effective, gains and losses

from remeasuring the hedging instruments relating to

a cash flow hedge to fair value are initially recognised

directly in other comprehensive income and presented

in the hedging reserve in equity. If the hedged firm

commitment or forecast transaction results in the

recognition of a non-financial asset or liability, the

cumulative amount recognised in other comprehensive

income, up to the transaction date, is adjusted against

the initial measurement of the asset or liability.

For other cash flow hedges, the cumulative amount

recognised in other comprehensive income is included

in the statement of comprehensive income in the

period when the hedged item affects the statement of

comprehensive income. The ineffective portion of any

gain or loss is recognised immediately in the statement

of comprehensive income.

Where the hedging instrument or hedge relationship

is terminated but the hedged transaction is still

expected to occur, the cumulative unrealised gain or

loss at that point remains in equity and is recognised

in accordance with the above policy when the

transaction occurs. If the hedged transaction is no

longer expected to occur, the cumulative unrealised

gain or loss is recognised in the statement of

comprehensive income immediately.

Offset

Financial assets and financial liabilities are offset and

the net amount reported in the statement of financial

position when The RCS Group has a legally enforceable

right to set off the recognised amounts, and intends

either to settle on a net basis, or to realise the asset

and settle the liability simultaneously.

1.7 ProPErty aNd EquiPmENt

Recognition and measurement

Items of property and equipment are measured at

cost less accumulated depreciation and accumulated

impairment losses.

Cost includes expenditure that is directly attributable

to the acquisition of the asset. Purchased software that

is integral to the functionality of the related equipment

is capitalised as part of that equipment.

When parts of an item of property and equipment have

different useful lives, they are accounted for as separate

items (major components) of property and equipment.

Gains and losses on disposal of an item of property

and equipment are determined by comparing the

proceeds from disposal with the carrying amount

of property and equipment and are recognised

net within “operating costs” in the statement of





Subsequent costs

The cost of replacing part of an item of property and

equipment is recognised in the carrying amount of the

item if it is probable that the future economic benefits

embodied within the part will flow to The RCS Group

and its cost can be measured reliably. The carrying

amount of the replaced part is derecognised. The costs

of the day-to-day servicing of property and equipment

are recognised in the statement of comprehensive

income as incurred.

Depreciation

Depreciation is recognised in the statement of

comprehensive income on a straight-line basis over

the estimated useful lives of each part of an item of

property and equipment.

The estimated depreciation rates for the current and

comparative periods are as follows:

- Computer hardware 33%

- Furniture and fittings 16% - 20%

- leasehold property 10%

- Motor vehicles 20%

Depreciation methods, useful lives and residual values

are reviewed at each reporting date.

Depreciation of an item of property and equipment

commences when the item is available for use.

1.8 rEiNsuraNcE coNtract issuEd iN cEll

caPtivE arraNgEmENt

In-substance reinsurance contracts issued are those

contracts that transfer significant insurance risk from

the insurer to the respective company in a cell captive

arrangement in a cell captive arrangement.

Insurance premiums

Insurance premiums received or receivable from

the insurer are recognised in the statement of

comprehensive income when due.

Claims

Claims incurred and reported are recognised in the

statement of comprehensive income when the loss

events occur. Claims incurred but not yet reported

are estimated for compensation payable to the

insured and are recognised in the statement of


Amount receivable from insurer

The amount receivable from the insurer is initially

recognised at the amount paid for the ordinary shares

issued by the insurer.

The amount receivable from the insurer represents

the right to the residual interest in the cell captive

and is after initial recognition measured based on the

net asset position of the cell captive at the end of the

reporting period. This amount is reduced by dividends

declared by the insurer.

The amount receivable from the insurer is assessed

for impairment at each reporting period. If there is

objective evidence that the amount receivable is

impaired, the carrying amount of the reinsurance asset

is reduced to its recoverable amount. The impairment

loss is recognised in the statement of comprehensive

income.

1.9 goodwill

Goodwill is measured at cost less any accumulated

impairment losses. Goodwill is allocated to cash-

generating units and is not amortised, but tested

annually for impairment and when there is an

indication of impairment.




1.10 iNtaNgiBlE assEts

Intangible assets that are acquired by The RCS Group,

which have finite useful lives, are measured at cost

less accumulated amortisation and accumulated

impairment losses.

Subsequent expenditure is capitalised only when it

increases the future economic benefits embodied

in the specific asset to which it relates. All other

expenditure, including expenditure on internally

generated goodwill and brands, is recognised in the

statement of comprehensive income as incurred.

expenditure on research activities is recognised as

an expense in the period in which it is incurred. An

internally-generated intangible asset arising from

development (or from the development phase of an

internal project) is recognised if, and only if, all of the

following have been demonstrated:

- the intention to complete the intangible asset and use

or sell it;

- the ability to use or sell the intangible asset;

- how the intangible asset will generate probable

future economic benefits;

- the availability of adequate technical, financial and

other resources to complete the development and to

use or sell the intangible asset;

- the ability to measure reliably the expenditure

attributable to the intangible asset during its

development; and

- the technical feasibility of completing the

intangible asset.

The amount initially recognised for internally-

generated intangible assets is the sum of the

expenditure incurred from the date when the

intangible asset first meets the recognition criteria

listed above. Where no internally-generated intangible

asset can be recognised, development expenditure is

recognised in the statement of comprehensive income in

the period in which it is incurred. Subsequent to initial

recognition, internally-generated intangible assets are

reported at cost less accumulated amortisation and

accumulated impairment losses, on the same basis as

intangible assets acquired separately.

Client lists

Client lists acquired by The RCS Group are stated at

historical cost less accumulated amortisation and

impairment losses. Amortisation is recognised in the

statement of comprehensive income on a straight-line

basis over the estimated useful lives of the client lists.

The annual rate for the amortisation is 20%.

Computer software

Computer software acquired by The RCS Group is stated

at historical cost less accumulated amortisation and

impairment losses. Amortisation is recognised in the

statement of comprehensive income on a straight-line

basis over the estimated useful lives of intangible

assets. The annual rate for the amortisation is 33%.

The above amortisation rates are consistent with the

comparative period. Amortisation methods, useful

lives and residual values are reassessed at each

reporting date.

1.11 imPairmENt

Non-derivative financial assets

A financial asset not classified as at fair value through

profit or loss is assessed at each reporting date to

determine whether there is any objective evidence

that it is impaired. A financial asset is considered

to be impaired if objective evidence indicates that

one or more events have had a negative effect on the

estimated future cash flows of that asset, that can be

reliably measured.




An impairment loss in respect of a financial asset

measured at amortised cost is calculated as the difference

between its carrying amount and the present value of the

estimated future cash flows discounted at the original

effective interest rate.

Individually significant financial assets are tested for

impairment on an individual basis. Those found not to be

specifically impaired are then collectively assessed for any

impairment that has been incurred but not yet identified.

Assets that are not individually significant are collectively

assessed for impairment by grouping together assets with

similar credit risk characteristics.

All impairment losses are recognised in the statement of


An impairment loss is reversed if the reversal can be

related objectively to an event occurring after the

impairment loss was recognised. For financial assets

measured at amortised cost the reversal is recognised in

the statement of comprehensive income.

Non-financial assets

The carrying values of The RCS Group’s non-financial

assets, other than deferred tax assets, are reviewed at

each reporting date to determine whether there is any

indication of impairment. If any such indication exists then

the asset’s recoverable amount is estimated.

For goodwill and intangible assets that have indefinite

useful lives or that are not yet available for use, the

recoverable amount is estimated at each reporting date.

An impairment loss is recognised if the carrying amount of

an asset or its cash-generating unit exceeds its recoverable

amount. A cash-generating unit is the smallest identifiable

asset group that generates cash flows that are largely

independent from other assets and groups. Impairment

losses are recognised in the statement of comprehensive

income. Impairment losses recognised in respect of cash-

generating units are allocated first to goodwill and then to

reduce the carrying amount of the other assets in the unit

(group of units) on a pro rata basis. The recoverable amount

of an asset or cash-generating unit is the greater of its value

in use and its fair value less costs to sell. 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.

An impairment loss in respect of goodwill is not reversed.

In respect of other assets, impairment losses recognised in

prior periods are assessed at each reporting date for any

indications that the loss has decreased or no longer exists.

An impairment loss is reversed if there has been a change

in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the

asset’s carrying amount does not exceed the carrying amount

that would have been determined, net of depreciation or

amortisation, if no impairment loss had been recognised.

1.12 statEd caPital aNd rEsErvEs

Stated capital

ordinary shares are classified as equity. Incremental

costs directly attributable to the issue of ordinary shares

are recognised as a deduction from equity, net of any

taxation effects.

Foreign currency translation reserve

Gains and losses arising on translation of the assets,

liabilities, income and expenses of foreign operations

are recognised directly in equity as a foreign currency

translation reserve.

Cash flow hedge reserve

A non-distributable reserve arises as a result of the

application of hedge accounting gains or losses on

interest rate swaps.




1.13 dividENds

Dividends and the related withholdings tax are

accounted for in the period when the dividend is

declared. Dividends declared on equity instruments

after the reporting date, and the related withholding

taxation thereon, are accordingly not recognised as

liabilities at the reporting date.

1.14 iNtErEst EarNEd

Revenue comprises interest income. Interest is

recognised on a time-proportion basis taking account

of the principal outstanding and the effective interest

rate over the period to maturity, when it is probable

that such income will accrue to The RCS Group.

1.15 iNtErEst ExPENsE

Interest expense comprises interest which

has been incurred on borrowings. All borrowing

costs are recognised in the statement of


1.16 othEr iNcomE

Club income

Club income is recognised in the statement of


Collection income

Collection income is recognised in the statement of


Net insurance premiums

Insurance premiums are recognised, net of claims, in

the statement of comprehensive income when due.

Merchant commission income

Merchant commission income is recognised when

the related transaction on which the commission is

earned has been concluded.

Service and initiation fee income

Service fee income is recognised in the statement

of comprehensive income when due. Initiation fee

income is deferred in the statement of comprehensive

income on a straight-line basis.

1.17 oPEratiNg lEasE

leases where the lessor retains the risks and

rewards of ownership of the underlying asset are

classified as operating leases. Payments made under

operating leases are recognised in the statement of

comprehensive income on a straight-line basis over the

term of the lease.

1.18 taxatioN

Income taxation expense comprises current and

deferred taxation.

Income taxation expense is recognised in the

statement of comprehensive income except to the

extent that it relates to a transaction that is recognised

directly in other comprehensive income or in equity,

in which case it is recognised in other comprehensive

income or equity as appropriate.

Current taxation is the expected taxation payable/

receivable, calculated on the basis of taxable income

for the period, using the taxation rates enacted or

substantively enacted at the reporting date, and

any adjustment of taxation payable/receivable for

previous periods.

Deferred taxation is recognised in respect of temporary

differences between the taxation base of an asset or

liability and its carrying amount. Deferred taxation is

not recognised for the following temporary differences:

the initial recognition of goodwill; the initial

recognition of assets and liabilities in a transaction

that is not a business combination and that affects




neither accounting nor taxable profit; and temporary

differences relating to investments in subsidiaries to

the extent that they probably will not reverse in the

foreseeable future. Deferred taxation is measured at

the taxation rates that are expected to be applied to

temporary differences when they reverse, based on the

laws that have been enacted or substantively enacted by

the reporting date.

Deferred taxation assets are recognised for all

deductible temporary differences and assessed losses

to the extent that it is probable that taxable profit will

be available against which such deductible temporary

differences and assessed losses can be utilised. Deferred

taxation assets are reviewed at each reporting date and

are reduced to the extent that it is no longer probable

that the related taxation benefit will be realised.

Deferred taxation assets and liabilities are off-set if

there is a legally enforceable right to off-set current

taxation liabilities and assets, and they relate to income

taxes levied by the same taxation authority on the same

taxable entity, or on different tax entities, but they

intend to settle current taxation liabilities and assets on

a net basis, or their taxation assets and liabilities will be

realised simultaneously.

1.19 EmPloyEE BENEfits

Short-term employee benefits

The cost of all short-term employee benefits are

recognised in the statement of comprehensive income

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 RCS Group has a present obligation to pay as

a result of employees’ services provided to the reporting

date. The short-term benefits have been calculated

at undiscounted amounts based on current wage and

salary rates.

Defined contribution plans

The holding company and its subsidiaries contribute to

the following defined contribution plans:

Post-employment 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 the statement

of comprehensive income as the related service is

provided. Prepaid contributions are recognised as an

asset to the extent that a cash refund or a reduction in

future payments is available.

Medical aid schemes

The RCS Group contributes to medical aid schemes

for the benefit of permanent employees and their

dependants. The contributions to the schemes

are recognised in the consolidated statement of

comprehensive income as the related service is

provided.

1.20 forEigN currENciEs

Foreign currency transactions

Transactions in currencies other than the entity’s

functional currency are translated at the rates of

exchange ruling on the transaction date.

Monetary assets and liabilities denominated in such

currencies are translated at the rates ruling at the

reporting date.




Non-monetary assets and liabilities denominated in

such currencies are translated using the exchange rate

at the date of the transaction.

Foreign currency gains and losses arising on

translation are recognised in the statement of


Foreign operations

As at the reporting date, the assets and liabilities of

foreign operations, including goodwill and fair value

adjustments arising on acquisition, are translated into

the presentation currency of The RCS Group at the

rate of exchange ruling at the reporting date and the

income and expenses are translated at the exchange

rates at the dates of the transactions or the average

rates if it approximates the actual rates.

Gains and losses arising on translation of the assets,

liabilities, income and expenses of foreign operations

are recognised in other comprehensive income, and

presented in the foreign currency translation reserve

in equity.



RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 00

Delivering uncomplicated digital solutions

for our customers


2. NEw STANDARDS AND INTERPRETATIONS

2.1 adoPtioN of NEw aNd rEvisEd ifrs

In the current year The RCS Group has adopted all of the revised standards and Interpretations issued by the

International Accounting Standards Board (IASB) and the IFRS interpretations committee (IFRIC) of the IASB that

are relevant to its operations and effective for accounting periods before or on 1 January 2016. The adoption of these

standards and interpretations has not resulted in any adjustments to the amounts previously reported in the Annual

Financial Statements (AFS) for the year ended 31 December 2015.

2.2 staNdards aNd iNtErPrEtatioNs Not yEt EffEctivE

There are standards and interpretations in issue that are not yet effective. These include the following standards and

interpretations that are applicable to the company and may have an impact on future financial statements:

IFRS 9 Financial Instruments

IFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets. under IFRS

9 (2009), financial assets are classified and measured based on the business model in which they are held and the

characteristics of their contractual cash flows. IFRS 9 (2010) introduces additions relating to financial liabilities. In

addition, the IFRS 9 impairment model has been changed from an “incurred loss” model in IAS 39 to an “expected

loss” model. The final version of IFRS 9 was issued in July 2014 and applies to an annual reporting period beginning

on or after 1 January 2018 with retrospective application.

The RCS Group, with the assistance of the ultimate shareholder and in consultation with external professional expert

input, is in the final stages of an impact analysis for The RCS Group and is on track for implementation of IFRS 9

requirements for the 2018 financial year.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 specifies how and when an entity will recognise revenue as well as requiring such entities to provide users of

financial statements with more informative, relevant disclosures. The standard contains a single model that applies

to contracts with customers and two approaches to recognising revenue: at a point in time or over time. The model

features a contract-based five-step analysis of transactions to determine whether, how much and when revenue is

recognised. The standard is effective for annual periods beginning on or after 1 January 2018.

The impact on the financial statements for The RCS Group is not considered to be material.

IFRS 16 leases

IFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both

parties to a contract, ie the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases

Standard, IAS 17 leases, and related interpretations. IFRS 16 has one model for lessees which will result in almost all

leases being included on the Statement of Financial position.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)


The standard is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted only if

the entity also adopts IFRS 15. The RCS Group is assessing the potential impact on the financial statements resulting

from the application of IFRS 16.

3. OPERATING SEGMENTS The RCS Group has two reportable segments, as described below, which are The RCS Group’s strategic business units.

The strategic business units offer different products and services, and are managed separately because they require

different technology and marketing strategies. For each strategic business unit, The RCS Group’s board reviews

internal management reports on a monthly basis. The following summary describes the operations in each of The RCS

Group’s reportable segments:

- Cards segment - a general utility and private label card product offered to consumers, delivered via participating

merchant outlets in South Africa, Namibia and Botswana and their related insurance products.

- loans segment - short and medium-term loans offered to consumers and related insurance products provided to

individuals.

- All other segments includes BNP Paribas Personal Finance South Africa limited, RCS Home loans Proprietary

limited, RCS Collections Proprietary limited and once-off corporate costs.

• BNP Paribas Personal Finance South Africa Limited acts as the external funding vehicle for The RCS Group.

Commercial paper and bonds are issued via this entity (see note 17).

• RCS Home Loans Proprietary Limited operations include the servicing of current home loans.

• RCS Collections Proprietary Limited is a registered debt collector.

• None of these segments meet any of the quantitative thresholds for determining reportable segments in the current

or previous financial periods.

The RCS Group’s external customers and assets are predominantly situated in South Africa, and no single customer

comprises 10% or more of revenue for The RCS Group.

The accounting policies of the reportable segments are the same as described in note 1.

Information regarding the results of each reportable segment is included below. Certain costs including back office

services have not been allocated between the divisions for internal reporting purposes. Performance is measured based

on segment profit before income tax, as included in the internal management reports that are reviewed by The RCS

Group’s board. Segment profit is used to measure performance as management believes that such information is the most

relevant in evaluating the results of certain segments relative to other entities that operate within these industries.




3. OPERATING SEGMENTS (CONTINuED)

31 December 2016 Cards loans Other Total

R’000 R’000 R’000 R’000

Interest earned 1 175 716 295 646 - 1 471 362

Interest expense (314 127) (58 133) 10 891 (361 369)

Net interest income 861 589 237 513 10 891 1 109 993

Inter-segmental credit income - - 25 620 25 620

other income 671 946 116 908 652 789 506

Profit / (loss) before taxation 387 056 134 974 (1 321) 520 709

Depreciation and amortisation (26 966) (3 540) - (30 506)

Capital expenditure 25 373 5 302 - 30 675

Segment assets 6 020 703 1 258 083 65 879 7 344 665

Segment liabilities (3 921 842) (819 506) (62 838) (4 804 186)

31 December 2015 Cards loans Other Total

R’000 R’000 R’000 R’000

Interest earned 837 217 222 910 - 1 060 127

Interest expense (197 487) (42 352) 4 419 (235 420)

Net interest income 639 730 180 558 4 419 824 707

Inter-segmental credit income - - 17 370 17 370

other income 438 335 87 177 864 526 376

Profit / (loss) before taxation 283 339 103 191 (108 716) 277 814

Depreciation and amortisation (16 761) (5 081) - (21 842)

Capital expenditure 23 133 4 304 - 27 437

Segment assets 5 802 950 1 079 749 65 674 6 948 373

Segment liabilities (3 779 136) (703 180) (46 564) (4 528 880)

31 December 2016 31 December 2015 R’000 R’000

4. CASH AND CASH EquIVALENTSBank balances 553 622 551 915

Cash on hand 1 3

553 623 551 918



5. CARD AND LOAN RECEIVABLESDemand to one month 613 754 593 487

one to three months 1 037 414 988 647

Three months to one year 2 920 450 2 787 832

More than one year 2 388 950 2 196 677

Gross card and loan receivables 6 960 568 6 566 643

less: allowance for impaired card and loan receivables (683 308) (604 695)

Net card and loan receivables 6 277 260 5 961 948

analysis of card and loan receivables by type

Card and private label receivables 5 235 452 5 066 143

Personal loans receivables 1 041 808 895 805

6 277 260 5 961 948

General card and private label receivables consist of a number of individual unsecured revolving card accounts as

well as amounts due for services delivered on credit. The accounts attract variable and fixed interest rates and terms

vary from revolving to 36 months. The average effective interest rate for the period under review is 20.76%

(31 December 2015: 21.24%).

Personal loan receivables are comprised of a number of individual unsecured loans. The personal loans are charged at fixed

interest rates and terms vary from 12 to 60 months. The interest rate on each loan is determined when the loan is initially

advanced on the basis of the risk profile of the customer. The average effective interest rate for the period under review is

28.19% (31 December 2015: 28.52%).

The RCS Group’s management of, and exposure to, market and credit risk is disclosed in note 30.

The RCS Group monitors the ageing of its card and loan receivables on a contractual basis. The ageing of net card and loan

receivables at the reporting date was as follows:


Not past due 5 286 316 5 002 089

Past due demand to one month 614 865 644 194

Past due one to two months 189 064 177 255

Past due two to three months 90 697 78 015

Past due more than three months 96 318 60 395

6 277 260 5 961 948




5. CARD AND LOAN RECEIVABLES (CONTINuED)

The movement in the allowance for impairment in respect of card and loan receivables during the period was as follows:

Customers that are not past due and have a good track record with The RCS Group make up 84.21% of net card and

loan receivables (31 December 2015: 83.9%).

Geographical concentration of customers

The RCS Group’s operating activities are situated in South Africa, Namibia and Botswana. The geographical

concentration of gross card and loan receivables at the reporting date was as follows:

31 December 2016 31 December 2015

Botswana 1.64% 1.18%

eastern Cape 5.54% 5.58%

Free State 3.99% 4.22%

Gauteng 35.22% 35.08%

KwaZulu-Natal 13.92% 13.67%

limpopo 4.04% 4.37%

Mpumalanga 11.70% 12.35%

Namibia 1.69% 1.12%

North West 2.68% 2.82%

Northern Cape 2.30% 2.49%

Western Cape 17.28% 17.12%

100.00% 100.00%


Balance at beginning of period 604 695 528 108

Allowance for impairment raised 586 978 427 163

Impairment loss recognised (508 365) (350 576)

Balance at end of period 683 308 604 695

As percentage of gross card and loan receivable book 9.82% 9.21%




6. OTHER RECEIVABLES 31 December 2016 31 December 2015 R’000 R’000

other receivables 7 608 3 117

Prepayments 11 426 8 508

VAT 6 617 -

25 651 11 625

The re-insurance asset consists of the following components:

Reconciliation of amount receivable from insurer


Increase based on the shareholders funds of the cell captive 110 150 83 930

Dividend received from the insurer (108 465) (83 999)


The balance at the end of the period comprises:

Cash and cash equivalents 129 941 120 446


Trade and other payables (20 056) (18 889)

Taxation payable (28 030) (21 476)

96 535 94 850

7. AMOuNT RECEIVABLE FROM INSuRERThe RCS Group retails insurance products to customers. The principal risk that the insurance cells face is that the actual

claims and benefit payments, or the timing thereof, differ from expectations. This is influenced by the frequency of

claims, severity of claims, actual benefits paid and subsequent development of long-term claims. Therefore, the objective

of the cells is to ensure that sufficient reserves are available to cover these potential liabilities. The RCS Group acts as

intermediary between the Cell Insurer and the RCS customers.

The risk structure per product is as follows:

Guardrisk Insurance Company limited (RCS Cards Proprietary limited Cell no. 160)

The RCS Group sells short-term income protection insurance on behalf of Guardrisk to its customers. The RCS Group bears

100% of the re-insurance risk for all products.

Guardrisk life (RCS Cards Proprietary limited Cell no. 78)

The RCS Group sells long-term insurance policies with death benefits on behalf of Guardrisk to its customers. The RCS Group

bears 100% of the re-insurance risk for all products.




8. PROPERTY AND EquIPMENT


Cost Accumulated Carrying value Cost Accumulated Carrying depreciation depreciation value

R’000 R’000 R’000 R’000 R’000 R’000

Computer hardware 45 463 (27 530) 17 933 31 788 (19 099) 12 689

Furniture and fittings 61 762 (28 443) 33 319 60 795 (22 106) 38 689

leasehold property 9 243 (2 198) 7 045 14 830 (1 609) 13 221

Motor vehicles 10 543 (6 428) 4 115 8 540 (4 648) 3 892

127 011 (64 599) 62 412 115 953 (47 462) 68 491

Reconciliation of carrying amounts:

Carrying amount at beginning Disposals/ Carrying amount of year Additions transfers Depreciation at end of year

31 December 2016 R’000 R’000 R’000 R’000 R’000

Computer hardware 12 689 13 675 - (8 431) 17 933

Furniture and fittings 38 689 967 - (6 337) 33 319

leasehold property 13 221 - (5 164) (1 012) 7 045

Motor vehicles 3 892 2 003 - (1 780) 4 115

68 491 16 645 (5 164) (17 560) 62 412

31 December 2015

Computer hardware 7 258 9 505 - (4 074) 12 689

Furniture and fittings 48 082 4 605 (8 457) (5 541) 38 689

leasehold property 1 338 4 345 8 457 (919) 13 221

Motor vehicles 6 292 610 (366) (2 644) 3 892

62 970 19 065 (366) (13 178) 68 491




9. INTANGIBLE ASSETS


Cost Accumulated Carrying value Cost Accumulated Carrying amortisation amortisation value

R’000 R’000 R’000 R’000 R’000 R’000

Client lists 1 980 (1 980) - 1 980 (1 980) -

Computer software 76 257 (51 051) 25 206 62 227 (38 105) 24 122

78 237 (53 031) 25 206 64 207 (40 085) 24 122

Reconciliation of carrying amounts:

Carrying amount at beginning Additions/ Carrying amount of year transfers Disposals Amortisation at end of year

31 December 2016 R’000 R’000 R’000 R’000 R’000

Computer software 24 122 14 030 - (12 946) 25 206

24 122 14 030 - (12 946) 25 206

31 December 2015

Computer software 25 434 7 352 - (8 664) 24 122

25 434 7 352 - (8 664) 24 122

10. GOODwILL 31 December 2016 31 December 2015 R’000 R’000

Goodwill 56 855 56 855

Goodwill acquired through business combinations has been allocated to three individual cash-generating units:

Cash-generating unit

General Purpose Card Division 12 917 12 917

Personal loan Division 36 481 36 481

MDD Private label Card Division 7 457 7 457

56 855 56 855




11. DEFERRED TAxATION 31 December 2016 31 December 2015 R’000 R’000

Deferred tax asset 177 424 172 629

Reconciliation of deferred tax asset:

At beginning of the period 172 629 91 019

Income statement expense:

- Provisions (706) 15 338

- Assessed loss 164 10

- Capital allowances (102) 750

- Allowance for impaired card and loan receivables 22 409 58 366

- Provision for recoveries (16 487) 3 880

- unrealised gain (452) (996)

- Change in tax rate (31) -

(the corporate tax rate in Namibia decreased from 33% to 32%, effective 1 Jan 2016)

other comprehensive income:

- Cash flow hedge - 4 262


The balance at the end of period comprises temporary differences relating to:

- Provisions 65 722 66 445

- Assessed loss 174 10

- Capital allowances 911 1 013

- Allowance for impaired card and loan receivables 163 523 141 137

- Provision for recoveries (51 007) (34 529)

- unrealised gain (1 899) (1 447)

177 424 172 629

10. GOODwILL (CONTINuED) Goodwill is tested annually for impairment and once there is an indication of impairment. The recoverable amount of the

cash-generating units are based on the higher of the value in use, determined by a calculation which covers a five-year period,

or the fair value less costs to sell. The cash flows have been discounted at a rate of 12% (31 December 2015: 11%). Significant

assumptions applied when reviewing the goodwill impairment are that future profits were estimated using historical

information and approved budgets, anticipated growth in advances or turnover and expectations of future interest rates.

Based on this assessment management is of the opinion that for all of the cash-generating units the value in use exceeds the

carrying amount and therefore no impairment is recognised.




12. RELATED PARTIES


Ultimate shareholder

BNP Paribas Société Anonyme 100% 100%

12 Months ended 9 Months ended 31 December 2016 31 December 2015 R’000 R’000

Related party transactions

Transactions with BNP Paribas Société Anonyme

Commitment fees payable (10 992) (6 781)

Interest of directors in contracts

No directors directly or indirectly hold any shares in BNP Paribas Personal Finance South Africa limited. No directors

have any interest in contracts that are in contravention of section 75 of the Companies Act of South Africa.

loans to directors

No loans have been made to directors (31 December 2015: nil).

Directors’ and key management compensation

Director emoluments

executive fees 18 247 24 185

Key management compensation

Key management personnel are those having authority and responsibility for planning, directing and controlling

activities, directly or indirectly, including any director of The RCS Group. Directors and executives of The RCS Group have

been classified as key management personnel. No key management personnel had a material interest in any contract of

significance with any group company during the period under review.

Remuneration paid to key management personnel are as follows:

Short-term benefits 36 867 40 112

Post-retirement benefits 2 230 1 623

Total remuneration 39 097 41 735




14. STATED CAPITAL 31 December 2016 31 December 2015 R’000 R’000

Authorised

80 000 (31 December 2015: 80 000) ordinary shares of no par value - -

Issued

40 000 (31 December 2015: 40 000) ordinary shares of no par value 2 386 636 2 636 636

There were no movements in the number of shares during the current and prior period.

A distribution to shareholder amounting to R450 million was declared after the date of the reporting period but before

the financial statements were authorised for issue (31 December 2015: R250 million).

15. FOREIGN CuRRENCY TRANSLATION RESERVEThe foreign currency reserve comprises gains and losses arising on translation of the assets, liabilities, income and

expenses of foreign operations in Botswana. - -


Foreign currency translation differences for foreign operation (5 267) 7 625


16. CASH FLOw HEDGE RESERVEThe cash flow hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow

hedging instrument related to hedged transactions that have not yet occurred.

Balance at beginning of period - 10 960

effective portion of changes in fair value, net of taxation - (712)

Disposal of cash flow hedge reserve, net of taxation - (10 248)

Balance at end of period - -

Interest rate swaps were disposed of during the period ended 31 December 2015 for R14,2 million. The reclassification of

other comprehensive income to profit or loss has been included in note 23.



13. INVESTMENTS IN ASSOCIATESDuring the prior financial period the investment in Redwood was impaired by an amount of R786 thousand.

The impairment is included in the prior period financial statements at note 23. Subsequent to the impairment, the

investment in Redwood was sold in the prior financial period for R1.6 million. No profit or loss was realised on the sale.


17. FuNDING 31 December 2016 31 December 2015 R’000 R’000

By maturity

Demand to one month 465 000 2 700

one to three months 320 000 385 000

Three months to one year 620 000 1 150 000

More than a year 2 920 167 2 544 700

4 325 167 4 082 400

By nature

Domestic medium-term note programme (a) 2 175 000 1 925 000

Term funding (b) 2 150 167 2 157 400

4 325 167 4 082 400

(a) The domestic medium-term notes are denominated in Rands, have a nominal value of R2,175 million (31 December

2015: R1,925 million), are unsecured and bear interest at variable interest rates linked to the 3 month JIBAR.

Maturity as at the reporting date is as follows: R 365 million demand to one month, R170 million within one to three

months, R620 million within three months to one year and R 1,020 million after more than one year (31 December

2015: R500 million within three months to one year and R1,425 million after more than one year).

(b) Term funding is denominated in Rands, unsecured and bears interest at variable interest rates. Maturity as at the

reporting date is R100 million demand to one month, R150 million within one to three months, and R1,900.2 million

after more than one year (31 December 2015: R2.7 million demand to one month, R385 million within one to three

months, R650 million within three months to one year and R1,119.7 million after more than one year).

18. TRADE AND OTHER PAYABLES

Trade and other payables 473 559 438 739

leave pay accrual 5 460 4 585

VAT - 3 156

479 019 446 480




19. OPERATING LEASES, COMMITMENTS AND CONTINGENT LIABILITIES

Operating leases

The RCS Group occupies the following properties:

liberty Grande

This is a property leased from Precious Prospect Trading 50 Proprietary limited effective 1 July 2013.

Mowbray Business Park

This is a property leased from Acucap Investments Proprietary limited effective 1 November 2014. A lease renewal for a

further 5 years was executed during the current year.

The total future minimum lease payments under non-cancellable operating leases are as follows:


No later than 1 year 22 394 21 811

Between 1 and 5 years 67 902 53 456

later than 5 years 57 523 -

147 819 75 267

Capital commitments

Authorised 47 320 21 950

Committed - 5 488

The RCS Group has sufficient funding to finance the authorised and committed capital commitments.

Contingent liabilities

Performance guarantee - SA Post office 4 000 4 000

20. INTEREST EARNED 12 Months ended 9 months ended 31 December 2016 31 December 2015

Card receivables 1 175 716 837 217

loan receivables 295 646 222 910

1 471 362 1 060 127




21. OTHER INCOME 12 Months ended 9 Months ended 31 December 2016 31 December 2015 R’000 R’000

Club income 3 101 2 410

Collection income 59 131 39 874

Net insurance premiums 191 307 138 792

Merchant commission 59 727 53 015

Service and initiation fee income 471 085 287 707

other income 5 155 4 578

789 506 526 376

22. COST OF RISKMovement in allowance for impaired card and loan receivables 78 613 74 795

Bad debts recovered (241 438) (161 017)

Bad debts write-off 749 803 511 593

Movement in provision for future recoveries (62 076) 13 964

524 902 439 335

23. PROFIT BEFORE TAxATIONIncluded within profit before taxation are the following items:

Amortisation of intangible assets 12 946 8 664

Auditor’s remuneration - external 1 180 1 105

Consultancy fees 16 632 20 815

Depreciation of property and equipment 17 560 13 178

Donations 1 818 1 165

Foreign exchange loss 55 48

legal fees 821 708

Impairment of investment in associate - 786

Profit on disposal of property and equipment - (28)

Manpower costs

- Salaries 276 080 193 748

- Directors’ emoluments 18 247 24 185

Premises costs 48 679 35 292

Reclassification of cash flow hedge to profit - 14 233




24. TAxATION 12 Months ended 9 Months ended 31 December 2016 31 December 2015 R’000 R’000

Income taxation recognised in the income statement

South African current taxation:

- Current period 145 691 155 402

Non-South African current taxation:

- Current period 2 686 1 613

- Withholding taxation 874 307

149 251 157 322

Deferred taxation:

- Current period (4 826) (77 348)

- Change in tax rate 31 - (the corporate tax rate in Namibia decreased from 33% to 32%, effective 1 Jan 2016)

(4 795) (77 348)

144 456 79 974

Reconciliation of the taxation expense

Standard taxation rate 28.00% 28.00%

Non-South African taxation rate (0.05%) (0.22%)

Non-deductible expenditure 0.15% 0.90%

Non-taxable income (0.54%) -

Withholdings taxation 0.17% 0.11%

Change in tax rate 0.01% -(the corporate tax rate in Namibia decreased from 33% to 32%, effective 1 Jan 2016)

Current period’s taxation charge as a percentage of profit before taxation 27.74% 28.79%




26. TAxATION PAID

Taxation receivable at beginning of period 5 935 4 504

Current taxation charge (149 251) (157 322)

Taxation receivable at end of period (69 699) (5 935)

(213 015) (158 753)



25. CASH uTILISED IN OPERATIONS 12 Months ended 9 Months ended 31 December 2016 31 December 2015 R’000 R’000

Profit before taxation 520 709 277 814

Adjustments for:

- Amortisation of intangible assets 12 946 8 664

- Depreciation of property and equipment 17 560 13 178

- Profit on disposal of equipment - (28)

- Foreign currency exchange differences (5 267) 7 625

- Impairment of investment in associate - 786

- Profit on sale of interest rate swaps - (14 233)

Changes in working capital:

- Increase in card and loan receivables (315 312) (453 722)

- (Increase) / decrease in other receivables (14 026) 6 403

- (Increase) / decrease in amount receivable from cell insurer (1 685) 69

- Increase in trade and other payables 32 539 115 327

247 464 (38 117)


28. INTEREST IN jOINT OPERATIONSRCS Home loans Proprietary limited, a 100% held subsidiary of BNP Paribas Personal Finance South Africa limited, has

entered into a joint operation partnership with SA Home loans Proprietary limited. A summary of the results of the joint

operation for the current and prior financial periods are as follows:


Proportion of ownership interest and voting power held 50% 50%

R’000 R’000

Current assets 13 224 21 732

Current liabilities 13 493 18 094

Income (100) 1 774

expenditure 2 772 4 204

27. SuBSIDIARIES Details of The RCS Group’s subsidiaries at 31 December 2016 are as follows:

Place of Registration Portion of Principal activity incorporation and number ownership operation interest and voting

power held

Name of subsidiary

RCS Botswana Proprietary limited Botswana 2008/3191 100% Retail credit

RCS Cards Proprietary limited South Africa 2000/017891/07 100% Retail credit

RCS Collections Proprietary limited South Africa 2008/002800/07 100% Collections

RCS Home loans Proprietary limited South Africa 2005/020504/07 100% Home loans

RCS Investment Holdings Namibia Namibia 2008/0136 100% Retail credit






29. EMPLOYEE BENEFITS

Retirement funds

Alexander Forbes Retirement Annuity: Defined contribution plan

All permanent employees of RCS Botswana Proprietary limited under normal retirement age are required to be members

of the Alexander Forbes Retirement Annuity. The employees and the employers make equivalent contributions in respect

of the retirement annuity benefits. In addition, the employers contribute to death and disability benefits, reinsurance, and

administration and management costs.

liberty life Pension Fund: Defined contribution plan

All employees of the Massdiscounters credit business were transferred to the liberty life Pension Fund. The employees and

the employers make equivalent contributions in respect of pension fund benefits. In addition, the employers contribute to

death and disability benefits, reinsurance, and administration and management costs.

liberty life Provident Fund: Defined contribution plan

The liberty life Provident Fund, which is governed by the provisions of the Pension Funds Act No. 24 of 1956, is a defined

contribution plan. It provides comprehensive retirement and associated benefits for members and their dependants. All

permanent employees of The RCS Group, excluding those that are employed by RCS Botswana Proprietary limited and

RCS Namibia Proprietary limited, are members of the provident fund. The employer pays 14% contributions in respect

of provident fund benefits. In addition, the employers contribute to death and disability benefits, reinsurance, and

administration and management costs.

Sanlam Retirement Annuity: Defined contribution plan

All permanent employees of RCS Investment Holdings Namibia Proprietary limited under normal retirement age are

required to be members of retirement annuities managed by Sanlam. The employees and the employers make equivalent

contributions in respect of retirement annuity benefits. In addition, the employers contribute to death and disability

benefits, reinsurance, and administration and management costs.


29. EMPLOYEE BENEFITS (CONTINuED)

Summary per fund

Medical aid schemes

BOMaid: Defined contribution plan

All permanent staff of RCS Botswana Proprietary limited are required to become members of the medical plans of

their choice offered by BoMaid. Total membership currently stands at 2 (31 December 2015: 2) principal members.

The total payments amounted to R15 414 (31 December 2015: R11 561). The RCS Group has no obligation to fund medical

aid contributions for current or retired employees.

Discovery Health: Defined contribution plan

All permanent staff of RCS Cards Proprietary limited and RCS Home loans Proprietary limited are required to become

members of the medical plans of their choice offered by Discovery Health. Total membership currently stands at 586 (31

December 2015: 602) principal members. The total payments amounted to R9 million (31 December 2015: R6 million).

The RCS Group has no obligation to fund medical aid contributions for current or retired employees.

All permanent staff of the RCS Collections Proprietary limited are required to become members of the medical plans

of their choice offered by Discovery Health. Total membership currently stands at 81 (31 December 2015: 47) principal

members. The total payments amounted to R774 502 (31 December 2015: R437 629). The RCS Group has no obligation

to fund medical aid contributions for current or retired employees.



Number of members Contributions

12 Months ended 9 Months ended 12 Months ended 9 Months ended 31 December 2016 31 December 2015 31 December 2016 31 December 2015

R’000 R’000

Alexander Forbes Retirement Annuity 7 6 22 14

Sanlam Retirement Annuity 12 4 20 7

liberty life Provident Fund 1182 1 070 23 734 16 111

liberty life Pension Fund 9 8 77 54

1210 1 088 23 853 16 186




30. RISK MANAGEMENTOverview

The RCS Group has exposure to risks from its use of financial instruments. This note presents information about The RCS

Group’s exposure to these risks and The RCS Group’s objectives, policies and processes for measuring and managing risk.

Further quantitative disclosures are included throughout the financial statements.

The RCS Group business model focuses primarily on providing unsecured credit whilst trying to minimise or avoid all other

risk types. The RCS Group views risks as an inherent part of running a successful business. Risks are not only mitigated but

are also analysed and investigated for opportunities. Successful risk management therefore entails understanding which

risks can enhance shareholder value and which risks are incidental and potentially value destroying.

The RCS Group’s risk management policies are established to identify and analyse the risks faced by The RCS Group to set

appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems

are reviewed regularly to reflect changes in market conditions and The RCS Group’s activities. The RCS Group, through its

training and management standards and procedures, aims to develop a disciplined and constructive control environment in

which all employees understand their roles and obligations.

The RCS Group board of directors has overall responsibility for the establishment and oversight of The RCS Group’s risk

management framework. The board has established the Board Audit Committee (BAC), the Asset and liability Committee

(AlCo), the RCS Internal Risk and Audit Forum, the Credit Risk Committee and the Social and ethics Committee. As a

statutory board committee, the BAC is responsible for monitoring the internal and external audit functions and regulatory

compliance for The RCS Group. The AlCo Committee is responsible for developing and monitoring all affairs pertaining

to liquidity risk, interest rate risk, foreign currency risk and capital adequacy risk. The RCS Internal Risk and Audit Forum

is responsible for developing and monitoring the company’s risk management policies, as well as the audit, accounting,

internal control and financial reporting practices. The Credit Risk Committee is responsible for developing and monitoring

credit risk within The RCS Group. The Social and ethics Committee is responsible for monitoring The RCS Group’s social

and economic development. These committees formally report to the board of directors on its activities three times per

annum. The risk management process established by The RCS Group continues and feeds into the risk management process

established by its holding company. The holding company’s risk management process is in turn managed by the RCS Board

Audit Committee.




30. RISK MANAGEMENT (CONTINuED) The following subcommittees comprising executives and senior management have been established to deal with the

following risks facing the company:

- Assets and liability Committee (AlCo) - liquidity, interest rate, foreign currency, and capital adequacy risk

- RCS Internal Risk and Audit Forum - technology, operational and reputational risk

- Compliance Forum - legal and compliance risk

- Credit Risk Committee - credit risk

- Social and ethics Committee

Credit risk

Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet

its contractual obligations on card, loan and other receivables, amounts owing from group companies and cash and cash

equivalents. The risk on cash and cash equivalents is managed through dealing with well-established financial institutions

with high credit standing. The risk arising on card, loan and other receivables is managed through a stringent policy on the

granting of credit limits, continual review and monitoring of these limits. The risk on amounts owing from group companies

are managed through monitoring the value of the amounts due and ensuring regular settlement thereof.

The RCS Group does not consider there to be any significant concentration of credit risk in respect of which adequate

impairment has not been raised for the financial assets detailed below, in regard to the credit risk exposure.

The RCS Group does not require collateral in respect of card and loan receivables.

The RCS Group establishes an allowance for impairment that represents its estimate of incurred losses in respect of card

and loan receivables. The allowance is calculated using the internationally-recognised Markov model and other statistical

indicators. Management aims to maintain a certain level of non-performing loan coverage, which can be influenced by

the delinquency and underlying performance of the card and loan receivables. The Markov model uses delinquency roll

rates on customer balances to determine the inherent bad debt in a card and loan book. Management consider evidence

not yet evident in the mathematical models, such as the macroeconomic environment and portfolio maturity, to inform

their judgement of the required levels of impairment and whether to add a further management layer over the statistical

model output as a conservative approach. The board of directors believe that card and loan receivables balances are being

measured fairly.




30. RISK MANAGEMENT (CONTINuED)

Credit risk exposure

The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the statement of

financial position. The maximum exposure to credit risk at the reporting date was:


Cash and cash equivalents 553 623 551 918

Card and loan receivables 6 277 260 5 961 948


Amount receivable from insurer 96 535 94 850

6 935 026 6 611 833

Regulatory Compliance

The RCS Group has zero tolerance for non-compliance, acts swiftly and decisively when such matters are identified

and has processes, internal controls and governance procedures in place to drive this. These processes and procedures

include operational, executive and Board of Director level compliance forums, with conduct of internal audits,

disciplinary and quality assurance processes, incident reporting and complaints registers that are maintained, followed

up and timeously resolved.

liquidity risk

liquidity risk is the risk that The RCS Group will not be able to meet its financial obligations as they fall due. The RCS

Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when

due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to The RCS

Group’s reputation.

This risk is managed through cash flow forecasts, stress testing scenarios on cash flow, the optimisation of daily cash

management and by ensuring that adequate and term-appropriate borrowing facilities are maintained. The objective is

to have positive liability to asset term matching with liabilities carrying longer terms than the underlying book assets.

The company has shareholder facilities in place to mitigate the roll over risk of funding in issue. The company monitors

and evaluates funding on an active basis to ensure that the company can oblige to its commitments made to borrowers.

Management is of the view that The RCS Group has access to sufficient affordable sources of funding to manage roll

over risk, asset liability mismatch situations and to withstand a stressed cash flow scenario within covenant compliance

ranges and with remote risk of default. In terms of its Memorandum of Incorporation, The RCS Group’s borrowing powers

are unlimited.

The RCS Group has available unutilised bank facilities to the value of R1.08 billion (31 December 2015: R427.6 million) and

has shareholder liquidity facilities of R1.5 billion (31 December 2015: R1.5 billion) at the end of the financial period.





Contractual maturities

The table below analyses liabilities of The RCS Group into relevant maturity groupings based on the remaining period at

reporting date to the contractual maturity date, including interest:

Carrying Demand to One to three Three months More than amount one month months to one year one year Total R’000 R’000 R’000 R’000 R’000 R’000

31 December 2016

liabilities

Non-derivative financial liabilities

Funding (4 325 167) (491 051) (367 112) (798 401) (3 096 520) (4 753 084)

Trade and other payables (473 559) (215 950) (247) (123 737) (133 625) (473 559)

(4 798 726) (707 001) (367 359) (922 138) (3 230 145) (5 226 643)

31 December 2015

liabilities

Non-derivative financial liabilities

Funding (4 082 400) (32 728) (441 643) (1 385 938) (2 676 683) (4 536 992)

Trade and other payables (438 739) (189 114) - (100 731) (148 894) (438 739)

(4 521 139) (221 842) (441 643) (1 486 669) (2 825 577) (4 975 731)

Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates and interest rates, will affect The

RCS Group’s income or the value of its holdings of financial instruments. The objective of market risk management is to

manage and control market risk exposures within acceptable parameters, while optimising the return.

Currency risk

The RCS Group transacts in the local currency, Namibian Dollar and Botswana Pula. No foreign currency risk management

exists relating to transactions in Namibian Dollar as the exchange rate is one to one to the South African Rand. The RCS

Group does not use forward exchange contracts to hedge its currency risk as assets held in a foreign currency, such as

Botswana Pula, comprise less than 3% of the total assets of The RCS Group.


Fair value sensitivity analysis for fixed rate instruments

The RCS Group does not account for any fixed rate financial assets and liabilities at fair value through the income

statement, and The RCS Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair

value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.


Profile

At the reporting date the interest rate profile of the company’s interest-bearing financial instruments was:

Interest rate Carrying value

12 Months ended 9 Months ended 31 December 31 December 31 December 2016 31 December 2015 2016 2015 % % R’000 R’000

Fixed rate instruments

Card and loan receivables 24.7 25.5 1 635 203 1 524 984

Financial assets 1 635 203 1 524 984

Variable rate instruments

Card receivables 20.8 21.3 4 642 057 4 436 964

Bank balances 6.9 - 8.2 6.6 - 6.9 553 623 551 918

Financial assets 5 195 680 4 988 882

Funding 7.8 - 12.4 7.2 - 11.3 4 325 167 4 082 400

Financial liabilities 4 325 167 4 082 400


Interest rate risk

Interest rate risk is the sensitivity of the financial performance and/or the financial position of The RCS Group due to

movements in the interest rate. The RCS Group is exposed to interest rate risk as it both borrows and lends funds. The

RCS Group occasionally enters into interest rate swap contracts for the purposes of cash flow hedging. These interest

rate swaps require The RCS Group to pay interest at various fixed rates applied to notional amounts and entitle The RCS

Group to receive various variable rates applied to the same notional amounts. The swaps are used to hedge the risk that

The RCS Group is exposed to as a result of the fact that a significant portion of The RCS Group’s receivables bear interest

at fixed rates (refer to note 5 for detail) whilst its borrowings bear interest at variable rates.



Profit or

(loss) 100

bp increase

R’000

31 December 2016

Variable rate financial assets 50 923

Variable rate financial liabilities (42 038)

Cash flow sensitivity net 8 885

31 December 2015

Variable rate financial assets 46 791

Variable rate financial liabilities (39 264)

Cash flow sensitivity net 7 527

A decrease of 100 basis points in interest rates for the duration of the financial period would have the equal but opposite

effect to the amounts shown above, on the basis that all other variables remain constant.



Cash flow sensitivity analysis for variable rate instruments

A change of 100 basis points in interest rates for the duration of the financial period would have increased/(decreased)

equity and the income statement by the amounts shown below. This analysis assumes that all other variables remain

constant. The sensitivity analysis reflects the impact of a rate change immediately following the reporting date for

all assets and liabilities accounted for at the reporting date. The analysis is performed on the same basis as for the

comparative period.




Capital management

Capital management is performed at a group level for The RCS Group and its subsidiaries. The objective is to maintain

sufficient levels of capital to support the ongoing sustainability and viability of the business. Capital is retained in the

business for the following main objectives:

- to provide a certain amount of cover or buffer should unexpected losses take place either due to market or operational risks

- to provide a certain amount of cover or buffer should unexpected losses take place due to credit risks,

- to support the level of debt in the business as a first loss position and thereby to achieve a particular credit rating on

the debt in the business,

- as a tool that could be increased or decreased to ensure maintenance of an appropriate credit rating level in the future, and

- to facilitate the necessary asset growth objectives in the business.

It is the responsibility of the AlCo and the board to determine the appropriate level of capital taking into account the

risks within the various lines of business and the types of assets held within these business areas.

The board considers, amongst others, the following factors when determining the level of capital required to be held

within a division and against a particular class of assets:

- the historical losses that have taken place on the disposal of assets, bad debt write off and other operational losses,

- a view on factors going forward that could cause an asset or category of assets to be obsolete or have a reduction in value,

- concentration risks on asset classes, market sectors or particular customers should be considered and certain maximum

exposure levels from a line of business and group perspective will be determined,

- review the strategic portfolio of businesses and ensure that capital is allocated to achieve required returns while

maintaining a balanced portfolio with no line of business attracting an inappropriate amount of the capital,

- the length of track record that the business has in terms of using and managing a particular asset class and portfolios

within that asset class, and

- review and benchmarking against local and international peers in the financial services, non-banking and banking

sectors where applicable.

The AlCo reviews capital adequacy three times per annum. The board reviews the capital policy on an annual basis and

makes any amendments to the requirements in its consideration of and prior to making a final dividend declaration.





Fair values of financial instruments

The fair values together with the carrying amounts, net gains and losses recognised in the statement of comprehensive

income, total interest income and total interest expense of each class of financial instrument are as follows:

Total interest Carrying income/ value Fair value (expense) Impairment R’000 R’000 R’000 R’000

31 December 2016

Assets

Cash and cash equivalents 553 623 553 623 - -

Card and loan receivables 6 277 260 6 277 260 1 471 362 (508 365)

other receivables 7 608 7 608 - -

6 838 491 6 838 491 1 471 362 (508 365)

liabilities

Funding (4 325 167) (4 325 167) (361 369) -

Trade and other payables (473 559) (473 559) - -

(4 798 726) (4 798 726) (361 369) -

31 December 2015

Assets

Cash and cash equivalents 551 918 551 918 - -

Card and loan receivables 5 961 948 5 961 948 1 060 127 (350 576)

other receivables 3 117 3 117 - -

6 516 983 6 516 983 1 060 127 (350 576)

liabilities

Funding (4 082 400) (4 082 400) (235 420) -

Trade and other payables (438 739) (438 739) - -

(4 521 139) (4 521 139) (235 420) -





Fair value hierarchy

The RCS Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs

used in making the measurements:

level 1 – Quoted prices (unadjusted) in an active market for an identical instrument.

level 2 – Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from

prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments;

quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation

techniques where all significant inputs are directly or indirectly observable from market data.

level 3 – Valuation techniques using significant unobservable inputs. This category includes all instruments where

the valuation techniques include inputs not based on observable data and the unobservable inputs have a significant

effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for

similar instruments where significant unobservable adjustments or assumptions are required to reflect differences

between instruments.



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