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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
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 03
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.
04 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 05
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
06 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 07
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.
08 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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.
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 09
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.
10 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
INDEPENDENT AuDITOR’S REPORT (continued)
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
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 11
INDEPENDENT AuDITOR’S REPORT (continued)
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
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 13
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
14 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 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
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 15
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2016
12 Months ended 9 Months ended 31 December 2016 31 December 2015 Notes R’000 R’000
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
16 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
CONSOLIDATED STATEMENT OF CHANGES IN EquITY
for the year ended 31 December 2016
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
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 17
CONSOLIDATED STATEMENT OF CASH FLOwS
for the year ended 31 December 2016
12 Months ended 9 Months ended 31 December 2016 31 December 2015 Notes R’000 R’000
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
ACCOuNTING POLICIES
for the year ended 31 December 2016
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.
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 19
20 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 21
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.
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
22 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 23
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
comprehensive income.
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
24 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
comprehensive income.
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.
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 25
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.
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
26 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
comprehensive income.
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.
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 27
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
comprehensive income.
1.16 othEr iNcomE
Club income
Club income is recognised in the statement of
comprehensive income when due.
Collection income
Collection income is recognised in the statement of
comprehensive income when due.
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
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
28 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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.
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 29
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
comprehensive income.
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.
ACCOuNTING POLICIES (continued)
for the year ended 31 December 2016
RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 00
Delivering uncomplicated digital solutions
for our customers
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 31
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
for the year ended 31 December 2016
32 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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.
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 33
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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
34 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
31 December 2016 31 December 2015 R’000 R’000
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:
31 December 2016 31 December 2015 R’000 R’000
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 35
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%
31 December 2016 31 December 2015 R’000 R’000
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%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
36 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
Balance at beginning of period 94 850 94 919
Increase based on the shareholders funds of the cell captive 110 150 83 930
Dividend received from the insurer (108 465) (83 999)
Balance at end of period 96 535 94 850
The balance at the end of the period comprises:
Cash and cash equivalents 129 941 120 446
other receivables 14 680 14 769
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 37
8. PROPERTY AND EquIPMENT
31 December 2016 31 December 2015
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
38 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
9. INTANGIBLE ASSETS
31 December 2016 31 December 2015
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 39
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
Balance at end of period 177 424 172 629
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
40 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
12. RELATED PARTIES
31 December 2016 31 December 2015
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 41
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. - -
Balance at beginning of period 9 298 1 673
Foreign currency translation differences for foreign operation (5 267) 7 625
Balance at end of period 4 031 9 298
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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.
42 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 43
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:
31 December 2016 31 December 2015 R’000 R’000
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
44 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 45
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%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
46 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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)
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 47
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:
31 December 2016 31 December 2015
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
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
48 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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.
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 49
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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
50 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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.
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 51
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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.
52 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
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:
31 December 2016 31 December 2015 R’000 R’000
Cash and cash equivalents 553 623 551 918
Card and loan receivables 6 277 260 5 961 948
other receivables 7 608 3 117
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.
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 53
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
30. RISK MANAGEMENT (CONTINuED)
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.
54 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
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
30. RISK MANAGEMENT (CONTINuED)
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.
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 55
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
30. RISK MANAGEMENT (CONTINuED)
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.
for the year ended 31 December 2016
56 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
30. RISK MANAGEMENT (CONTINuED)
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016 | 57
30. RISK MANAGEMENT (CONTINuED)
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) -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016
58 | THe RCS GRouP CoNSolIDATeD FINANCIAl STATeMeNTS 2016
30. RISK MANAGEMENT (CONTINuED)
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.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)
for the year ended 31 December 2016