Investing
in customer
service
INTEGRATED
REPORT 2013
This is JD Group
JD Group provides valueconscious mass-market
customers in southern Africa
the opportunity and means to
create a comfortable lifestyle,
through its diversified retail and
consumer finance businesses.
> We are a differentiated and diversified
retailer of:
Furniture
Household appliances
Consumer electronic and technology goods
Building materials and
do-it-yourself (DIY) products
New and pre-owned motor vehicles, parts,
insurance, accessories, servicing and
car rental
> We are a leading consumer finance business
providing:
Innovative financial services focusing on the
JD retail customer base
Business intelligence on customer behaviour
utilised by our retail brands
Contents
INVESTMENT OVERVIEW
ifc About this report
ifc This is JD Group
1 Key features
2 Operating portfolio and business structure
4 Business model
6 Geographic footprint
8 Strategic business goals
10 Material issues
12 Stakeholders
14 The execution of JD Group’s strategy
16 Board of directors
20 Ten-year review
GROUP REVIEW
22 Chairman’s report
24 Chief Executive Officer’s report
28 Chief Financial Officer’s report
OPERATIONAL REVIEW
34 Retail
38 Consumer Finance
42 Automotive
ANNUAL FINANCIAL STATEMENTS
47 Directors’ approval of the audited financial
statements
48 Independent auditor’s report
49 Certificate by company secretary
50 Directors’ report
53 Audit committee report
57 Definitions
58 Accounting policies
66 Group statement of comprehensive income
67 Group statement of financial position
68 Group cash flow statement
69 Group statement of changes in equity
70 Segmental analysis
72 Notes to the Group financial statements
104 Company financial statements
106 Notes to the Company financial statements
109 Analysis of shareholders
110 Subsidiaries
OTHER REPORTS AND ADMINISTRATION
112 Remuneration report
116 Social and Ethics committee report
119 Shareholders’ diary for 2014
120 Administration
About this report
This report is the third integrated report issued by JD Group (JD) and incorporates its integrated strategic response to material issues faced
by the Company and its subsidiaries (the Group) from financial, economic, environmental, governance and social perspectives. This report
aims to illustrate how the Group creates and sustains value for all stakeholders in the short, medium and long term.
JD’s 2013 reporting consists of this integrated report, encompassing only material issues, for the use of all stakeholders. Materiality was
applied using qualitative and quantitative factors as well as the estimated likelihood and impact of events.
JD strives to keep its reporting as simple as possible, ensuring that all legislative reporting requirements are met at all times while adopting
voluntary frameworks where it has true merit and contributes value in the Group’s reporting to stakeholders.
The following frameworks have been applied in the preparation of the Group’s 2013 reporting:
>
South African Code of Corporate Practice and Conduct as set out in the King III Report
>
International Financial Reporting Standards (IFRS)
>
JSE Limited (JSE) Listings Requirements
>
Companies Act 71 of 2008 (as amended)
>
Consultation draft of the International Integrated Reporting Framework
>
Global Reporting Initiative (GRI) G4
The 2013 integrated report is supported by the following more detailed reports, aimed at satisfying the needs of specific
stakeholder groups.
Corporate governance report
Sustainability review
These reports are available online at www.jdg.co.za
Comparability and restatements
During the previous reporting period the Group became a subsidiary of Steinhoff International Holdings Limited (Steinhoff) and as a result
changed its financial year-end from 31 August to 30 June. The reporting period covered by this integrated report is thus 1 July 2012 to
30 June 2013 and includes references to events taking place subsequent to year end up to the approval date. The financial results of the
Group are presented for this 12-month period, with 10-month and, in certain cases, 12-month comparatives for the 2012 financial period.
There have been no restatements made during the year under review, other than as disclosed in note 1 to the annual financial statements.
The Group’s operating structure changed with the combination of Furniture Retail and Cash Retail into one Retail division, and the inclusion
of Blake in the Consumer Finance division. This resulted in the Group’s reporting being structured into three divisions: Retail, Consumer
Finance and Automotive.
Forward-looking information
This integrated report contains certain forward-looking statements which relate to the financial position and results of the operations of the
Group. These statements are solely based on the view and considerations of the directors. These statements by their nature involve risk
and uncertainty as they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results
to differ materially from those in the forward-looking statements include, but are not limited to, global and national economic and market
conditions including interest and foreign exchange rates, gross and operating margins achieved, competitive conditions and regulatory
factors. These forward-looking statements have not been reviewed or reported on by the Group’s external auditors.
Feedback
JD Group aims to establish and maintain constructive and informed relationships with all of its stakeholders. Stakeholders are encouraged
to provide feedback on JD’s reporting at investors@jdg.co.za which will enable the Group to gauge the adequacy and standard of its
reporting.
Assurance
This report has not been independently assured in its entirety and the development of a combined assurance approach over the integrated
reporting process will be considered in future years. In the interim, the Board of directors gains comfort over the completeness and
accuracy of the content of this report through its mandated subcommittee which has accordingly applied its mind to the integrated report
in addressing all material issues faced by the Group and ensuring that an accurate reflection of integrated performance of the Group is
included in this report.
Approval
The Board of directors acknowledges its responsibility to ensure the integrity of the integrated report. The directors confirm that they have
collectively reviewed the content of this report and agree that it addresses all the material issues, and provides a fair representation of the
integrated performance of the Group. The Board authorised the integrated report for release on 21 October 2013.
Vusi Khanyile
Chairman
David Sussman
Chief Executive Officer
INVESTMENT OVERVIEW
Key features
REVENUE (Rbn)
HEPS (cents)
EBITDA (Rm)
408
40
29,9
32,2
NET ASSET VALUE PER SHARE (cents)
441
395
450
6 000
3 000
304
2 011
2 205
3 688
30
20
12,9 12,6
2 000
15,7
0
FY
0
09
10
11
12
13
FY
09
10
11
12
0
FY
13
4 075 4 013
2 834 3 023
969
2 000
1 000
44
10
1 291
852
250
4 000
09
10
11
12
0
FY
13
09
10
11
12
13
Note: Annualised numbers are included for 2012.
Key factors impacting FY13
Impairment of enterprise resource planning (ERP) software of R345 million
Bolstered the property portfolio with the purchase of 19 automotive dealerships
Centralisation of distribution function nearing completion comprising 26 centralised distribution centres (CDCs)
Consolidating HiFi Corp and Incredible Connection’s back office functions
Provision on loan book increased to R966 million as at 30 June 2013 (FY12: R557 million)
Maiden Carbon Disclosure Project (CDP) submission completed
Pragmatic adoption of G4 of the Global Reporting Initiative (GRI)
Provided more than 260 000 hours of training to employees
10 months – 30 June 2012: R25,3bn
12 months – 30 June 2012: R29,9bn
10 months – 30 June 2012: 385c*
12 months – 30 June 2012: 441c*
10 months – 30 June 2012: R1,8bn
12 months – 30 June 2012: R2,0bn
Revenue R32,2bn
HEPS 395c
EBITDA R2,2bn
12 months – 30 June 2013
12 months – 30 June 2013
12 months – 30 June 2013
Net asset value per share 4
013c
30 June 2012: 4 075c
30 June 2013
Operating cash flow R1,6bn
Total dividend maintained at 232cps
12 months – 30 June 2013
12 months – 30 June 2013
10 months – 30 June 2012: R777m
* Restated – refer to note 1 of the annual financial statements included in this report
JD GROUP INTEGRATED REPORT 2013 <<
1
INVESTMENT OVERVIEW
Operating portfolio and business
structure
Retail
Retail statistics
JD’s Retail business operates through a multi-branded retail network representing eight furniture
brands, two consumer electronics and appliances brands and four building materials and DIY
(Do-it-yourself) brands. The Group is represented by a footprint of 1 193 retail stores in southern
Africa.
Each retail brand is positioned to focus on a specific market segment based on brand identity,
store layout, merchandise range and market profile. Positioning of the different brands is driven
by a differentiation strategy and caters for customers who enter at the lower end of the market
and migrate to the middle and upper end as their diverse needs, aspirations and lifestyle
requirements develop over time.
Furniture
JD’s significant share of the South African
furniture market makes it one of the biggest
furniture retailers in the country with
extensive buying power.
Subsequent to year end the Group has
restructured the furniture retail brands
into four clusters dedicated to the specific
consumer/market segments they serve.
2 >> JD GROUP INTEGRATED REPORT 2013
Stores
Retail sqm
Employees
12 562
12 312
383
542
1 193
1 186
828 640 821 240
16 399
14 917
* 2012 Furniture and Cash Retail segments
have been combined and are presented for
the 12 months ended 30 June 2012.
SteinBuild is a retailer of building materials
and related products and services
comprising four well-established brands
with 77 retail outlets countrywide, including
franchise outlets. The aim of this business
is to be the customer’s project partner
when it comes to building materials and
DIY products.
Timbercity provides an extensive range
of boards, shelving and timber, laminates,
modular furniture, flooring and DIY products.
Pennypinchers is a building and construction
material specialist that has a specialist but
comprehensive range of building materials,
hardware and home improvement products.
JD operates in this market through HiFi Corp
and Incredible Connection, each with its own
differentiating factors.
The Retail business focuses on the
following strategic business goals
Operating profit
The newly acquired Hardware Warehouse
business is a retailer of low-cost building
materials and associated products.
Hardware Warehouse has a diverse
customer base with concentration on
the lower to middle income rural groups.
Consumer electronics and
appliances
HiFi Corp targets the mass-market as the
destination of choice for home appliances,
Revenue
2012*
Building materials and DIY
The furniture brands focus on valueconscious customers and are located
throughout South Africa with strong
representation in rural areas. The store
footprint is continuously reviewed to ensure
that the right stores are located in optimal
locations. A superior customer retail
experience is provided through excellent
shop-keeping, optimisation of merchandise
and inventory planning to meet customer
expectations, entrenching the Art of Service
culture to build loyalty. The centralisation
of distribution and investment in the new
enterprise resource planning (ERP) system
will provide a leaner and more efficient supply
chain infrastructure.
Incredible Connection’s aim is to be
a specialist provider of information
technology solutions with the widest
range of quality products and brands.
Superior service, expertise and customer
education on products and their capabilities
are fundamental to fulfilling customers’
needs. The business is supported by
the development of a best of class
online channel.
2013
entertainment and technology products.
The business is driven by its ability to offer
compelling price points and best value deals
to customers through its discount concept,
supported by an online channel.
HiFi Corp and Incredible Connection leverage
their purchasing power to achieve better
merchandising terms and optimise lease
terms with property landlords. The newly
centralised back office function will also result
in operating efficiencies to protect margins.
The majority of SteinBuild’s customers are
professional contractors, subcontractors
and artisans. SteinBuild provides trade
credit to its professional customers and
has successfully introduced credit to other
customers, backed by JD Group’s consumer
finance expertise.
Consumer Finance
The key differentiating factor between
JD’s Consumer Finance business and the
financial services industry is our longstanding
relationship with our customers in the
mass-middle to lower income group. These
customers are loyal to our retail brands and
have managed to build up extensive credit
histories with the Group, facilitating robust
and effective credit management.
The Financial Services business supports
JD’s retail business by providing customers
with the means to purchase products on
credit through innovative credit solutions.
This strategy is underpinned by the
commitment to responsible credit granting,
ensuring that customers can afford
repayments.
Consumer Finance’s customer-facing
employees in each store are supported by
Consumer Finance
statistics
a centralised back office credit origination
and collections environment, including two
contact centres with a collective complement
of approximately 1 000 agents.
In addition to its core focus of developing,
granting and managing financial services
products across the entire value chain, the
business is well-placed to provide extensive
business intelligence relating to customer
spending behaviour within the Group.
The JDG Insurance business, consisting
of two standalone entities with separate
licences, offers innovative micro-insurance
products against the background of
a dynamic regulatory environment.
2013
2012*
4 809
3 825
Operating profit
862
784
Contact centres
3
3
6 304
6 671
Revenue
Employees
* 2012 Financial Services and Blake segments
have been combined and are presented for
the 12 months ended 30 June 2012.
retail, telecommunications, insurance, Fast
Moving Consumer Goods (FMCG) and
e-commerce. The extent of its operations
covers the entire lifecycle of customer
engagement, is fully omnichannel enabled
and includes a contact centre.
Blake has more than two decades of third
party outsourcing experience including
financial services, fashion retail, furniture
The Consumer Finance business focuses on
the following strategic business goals:
Automotive Retail
Unitrans Automotive offers a broad range
of new and pre-owned vehicles, parts,
insurance, accessories and servicing,
complemented by the Hertz car rental
division.
number of international automotive brands in
the mass-market and services its customers
from its network of 83 dealerships and
32 car rental outlets located throughout
southern Africa.
Unitrans Automotive targets customers
across the income spectrum and has a
significant market share of the top-selling
volume brands in South Africa, as well as
a number of luxury brands. It represents a
Unitrans Insurance provides insurance
products tailored specifically for the
Automotive Retail customers. Products
include credit protection, vehicle warranties
and Extracover (top-up) insurance.
Automotive statistics
2013
Revenue
Operating profit
Dealerships
Car rental outlets
Employees
2012*
15 504
14 348
472
468
83
80
32
35
5 051
4 538
* Presented for the 12 months ended
30 June 2012.
The Automotive Retail business focuses on
the following strategic business goals
Legend for strategic business goals:
Footprint optimisation
Product and service
differentiation
Product and market
development
Optimising property portfolio
Risk management
Collection optimisation
Optimising retail efficiency
Read more on pages 8 – 9.
JD GROUP INTEGRATED REPORT 2013 <<
3
INVESTMENT OVERVIEW
INPUTS
Required to realise
the strategic business
goals
Business model
FINANCIAL CAPITAL
JD GROUP’S
STRATEGIC
BUSINESS GOALS
Diversified funding structure
13%
15%
43%
29%
28%
132%
Convertible bonds
Other capital markets
Domestic medium term market
Banks
Gearing of Retail business
BUSINESS
ACTIVITIES
How JD Group does
business
Gearing of Consumer
Finance business
Cash generated by
operations of R1,6 billion
REVENUE GROWTH
Footprint optimisation
capitalising on the emerging
customer
MANUFACTURED CAPITAL
Meeting customer demand
through product and service
differentiation
26 centralised distribution centres
Product and market
development
3 contact centres operating with
more than 2 500 employees
UNDERSTAND CUSTOMER AND MARKETS
Analyse markets in terms of
ENHANCED EFFICIENCIES SECURING
COMPETITIVE, SUSTAINABLE
MARGINS
1 193 retail stores
83 motor dealerships
32 car rental outlets
Optimising retail efficiency to
maximise margins
• Products
• Customers
• Geographies
• Channel
SOURCING AND PROCUREMENT
Sourcing from international and local markets
MERCHANDISING
HUMAN CAPITAL
Managing product ranges and stock levels
Optimising the Group’s property
portfolio
27 754 employees providing
skills and expertise
Risk management in the
lending market
Seta* accredited training
provided to employees
Delivering required return to
shareholders
Skills and talent management
CRF Institute certification as
Top Employer in South Africa 2014
INTELLECTUAL CAPITAL
30
years of retail experience
in southern Africa
SUPPORT FUNCTIONS
RELATIONAL CAPITAL
Shareholders, potential investors
and funders
Biophysical environment and
being a responsible corporate
citizen
Employees and organised labour
Customers and potential clients
Suppliers and business partners
Government and regulators
Communities and society at large
NATURAL CAPITAL
Electricity usage of 49 million kWh
powering operations
Fuel consumption of almost
14 million litres by fleet operations
4 >> JD GROUP INTEGRATED REPORT 2013
• Optimising store footprint
• Refurbishing and branding of stores
• Customer buying experience
• After sales service: Returns, exchanges,
warranties and repairs
well established retail brands
Supporting transformation in
South Africa
read more on
pages 8 – 9
Managing warehouse and fleet operations
RETAIL OPERATIONS
Collection optimisation of
receivables
RETAINING OUR SOCIAL LICENCE
TO OPERATE
LOGISTICS AND DISTRIBUTION
* Sector Education and Training Authority
Centralised
functions
• Human resources
• Information technology
• Legal, compliance and risk
management
• Finance
• Transformation
• Marketing
Drawing on the principles of Integrated Reporting, the diagram
below illustrates how the strategic business goals of the Group are
realised by utilising resources (or capitals) in the Group’s business
activities, resulting in a diversified product and service offering
to customers.
Up to a few years ago the Group was completely financed through
shareholders’ equity. Following the split of the business between
Retail and Consumer Finance functions, coupled with the growth in
the Consumer Finance business, the business was geared with the
use of debt. The gearing levels of the Retail and Consumer Finance
businesses are significantly lower compared to industry peers and
present ample manoeuvrability to further grow the business.
OUTPUTS
Products and
services offered
Significant amounts of time and resources have been invested in
a centralised distribution function and enterprise resource planning
(ERP) system as it is believed that this is the most cost-effective
manner in which to manage the supply and distribution of furniture
and household products on a large-scale basis. The Group makes
use of leased premises in its retail operations due to these locations
not having specialised requirements. The Group, however, owns
properties of a specialised nature requiring significant capital
investment, like distribution centres.
Attracting and retaining employees is another imperative for the
Group. The Group aims to be an employer of choice and focuses
on development of its employees. The Group’s relationships with
its various stakeholders have matured over the years and have
contributed to JD Group as it stands today.
JD Group has successfully positioned itself as a diversified retailer
in southern Africa with numerous longstanding retail brands. The
Group’s key differentiator is the Art of Service culture, providing
customers with the best service together with products and
services that meet their needs through the Group’s diversified retail
offering. Another differentiating factor is JD’s centralised distribution
network, being one of the largest in South Africa.
WHAT WE
ASPIRE TO
RETAIL
Furniture, consumer
electronics and
technology goods,
household appliances,
building materials and
DIY products
CONSUMER FINANCE
Financial services,
insurance products
To provide value-conscious
mass market customers in southern
Africa the opportunity and means to
create a comfortable lifestyle, through
its diversified retail and consumer
finance businesses.
AUTOMOTIVE
New and pre-owned motor vehicles, parts,
accessories, servicing and car rental
External environment
JD Group operates in an environment where customers
are facing increased pressure on disposable income due to
increased living costs. This leads to customers developing an
increased appetite for credit to finance their lifestyles and in some
cases, to make ends meet. This is where responsible lending is key
for the Group, ensuring customers can afford repayments and thereby
reducing the risk in the loan book.
Customers are also changing the way in which they shop, moving
to online browsing and shopping. For the Group’s products, a “click
and mortar” approach is still relevant as customers research products
online, but still need to see and touch the products before concluding
purchases. In response to this, the Group developed e-commerce
platforms for its brands to participate in the online shopping trend.
From a regulatory perspective there are various proposed regulatory
changes which may have a significant bearing on the Group’s Consumer
Finance business. The Group is actively engaging with regulators on
these matters to ensure that an equitable outcome is achieved for all
parties concerned.
JD GROUP INTEGRATED REPORT 2013 <<
5
INVESTMENT OVERVIEW
Geographic footprint
STORES, DEALERSHIPS AND
CAR RENTAL OUTLETS
and other
137
91
130
169
111
159
197
17
36
69
17
28
7
25
83
32
Zambia
1
Botswana
21
Namibia
Swaziland
8
3
Limpopo
144
Gauteng
North West
92
Mpumalanga
328
132
Northern Cape
27
KwaZulu-Natal
Free State
176
90
Eastern Cape
Western Cape
139
6 >> JD GROUP INTEGRATED REPORT 2013
147
Mpumalanga
Limpopo
Eastern Cape
North West
Free State
Northern Cape
Botswana
Namibia
Swaziland
Zambia
25
0
20
37
17
11
5
1
0
0
0
0
Furniture
TOTAL
Western Cape
21
KwaZulu-Natal
Gauteng
Barnetts
OPERATIONAL AREAS
1 011
137
Bradlows
30
12
0
13
10
9
8
6
1
0
0
2
0
91
Electric Express
39
20
18
8
14
13
9
8
1
0
0
0
0
130
Joshua Doore
36
24
17
20
17
27
11
11
6
0
0
0
0
169
Morkels
35
17
9
14
9
9
9
8
1
0
0
0
0
111
Price ’n Pride
27
26
11
15
29
17
17
14
3
0
0
0
0
159
Russells
42
27
24
28
16
11
20
20
9
0
0
0
0
197
0
0
0
0
0
0
0
0
0
17
0
0
0
17
Supreme Furnishers
Consumer electronics and appliances
105
HiFi Corp
15
5
5
2
1
2
2
1
0
1
1
0
1
36
Incredible Connection
29
8
14
3
2
5
2
2
1
2
1
0
0
69
0
1
0
2
0
14
0
0
0
0
0
0
0
17
Building materials & DIY
Hardware Warehouse
77
Pennypinchers
2
1
14
1
0
6
0
0
1
0
3
0
0
28
Timbercity
9
2
3
3
3
0
2
0
1
1
0
1
0
25
Tile House and other
1
0
5
0
0
1
0
0
0
0
0
0
0
7
BMW
2
0
0
0
0
0
0
0
0
0
0
0
0
2
General Motors
7
1
6
0
0
4
0
1
0
0
0
0
0
19
MAN
0
0
0
0
1
0
0
0
0
0
0
0
0
1
Mercedes-Benz and Chrysler
0
0
0
2
0
0
0
0
0
0
0
0
0
2
Unitrans Automotive
Nissan and Renault
115
6
0
0
0
0
0
0
0
0
0
0
0
0
6
13
1
6
0
3
7
0
11
0
0
0
0
0
41
Volkswagen
7
2
1
0
0
0
1
1
0
0
0
0
0
12
Hertz car rental
7
4
6
1
2
5
0
2
2
0
3
0
0
32
328
176
139
132
144
147
92
90
27
21
8
3
1
1 308
Toyota
Total
JD GROUP INTEGRATED REPORT 2013 <<
7
INVESTMENT OVERVIEW
Strategic business goals
The success of a business is dependent on its ability to create longterm sustainable value for all of its stakeholders through the realisation
of its business model.
In doing this, our business needs to remain
financially viable and socially and environmentally
responsible. Our strategic business goals are central
to drive the implementation and realisation of the
Group’s strategy.
It goes without saying that being a JSE-listed
company inherently invokes the responsibility to
conduct business in a responsible manner, thereby
retaining our “social licence to operate”.
This represents the foundation of our strategy.
JD Group’s focus remains on delivering revenue
growth and enhanced efficiencies, securing
competitive, sustainable margins.
We believe that we are well equipped to achieve our
key objectives and to meet the future challenges
through our investment in sustainable infrastructure.
Revenue growth
FOOTPRINT OPTIMISATION CAPITALISING
ON THE EMERGING CUSTOMER
The southern African emerging market represents a significant growth
opportunity together with the fact that customers are becoming more price
sensitive. Focus is placed on the value-conscious customer and ensuring
that stores are effectively located to serve target markets. The diversity of
the Group’s product and service offerings will ensure that the needs of the
emerging customers are met initially at the lower end of the market and as
their lifestyles and demand develops to the middle and upper end of the
market. A key focus area is the optimisation of the Group’s retail footprint
through development and expansion, focusing on rural areas.
MEETING CUSTOMER DEMAND THROUGH
PRODUCT AND SERVICE DIFFERENTIATION
The Group’s diversified product and service offerings are suitably positioned to
meet customers’ developing demand from the improvement in their livelihood
and lifestyle – from building a house, to transforming it into a home, with
furniture and appliances, to parking a car in the garage. This includes demand
for the latest trends and technological developments.
PRODUCT AND MARKET DEVELOPMENT
Providing commercially relevant products and services to an ever-changing market is
presenting an opportunity. In developing, granting and managing consumer finance products
across the entire value chain, the Consumer Finance business is well positioned to provide
extensive business intelligence to other Group operations relating to customer spending
behaviour across the retail brands. This enables retail brands to customise their products
and methods of engagement to meet customers’ developing needs.
Blake has developed its market-leading position by providing tailored and targeted
solutions comprising products, services and intellectual capital that satisfy its customers’
unique requirements.
8 >> JD GROUP INTEGRATED REPORT 2013
Acquisition of Hardware Warehouse
with 14 stores in Eastern Cape
and Reeds Motor Group with four
dealerships
Launch of a project partner service,
assisting customer to complete building
and DIY projects
Preferred supplier status
achieved for group funeral
cover provided to a number
of African faith-based
organisations
The strategic
business goals have
been formulated to respond
to the material issues faced
by the Group.
Enhanced efficiencies
OPTIMISING RETAIL EFFICIENCY TO MAXIMISE MARGINS
Retail efficiencies are being realised and will be enhanced into the future as a result of the
Group’s significant investment in sustainable infrastructure that optimises benefits resulting
from the scale of its operations. Centralised distribution centres (CDCs) and IT platforms in
the Retail and Consumer Finance businesses, contribute to the effective management of
working capital, optimisation of distribution, fuel and energy costs and leveraging from the
scale and sourcing capability that exists within the greater Group.
OPTIMISING THE GROUP’S PROPERTY PORTFOLIO
The Group aims to own its strategic properties such as its corporate offices,
CDCs and automotive dealerships. This strategy will mean that the Group
occupies properties which are 100% fit for purpose and this will ultimately
result in value creation and reduced operating expenses.
RISK MANAGEMENT IN THE LENDING MARKET
The Group supports its retail business through its Consumer Finance business by
extending credit to customers. This is seen as a key sales driver for the retail business.
The exposure of the Group to the lending market is managed and controlled through
conservative and consistent credit granting within defined parameters, ensuring
responsible lending, adequate provisioning and timeous write-off of bad debts.
COLLECTION OPTIMISATION OF RECEIVABLES
The geographically diverse nature of the Group’s operations led to the centralisation
of the credit granting and collection process within the Consumer Finance business
that has proved to be a success in driving efficiencies and maximising margins.
An analysis of the material
issues is provided in the
table on the next page.
Centralisation of distribution
function nearing completion
with the establishment of
12 additional centralised
distribution centres
Bolstered the property portfolio with
the purchase of 19 automotive
dealerships
Provision on loan book
increases to R966 million
Recovered R125 million in
post write-off collections
Social licence to operate
DELIVERING REQUIRED RETURN TO SHAREHOLDERS
In order for the Group to be a long-term sustainable business, all operating
divisions need to deliver the required return to shareholders on their
investment in JD Group. This will ensure that required returns and benefits
are provided to all stakeholders of the Group on a sustainable, long-term basis.
Revenue increased to R32,2 billion
HEPS of 395 cents
EBITDA up to R2,2 billion
Dividend maintained at
232 cents per share
SKILLS AND TALENT MANAGEMENT
Retaining and motivating employees to support the Group’s strategic business goals
is imperative. Training and development of employees represent key cornerstones of
the Group’s operations benefiting employees from a skills development perspective
and the Group in terms of access to these skills. Market-related incentivisation and
benefits are provided to employees.
More than 260 000 hours of training
provided to employees
TRANSFORMATION IN SOUTH AFRICA
The Group monitors the transformation strategy on an ongoing basis, aiming to
become more representative of the demographics of South Africa, particularly at the
middle and senior levels of the Group.
BIOPHYSICAL ENVIRONMENT AND BEING
A RESPONSIBLE CORPORATE CITIZEN
The Group’s objective to provide long-term sustainable benefits to all stakeholders
underpins its responsibility to the environment and communities which are affected
by its operations. The key impacts of operations are continually assessed and
include emissions resulting from energy and fuel usage, recycling of waste, in
particular electronic waste (e-waste), training and development of employees and
uplifting communities in which we operate.
Achievement of level 4
B-BBEE contributor level status
Initial Carbon Disclosure Project (CDP)
submission completed
Pragmatic adoption of G4
of the Global Reporting Initiative (GRI)
JD GROUP INTEGRATED REPORT 2013 <<
9
INVESTMENT OVERVIEW
Material issues
Material issues are assessed and evaluated through the Group’s robust
risk management process.
Material issues faced by the Group are identified through a robust process comprising the risk management
process, internal research and analysis and stakeholder engagement. This process incorporates economic,
environment, social and governance issues faced by the Group.
MATERIAL ISSUE
REMAIN A LONG-TERM
SUSTAINABLE BUSINESS
PROVIDING BENEFITS TO
ALL STAKEHOLDERS
DESCRIPTION
Achievement of revenue growth in challenging
economic conditions focusing on emerging
markets
All
Effective strategic project benefit realisation:
• Project Evolve – Business intelligence
regarding customers
• Project Sebenzile – Centralisation of logistics
• Project Phambile – Enterprise resource
planning system
All
Maintaining effective business models in
difficult economic conditions and sustaining
competitive advantage
Retail & Automotive
Effective inventory management:
• Merchandising – having the right products
meeting customers’ demands
• Inventory management – having the right
product in the right location
Retail & Automotive
Capitalise on customer re-serve opportunities
through timeous communication with customers
All
Shareholder returns
All
Appropriate granting of credit
Assets – physical and insurable risk
Exposure to secured and unsecured lending
market: credit risk, credit granting and
collections
RISK MANAGEMENT IN THE
FOLLOWING AREAS:
CORE
DIVISIONS
STRATEGIC BUSINESS GOAL/CROSS-REFERENCE
Consumer Finance
All
Corporate governance report
Consumer Finance
Fraud
All
Corporate governance report
Sustainability review
Information technology
All
Corporate governance report
Funding, liquidity and interest rate risk
All
CFO’s report
Reputational
All
Corporate governance report
Sustainability review
Disaster recovery and business continuity
All
Corporate governance report
Utility prices
Retail & Automotive
Sustainability review
10 >> JD GROUP INTEGRATED REPORT 2013
MATERIAL ISSUE
DESCRIPTION
CORE
DIVISIONS
Apply King III recommendations and maintain
high standards of governance
All
Compliance with existing legislation and
managing changes in legislation, including:
CPA, NCA, Companies Act, Income Tax Act,
Credit Insurance enquiry, etc
All
Customers: Enhance customer experience both
internally and externally and meet demand
All
Employees: Attract and retain critical skills
and talent
All
Suppliers: Maintain a diverse sustainable
product portfolio, meeting customer demand for
sustainable, responsible products, latest trends
and technologies
All
DRIVE TRANSFORMATION AND
CSI IN SOUTH AFRICA
• Application of B-BBEE codes
• Amendments to the B-BBEE codes
All
MINIMISE THE IMPACT
OF OUR OPERATIONS ON
THE ENVIRONMENT AND
COMMUNITIES IN WHICH WE
OPERATE
• Use of energy
• Use of fuel
• Recycling of e-waste
• Waste-paper recycling
All
GOVERNANCE AND LEADERSHIP
ENGAGEMENT WITH
STAKEHOLDERS
STRATEGIC BUSINESS GOAL/CROSS-REFERENCE
Corporate governance report
Sustainability review
Sustainability review
Sustainability review
Legend for strategic business goals:
Footprint optimisation
Product and service differentiation
Product and market
development
Optimising retail efficiency
Optimising property portfolio
Risk management
Collection optimisation
Delivering required return
Skills and talent management
Transformation
Biophysical environment
Read more on pages 8 – 9.
JD GROUP INTEGRATED REPORT 2013 <<
11
INVESTMENT OVERVIEW
Stakeholders
JD Group recognises that its business operations are dependent upon
and impact on various stakeholders.
STAKEHOLDER
STAKEHOLDER IMPERATIVES
MATERIAL ISSUE
STRATEGIC RESPONSE
Revenue growth
Shareholders,
potential investors
and funders
Deliver sustainable earnings growth and enhance shareholder value
Remain a long-term
sustainable business
providing benefits to
all stakeholders
Risk management
Enhanced efficiencies
securing competitive,
sustainable margins
Social licence to operate
Employees and
organised labour
Create a positive, supportive and diversity-friendly working
environment in which employees can achieve their full potential
through challenging work and development opportunities – with
the assurance of being recognised and rewarded for excellence
in performance
Maintain a positive relationship with organised labour
Engagement with
stakeholders
Social licence to operate
Customers and
potential clients
Create relevant and lasting relationships with present and future
customers by providing them with appropriate value added quality
products, service offerings and solutions to facilitate their household
economic upliftment
Mutual ethical conduct
Product and service complaints (SCIs) resolution
Engagement with
stakeholders
Revenue growth
Suppliers and
business partners
Create optimised relationships and ensure that the total supply chain
delivers quality experiences and value to the end consumer, meeting
their needs
Ethical conduct in respect of labour practices and fulfilment of
product guarantees
Engagement with
stakeholders
Government and
regulators
Obey all laws, regulations and corporate governance rules in
countries where the Group operates and seeks to engender
constructive and healthy relations with all levels of governments
and regulators
Be an active role-player in the transformation of South Africa
Revenue growth
Enhanced efficiencies
securing competitive,
sustainable margins
Governance and
leadership
Drive transformation
and CSI in South
Africa
Social licence to operate
Drive transformation
and CSI in South
Africa
Communities and
society at large
Be a concerned corporate citizen and grow partnerships as
an engaged member of local communities where our stores,
warehouses and offices are located through the support of local and
selected national sustainable development initiatives
Refer to the Sustainability review online for further information on the Group’s stakeholder engagement.
12 >> JD GROUP INTEGRATED REPORT 2013
Minimise the impact
of our operations on
the environment and
communities in which
we operate
Social licence to operate
The Group maintains a healthy engagement process in which it grows and nurtures relationships with key
stakeholders. This is also seen as a valuable business intelligence tool which is used by the Group in the
positioning of operations and formulating strategy based on material issues identified.
FURTHER INFORMATION
VALUE ADDED (R
(Rm
m)
MAJOR SHAREHOLDERS
GEOGRAPHIC SPREAD
Sanlam Investment Management 4%
Other 2%
Boston Company Asset Management 4%
USA & Canada 9%
2013
Investec Asset Management 5%
South Africa 89%
2012
DISTRIBUTION TO SHAREHOLDERS*
400
Public Investment Corporation 6%
500
550
484
8
510
FINANCE COSTS
Regarding Capital Management 7%
200
Other 18%
2013
Steinhoff 56%
2012
NUMBER OF EMPLOYEES
ETHNICITY SPLIT
27 754
2013
26 751
2012
25 718
2011
19 186
2010
450
300
500
400
600
538
252
SALARIES, COMMISSIONS AND BENEFITS
Indian 7%
Coloured 12%
2 000
White 17%
2013
African 64%
2012
3 000
4 000
3 979
3 035
21 247
2009
STORE FOOTPRINT
NUMBER OF STORES
2013
1 308
2012
1 301
Gauteng 25%
KwaZulu-Natal 13%
Eastern Cape 11%
Limpopo 11%
Western Cape 11%
Mpumalanga 10%
North West 7%
Free State 7%
Northern Cape 2%
Other 3%
1 227
2011
1 041
2010
1 094
2009
REVENUE
20 000
30 000
40 000
32 210
2013
25 284
2012
COST OF MERCHANDISE, SERVICE AND EXPENSES
SOURCING OF PRODUCTS:
Furniture
Electronics and appliances
10 000
Import 11%
20 000
30 000
26 327
2013
Local 89%
Import 66%
Local 34%
20 450
2012
TAXATION, ASSESSMENT RATES
AND OTHER LEVIES
400
No compliance notices received
Continuous engagement
with regulators
Community development
Skills upliftment and education
Wildlife conservation
Arts and culture
Health (including disability) and HIV/Aids
Sports development
Other
Total
2013
Rm
3,2
4,6
1,6
0,3
1,2
0,2
0,2
10,3
Achievement of level 4
B-BBEE contributor status
2012*
Rm
2,6
2,5
4,3
0,3
1,5
0,1
0,6
11,9
500
600
574
2013
2012
421
CORPORATE SOCIAL INVESTMENT
9
2013
2012
10
11
12
10,3
11,9
Refer to the Sustainability review online for the full value-added statement.
* 2012 numbers represent a ten-month period ended 30 June 2012.
JD GROUP INTEGRATED REPORT 2013 <<
13
INVESTMENT OVERVIEW
The execution of JD Group’s strategy
The Group’s operations are managed through divisional
boards and executive committees that report to the
executive management and Board of directors of the Group.
The Group’s philosophy of good corporate governance revolves around leadership,
sustainability and corporate citizenship. The Group has integrated governance with strategy,
risk, performance and sustainability in an inseparable context for the furtherance of the
wellbeing of the Group, the economy, society and the natural environment.
The core ethical values of responsibility, accountability, fairness and
transparency, as espoused by the third King Report on Governance
for South Africa and the King Code of Governance Principles
(jointly King III), are contained in the Board’s Charter and its Code
of Conduct.
interests and expectations of stakeholders on the basis that it
must be in the best interests of the Group.
The Group has met its reporting requirements relating to King III,
the Listings Requirements of the JSE, the 2008 Companies Act
(as amended) and the Companies Regulations (jointly the Act).
In its decision-making, the Group follows the “stakeholder inclusive”
model of corporate governance, i.e. it considers the legitimate
Assured the
integrity of the Group’s
integrated reporting,
being reliable and not
in conflict with the
financial results
AUDIT COMMITTEE
Approved
the Group’s
Remuneration
Policy and executive
remuneration and
identified its
prescribed officers
REMUNERATION COMMITTEE
NOMINATIONS COMMITTEE
RISK MANAGEMENT COMMITTEE
Board demographic
ratios improved as
a result of Board
restructuring
SOCIAL AND ETHICS COMMITTEE
Considered “black
swan” risk-events
in an effort to identify
unpredictable, unexpected
or unusual risks
14 >> JD GROUP INTEGRATED REPORT 2013
BOARD COMMITTEES
Adopted the
Organisation for
Economic Co-Operation and
Development principles against
bribery and corruption, as well
as the 10 principles of the United
Nations Global Compact relating
to human rights, labour, the
environment and anticorruption
King III operates on an “apply or explain” basis. The Group has applied all the requirements of King III and in the following instances applied
an alternative approach as explained below:
KING PRINCIPLE
EXPLANATION
2.16
The Board should elect a chairman who is an independent
non-executive director. The CEO of the company should not
also fulfil the role of chairman of the Board.
The CEO and chairman roles are separate. The Board appointed an independent non-executive
chairman during the year resulting in full compliance with this requirement.
2.22
The evaluation of the Board, its committees and the
individual directors should be performed every year.
The non-executive directors did not undergo an individual performance assessment.
The Board and committees were assessed as a whole.
8.4
Companies should ensure the equitable treatment
of shareholders.
Steinhoff receives financial information more regularly than other shareholders since it holds
a controlling share in JD Group and has an obligation to furnish a financial report to its own
Board on a quarterly basis. However, the flow of financial information between the two entities
is well regulated to prevent misuse thereof.
9.3
Sustainability reporting and disclosure should be
independently assured.
The Group’s sustainability reporting will be assured by an independent service provider once it
has reached a mature state.
Detailed information on the Group’s corporate governance is included in the Corporate governance report which is available online at
www.jdg.co.za. An abbreviated analysis of the Group’s application of the 75 King III principles is presented separately online in tabular
form, as prescribed by the JSE.
Refer to page 112 of this integrated report for the Group’s remuneration report.
JD GROUP BOARD
JDG TRADING
VARIOUS SUBSIDIARY BOARDS
EXCO: JDG TRADING
DIVERSIFIED RETAIL
AUTOMOTIVE
CONSUMER FINANCE
PROPERTIES
SERVICE CENTRES & KEY COMMITTEES
Exco:
Furniture
Exco:
Consumer electronics
and appliances
Board:
Building
materials
and DIY
Board: JD Consumer Finance
Board:
Unitrans
Auto
Board:
Property
Internal Risk
Management
and Compliance
committee
Business
Process
Reviews
Business Process
Reviews
Exco and Risk
Committee
Exco: JD Consumer Finance
Audit,
Risk and
Compliance
committee
Chain
Property
committees
Divisional
Compliance
and Risk
committees
Audit and
Compliance
Committee
Exco: Financial
Services
Division
Various
Franchise
Trusts
Credit Risk
committee
JDG Insurance Group
Board:
Blake
IT Governance
committee
JD Micro
Life Board
JD Micro
Insurance
Board
U-Insurance
Board
Exco: Blake
Employment
Equity and
Training
committee
Audit
committee
Audit
committee
Audit
committee
Audit
and Risk
committee
Leadership and
Development
Council
Risk and
Compliance
committee
Risk and
Compliance
committee
Risk and
Compliance
committee
Transformation
committee
JD GROUP INTEGRATED REPORT 2013 <<
15
INVESTMENT OVERVIEW
Board of directors
Executive directors
David Sussman (65)
Jan van der Merwe (54)
Bennie van Rooy (38)
Peter Griffiths (50)
BCom
CA(SA), BAcc (Stellenbosch) and BAcc
(Hons) (UNISA)
(Member of the South African Institute of
Chartered Accountants since 1998)
BCom (Hons), CA(SA)
BCom (Hons), CA(SA), CFA
chief executive officer:
JD Consumer Finance
Appointed: 1 May 2010
CHIEF EXECUTIVE: FURNITURE RETAIL
AND CONSUMER FINANCE
Appointed: 9 October 2013
After completing his articles at
PricewaterhouseCoopers in 2000,
Bennie gained exposure in various
financial services disciplines such as
mergers and acquisitions, financial
consulting and risk management.
He joined the Absa Group in September
2005 where he specialised in credit risk
management before being appointed as
Head: Group Capital Management and
Balance Sheet Optimisation in the Group
Treasury function on 1 January 2007.
He joined the JD Group in January 2010
and was appointed as Group Financial
Director on 1 May 2010.
After serving the Group as the Financial
Director for almost three years, Bennie
was promoted to the position as Chief
Executive Officer of the Consumer
Finance business with effect from
1 March 2013. The Consumer Finance
Division includes the operations of
JD Financial Services, JDG Insurance
and Blake.
He is a member of the JD Group Risk
Management committee and of the
Group’s Executive committee and a
director on the boards of JDG Trading,
Blake & Associates, the two JDG
insurance companies, Unitrans Insurance
and various other internal JD Group
subsidiaries.
Peter is a qualified chartered accountant
(CA(SA)) and chartered financial analyst
(CFA). He served his articles with KPMG
and was an audit manager until 1994
before joining Sankorp as an investment
manager. Peter joined the Gensec group
in 1998 and was head of Gensec Bank’s
corporate finance advisory team before
he joined the Steinhoff Group in 2003.
Peter spent the past nine and a half
years in an operational industry role
as the CEO of Bravo Group (previously
Steinfurn), the largest furniture and
bedding manufacturer in southern
Africa, where he gained an in-depth
understanding of the furniture industry
and supply chain.
Peter joined the JD Group in October
2013 and is responsible for the Furniture
Retail business, the Consumer Finance
operations and Supply Chain Services.
Peter is a member of the JD Group
Executive committee and will be
appointed to the boards of various
JD Group subsidiaries.
Chief Executive Officer
Appointed: 1 April 1986
David Sussman is the founder, former
Executive Chairman and now the Chief
Executive Officer of the JD Group. Before
forming the JD Group, David founded his
own company, Sustein Proprietary Limited
(trading as Price ’n Pride) in 1983.
In 1986, David persuaded the then
Chairman of Rusfurn, Mervyn King, to
sell Joshua Doore to Sustein Proprietary
Limited. At the time, Sustein had three
Price ’n Pride stores and the acquisition
of Joshua Doore required that Sustein
be listed on the Johannesburg Stock
Exchange as Joshua Doore Limited.
After further acquiring World Furnishers
and Bradlows in 1988, the name of the
listed company was changed to JD Group
Limited.
The JD Group has expanded over time
to include the acquisition of Profurn
and Incredible Connection, a 70%
equity stake in Blake & Associates, as
well as the acquisition of Unitrans Auto
and SteinBuild.
Under David’s guidance and leadership,
the Group has been inspired to be
world-class in its fields of expertise and
is wholeheartedly committed to making a
real difference through its Art of Service
culture.
David is a director on the board of
Steinhoff Doors and Building Materials
Proprietary Limited, Unitrans Motors
Proprietary Limited, Unitrans Motor
Enterprises Proprietary Limited, as
well as various other internal JD Group
subsidiaries.
David also serves on the JD Group
Risk Management committee and he is
the Chairman of the Group’s Executive
committee.
Chief Financial Officer:
JD Group Limited
Appointed: 1 March 2013
Following Jan’s appointment, he became
a member of the JD Group Executive
committee, JD Group Risk Management
committee and he was appointed as
an executive director of JDG Trading
Proprietary Limited and JD Property
Holdings Proprietary Limited. As the
Group’s Chief Financial Officer, the Tax,
Property, Finance, IT, Audit and Risk
portfolios report to him.
Jan qualified as a chartered accountant
and entered the furniture retail
industry in 1989 taking up a position
at Gommagomma Holdings Proprietary
Limited (now Steinhoff Africa Holdings
Proprietary Limited). He held several
positions within the Steinhoff Group
during his career spanning 23 years
including Managing Director of
Steinhoff Africa Group Services and
Steinhoff International Group Services,
executive director on the board of
Steinhoff International Holdings Limited,
Chief Financial Officer for Steinhoff
International Holdings Limited, director
on the board of Unitrans Holdings
Proprietary Limited, member of the Audit
and Risk committee of KAP Industrial
Holdings Limited, director on the boards
of Homestyle Plc, Steinhoff Europe Gmbh,
Steinhoff Asia Pacific Proprietary Limited
and Chief Executive Officer of PG Bison.
Richard Chauke (46)
BCom (Hons), MCom South African and
International (Tax), MTP (SA)
Director: Transformation, risk,
legal and Compliance
Appointed: 17 September 2007
Richard has 12 years’ experience in
auditing and taxation, four years’ lecturing
and seven years’ experience in retail.
Richard has gained experience from
his time at the South African Revenue
Service, the University of Venda for
16 >> JD Group Integrated Report 2013
Science and Technology, Deloitte &
Touche, the Office of the Auditor-General
and Ernst & Young.
He is a member of the JD Group Risk
Management committee, the JD Group
Social and Ethics committee and of
the Group’s Executive committee and
a director of JDG Trading. He is the
Chairperson of Employment Equity and
Training committee. He also serves on
the boards of external private companies
in his personal capacity.
Non-executive directors
Markus Jooste (52)
Ben la Grange (39)
Dr Len Konar (59)
Danie van der Merwe (54)
BAcc, CA(SA)
BCom (Law), CA(SA)
BCom, CA(SA), MAS, DCom
BCom, LLB
CHIEF EXECUTIVE OFFICER OF
STEINHOFF
Appointed: 15 June 2012
CHIEF FINANCIAL OFFICER OF
STEINHOFF
Appointed: 15 June 2012
DIRECTOR OF COMPANIES
Appointed: 19 July 1995
CHIEF OPERATING OFFICER OF
STEINHOFF
Appointed: 15 June 2012
In 1998, Markus joined Gommagomma
Holdings Proprietary Limited (now
Steinhoff Africa) as Financial Director.
In 1998, Markus was appointed as
executive director and took responsibility
for the European operations of Steinhoff
and also for directing its international
marketing and financial disciplines.
In 2000, Markus was appointed Group
Managing Director of Steinhoff and
Chairman of Steinhoff Africa and
currently acts as Chief Executive Officer
for the group.
Markus also serves on the boards of
various unlisted group companies and
the following listed companies: PSG
Group Limited, KAP Industrial Holdings
Limited and Phumelela Gaming and
Leisure Limited. He is a member of the
JD Group Remuneration committee.
Ben completed his articles with
PricewaterhouseCoopers and spent two
and a half years in its international and
corporate tax division. He joined Steinhoff
in 2003 as manager in the corporate
tax division whereafter he moved to the
Steinhoff corporate finance division. He
previously acted as Chief Financial
Officer for Steinhoff’s Southern
Hemisphere operations and was
appointed to his current position on
5 March 2013. He is also a board
member of KAP Industrial Holdings
Limited.
Len is a member of the King Committee
on Corporate Governance in South Africa,
the Institute of Directors and the National
Association of Corporate Directors (USA).
Prior to this he was a professor and
head of the department of accountancy
at the University of Durban-Westville
and chairperson of the Ministerial Panel
for the review of the regulations of
accountants and auditors in South Africa
in 2003.
Len served as chairman of the
Audit committee of the International
Monetary Fund, co-chairman of the
Implementation Oversight Panel at the
World Bank, Washington. He is currently
the chairman of Steinhoff, Exxaro and
Mustek, and a non-executive director
of Sappi, Alexander Forbes and Illovo
Sugar. He is also a member of the JD
Group Risk Management, Remuneration
and Nominations committees and the
Chairman of the JD Group Social and
Ethics committee.
Danie was admitted as an attorney of the
High Court of South Africa in 1986 and
practised as an attorney specialising in
the commercial and labour law fields.
In 1990, Danie joined the Roadway
Transport Group and was instrumental
in developing the strategic direction
and growth of this group. In early
1998, following the merger of Roadway
Transport Group with Steinhoff Africa,
Danie joined Steinhoff. Danie previously
acted as Chief Executive Officer for
Steinhoff’s Southern Hemisphere
Operations and was appointed to his
current position on 5 March 2013.
He holds several other appointments
within Steinhoff and serves on the board
of KAP Industrial Holdings Limited.
JD GROUP INTEGRATED REPORT 2013 <<
17
INVESTMENT OVERVIEW / Board of directors CONTINUED
Independent non-executive directors
Vusi Khanyile (63)
Nerina Bodasing (38)
Maureen Lock (64)
Matsobane Matlwa (57)
BCom (Hons)
BSc (Hons), PDM
BCom CA(SA)
CA(SA), MBA, MCom (Tax)
Appointed: 13 November 2008
Appointed: 1 September 2011
Appointed: 2 April 2001
Appointed: 1 September 2011
Vusi Khanyile is Chairman and Founding
Managing Director of Thebe Investment
Corporation Proprietary Ltd. He currently
serves as a director on the boards of
numerous companies listed and private
as well as trusts, mainly within the Thebe
Investment portfolio, such as Shell,
Combined Motor Holdings, Vodacom
South Africa and the Altech Netstar
Group, among others. In March 2009,
Vusi was appointed Lead Independent
Non-executive Director of the JD Group
and in February 2013 he was appointed
Independent Non-executive Chairman of
the Group.
Nerina is the founder and managing
director of a fully empowered
independent management consultancy
that provides strategic and financial
communication advice to South African
corporates on the capital markets.
She obtained a BSc degree from the
University of Natal and a BSc (Hons)
from the University of Durban-Westville.
She also holds a postgraduate diploma
in business management from the
University of Natal. Nerina gained
considerable experience in the fields
of shareholder communication, capital
markets and corporate practice in her
role as head of investor relations at
Absa Group Limited and Sasol Limited in
recent years. Prior to these appointments,
she served on the executive committee of
Gold Fields in the capacity of Senior VicePresident: Investor Relations & Corporate
Affairs. Early in her career, Nerina worked
in equity sales and assisted strategy
research for global investment bank UBS.
She is a member of the JD Group Social
and Ethics committee.
Maureen is a corporate financier with
extensive experience in business reengineering, primarily in the retail and
engineering sectors. Prior to her various
roles in commerce and consulting, she
was the audit engagement partner of
JD Group from 1988 to 1996. Following
this, she was finance director of Central
Instruments Group Limited from 1997 to
1998 and has served as a board member
on companies and subsidiary companies
within the appointments in commerce.
She was the first woman appointed as a
partner of Ernst & Young in 1981.
Matsobane is a chartered accountant
who served his articles with Pim
Goldby. He has a Masters in Business
Administration and MCom (Tax) and
is the Chief Executive Officer of the
South African Institute of Chartered
Accountants, where he serves on a
number of SAICA Board subcommittees,
including the Exco, the Audit and
Risk, Strategy and the IT Governance
committees. Prior to joining SAICA,
Matsobane held senior positions at the
South African Revenue Services and at
Absa Bank Limited. Earlier in his career
he worked for the Financial Services
Board, Anglo American Corporation of
SA, Transnet Limited and other private
companies. He was also an audit partner
at Ernst & Young. Among others, he
is involved in the Thuthuka Bursary
Fund and serves on the board of the
Australian-based Global Accounting
Alliance. He is currently a member of
the Council of International Federation
of Accountants, the Institute of Directors
and the SAICA Advisory Council. He is
also the past chairman of the Forum of
Accounting Bodies and a former member
of the India, Brazil and South Africa
Taxation Working Group. During his
career he has amassed a broad range
of experience from the disciplines of
finance, auditing, taxation and general
management.
Matsobane is also a member of the
JD Group Audit committee.
18 >> JD GROUP INTEGRATED REPORT 2013
Jacques Schindehütte (54)
Martin Shaw (75)
Günter Steffens OBE (76)
BCom (Hons), CA(SA), H Dip Tax
CA(SA)
Appointed: 13 November 2008
Appointed: 10 November 2010
Appointed: 1 June 2001
Jacques is currently the Chief Financial
Officer of Telkom Limited. He served his
articles with the then Arthur Young &
Company (now Ernst & Young).
He served as CFO of Absa Group Limited
from October 1999 to 2010 and was
the Financial Director of the group
from 2005 to February 2010. Prior to
joining Absa, Jacques was employed by
Transnet Limited in a number of senior
roles over more than a decade. During
his career, he has amassed a broad
range of experience from disciplines
such as general management, financial
services, finance, auditing, marketing,
transport, property development and
telecommunications, to name but a few.
Jacques is a member of the JD Group
Audit committee.
Prior to retirement, Martin served as
managing partner, chief executive and
chairman of Deloitte & Touche and
acted as chairman of Deloitte Consulting
global from 1998 to 2003. Martin was
a non-executive director of Reunert,
Illovo Sugar, Standard Bank, PPC, Murray
& Roberts and Liberty. He is also the
past president of the Natal Society of
Chartered Accountants and also of
SAICA. He is Chairman of the JD Group
Audit committee, as well as a member of
the Remuneration, Risk Management and
Nominations committees.
Günter was the general manager at
Dresdner Bank AG in London and in South
Africa. Before joining Dresdner Bank,
Günter worked for international banks
in Montreal, Zürich and Paris. He is the
past chairman of the German – British
Chamber of Industry and Commerce
and of the Foreign Banks and Securities
Houses Association in London. Günter
is a non-executive director of Astrapak
Limited, Imara Holdings Limited and
Conduit Capital Limited and other entities
in Europe. He is chairman of both the JD
Group Risk Management committee and
the JD Group Remuneration committee
and a member of the JD Group Audit and
Nominations committees.
JD GROUP INTEGRATED REPORT 2013 <<
19
INVESTMENT OVERVIEW
Ten-year review
30 June
2013
Restated
Ten months
30 June
2012•
31 August
2011
’000
’000
cents
cents
times
cents
229 338
219 157
395,2
232,0
1,2
4 012,5
219 830
215 742
384,5
232,0
1,6
4 075,4
219 830
172 142
407,7
200,0
2,0
3 687,8
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
Rm
%
Rm
%
times
%
:1
%
32 210
1 354
1 362
606
9 056
8 925
6 841
15 648
23 134
4,2
2 205
6,8
4,5
75,5
2,2
39,1
25 284
1 445
1 451
822
8 794
8 451
3 100
12 659
19 532
5,7
1 752
9,7
8,3
35,3
2,2
45,0
15 741
1 057
1 064
699
8 107
6 631
1 315
8 932
16 786
6,7
1 291
10,5
13,6
14,5
2,0
48,6
1 308
27 754
1 301
26 751
1 227
25 718
cents
’000
Rm
%
3 100
150 942
6 065
68,7
4 300
133 553
6 128
60,8
4 075
227 024
10 811
103,3
cents
cents
4 893
2 900
5 300
3 456
6 069
3 743
Share performance
Total shares in issue
Weighted average number of shares in issue
Headline earnings per share
Cash equivalent dividends per share
Dividend cover
Net asset value per share
Profitability, liquidity and gearing
Revenue
Operating profit
Profit before finance costs
Profit attributable to shareholders from continuing operations
Closing shareholders’ equity
Average shareholders’ equity
Net interest-bearing debt
Average total assets less non-interest-bearing debt
Total assets
Operating margin
EBITDA
Return on average shareholders’ equity
Interest cover
Gearing ratio
Current ratio
Shareholders’ equity to total assets
Scale
Number of stores
Number of employees
Stock exchange performance
Closing share price
Number of shares traded
Value of shares traded
Volume traded as % of issued shares
Market value per share
– high
– low
All ratios have been calculated using amounts in R000 as opposed to Rm.
• The 2012 comparatives have been restated to reflect the changes made to the deferred tax on certain intangible assets in terms of IAS 12 and the change in presentation of the statement of
comprehensive income and statement of financial position in terms of IAS 1.
20 >> JD GROUP INTEGRATED REPORT 2013
31 August
2010
31 August
2009
31 August
2008
31 August
2007
31 August
2006
31 August
2005
31 August
2004
170 500
164 314
303,6
150,0
2,0
3 022,8
170 500
163 245
44,4
41,0
1,1
2 833,5
170 500
169 807
301,0
152,0
2,0
2 822,9
180 000
177 861
621,7
303,0
2,1
2 804,5
178 000
176 271
823,5
412,0
2,0
3 160,5
175 500
172 221
697,6
352,0
2,0
2 717,0
172 000
166 930
518,5
240,0
2,0
2 297,0
12 590
760
764
501
5 154
4 993
667
6 537
9 281
6,0
969
10,0
9,0
12,9
2,5
55,5
12 922
646
643
75
4 831
4 822
639
6 447
8 922
5,0
852
1,6
9,7
13,2
2,6
54,1
12 610
797
813
514
4 813
4 931
158
6 426
8 673
6,3
997
10,4
11,9
3,3
2,3
55,5
12 914
1 591
1 662
1 113
5 048
5 337
76
7 030
8 891
12,3
1 821
20,9
12,1
1,5
2,9
56,8
11 939
2 024
2 083
1 457
5 626
5 197
(304)
7 028
10 115
17,0
2 222
28,0
23,4
(5,4)
3,4
55,6
9 933
1 755
1 809
1 202
4 768
4 360
(457)
6 035
8 440
17,7
1 916
27,6
13,5
(9,6)
3,6
56,5
9 056
1 256
1 280
784
3 951
3 671
(19)
5 308
7 739
13,9
1 390
21,4
9,6
(0,5)
3,1
51,1
1 041
19 186
1 094
21 247
1 095
18 989
1 078
19 577
1 028
18 361
963
16 459
952
16 167
4 361
296 265
13 027
173,8
4 249
265 525
9 587
155,7
3 010
281 087
11 781
160,6
6 970
293 949
22 976
165,1
6 660
271 264
20 383
152,4
7 400
167 697
10 634
95,6
4 550
137 612
5 552
80,0
5 299
3 835
5 020
2 216
7 100
2 101
10 600
5 920
9 625
5 939
7 800
4 659
4 690
2 950
JD GROUP INTEGRATED REPORT 2013 <<
21
GROUP REVIEW
Chairman’s report
The long track record of serving our customers across South Africa
has given us the experience that aids us in navigating our way
through the various economic and political cycles.
Performance
The past financial period has been an eventful one for the JD Group
that represents a fitting return to its roots in certain respects as
much as it reflects a new-look business that is geared for growth.
The Group’s financial performance in the period reflects the
tough, but manageable, consumer environment but equally a
transformed business. This transition over the past three years
presented its challenges, but ones from which we have learnt and
that have enabled us to be even better prepared going forward.
We owe a special appreciation to all stakeholders who have been
patient with us and gave us the time and space to go through this
transformative process.
We will always face financial regulatory changes, which we
welcome, as they invariably strengthen the financial systems and
bounds within which we operate as a responsible organisation.
There are also material changes forthcoming in the longand short-term insurance industry, impacting our Consumer
Finance operations.
These expected changes relate mainly to solvency and capital
requirements, as well as provisions on ethical treatment of
customers. While none of these changes are considered to be
a threat to the business, we acknowledge that we will need to
adapt and adopt the necessary measures to ensure continued
compliance with the relevant legislation.
The long track record of serving our customers across South Africa
has given us the experience that aids us in navigating our way
through the various economic and political cycles. This track record
underscores the information used in our credit-scoring model that
helps our business to manage its credit exposure in light of the
pressures and strains that consumers are going through. Prudence
in tough times and restraint in good times are the necessary
ingredients for our sustainability.
I am happy to report that these elements of the business, including
our credit rating, solvency and returns remain as robust as can be
expected. Our efficient but conservative lending policy has ensured
that the JD Group continues to present a solid financial picture.
I would be remiss not to acknowledge the unanticipated changes at
leadership level that have contributed to my first report as Chairman
of the Board of JD Group. Ordinarily, reconstituting the CEO and
Chairman positions on the same day would be very disruptive for
any business. However, the mitigating factor in our case is that the
newly appointed CEO has been with the Group since inception.
David Sussman’s intimate knowledge of the business has made
the change as seamless as it was efficient.
Taking over as Chairman, I am very grateful for the guidance and
support that I have received from David, who has been happy to
Vusi Khanyile CHAIRMAN
22 >> JD GROUP INTEGRATED REPORT 2013
pass on his experience as executive Chairman for many years.
His support, coupled with the period I have served on the Board
as lead independent director, made my resumption of new
responsibilities less daunting than otherwise would have been
the case.
Corporate social investment
The JD Group is a committed corporate citizen that actively invests
in the communities within which it operates. During the year the
Group directed R10 million to projects and initiatives. Our bias is
towards disadvantaged children and the youth and five noteworthy
projects include:
We see it as a
business imperative to
manage environmental,
social and governance issues
to ensure we operate efficiently,
thereby achieving material
cost savings and aiding
the sustainability of the
business
TIPA, financial and other assistance is provided to communities which enables
them to start farming projects and successfully run farms
Ekhaya lo Musa which houses and cares for babies, children and young adults
affected by HIV/Aids
Mitzvah School, tutoring disadvantaged students in their final year of schooling
has consistently produced pass rates over 90%
St Enda’s Secondary School, a secondary school in Joubert Park which the
Group founded in one of its warehouses in 1985
Africa Community Trust provides food supplies to a soup kitchen in Katlehong
and two nursery schools in La Rochelle. They collectively assist around
375 (2012: 400) underprivileged children, youth, especially those orphaned
by HIV/Aids, child-headed families and displaced people.
Transformation in South Africa
Transformation of South African business is as important as the
transformation of South African society itself. Business would be
well advised not to approach transformation in a score-board type
of fashion in which the ticking of boxes overrides the necessity
to go beyond and understand the reason for, and the spirit of the
transformation agenda. I am delighted with the Group achieving
level 4 broad-based black economic empowerment contributor
level status which is the result of extremely hard work and
dedication. We are continuing to monitor the proposed changes
to the requirements and will respond to these appropriately.
Corporate social responsibility
We see it as a business imperative to manage environmental, social
and governance issues to ensure we operate efficiently, thereby
achieving material cost savings and aiding the sustainability of the
business. It is equally important to present the JD Group as an
attractive investment for the investment community that has placed
increasing focus on companies’ commitment to managing these
material issues.
The JD Group has been reporting in terms of Global Reporting
Initiative (GRI) for some time already and appreciates the focus of
G4 on the concept of materiality, moving away from a ‘tick-box’
approach to GRI compliance while introducing a more meaningful
entrenchment of sustainability reporting.
We believe our customers expect us to be good corporate citizens
for them to be able to identify with the brand as one that cares
for its community and the environment. With a footprint of more
than 1 300 points of presence across southern Africa, our material
environmental impacts are carbon emissions resulting from the use
of electricity and fuel in our retail and fleet operations. During the
year we completed our first Carbon Disclosure Project submission
demonstrating our commitment on this front.
Acknowledgements
It is important that we have due recognition of the contribution
made to the business by the directors. We are grateful to them
and all our employees for the hard work and dedication shown
over the years.
Outlook
Having concluded and bedded down the transactions that saw the
JD Group becoming a subsidiary of the Steinhoff Group, as well
as the acquisition of some Steinhoff businesses, it is now time for
these initiatives to deliver the expected results. All indications at this
stage are that JD Group is poised to realise the expected benefits
from these recent changes and additions.
Vusi Khanyile
Chairman
JD GROUP INTEGRATED REPORT 2013 <<
23
GROUP REVIEW
Chief Executive Officer’s report
The JD Group is today more balanced and better poised for
growth thanks to the clear delineation of the business into
distinct focus areas.
The past financial year to 30 June 2013 was a bitter-sweet one for
the JD Group. It gives me great satisfaction to look back on the
Group and all that we have been through: the relationships we have
built, the partnerships we have forged and the incredible people
who have made this business what it is today.
The JD Group is blessed with a workforce that is dedicated to
delivering exceptional customer service, and my executive team
and I owe them a debt of gratitude.
The operational bottlenecks that contributed to the current
year’s lacklustre performance have been rectified and we expect
operations to live up their full potential on the back of cost and
operational efficiencies. Despite these setbacks, JD Group remains
well positioned to grow profitably.
The diversification strategy of JD during the past number of years
has seen JD diversify into new areas of retail that provide additional
legs to the business, and with that, new growth and expansion
opportunities.
The JD Group is today more balanced and better poised for
growth thanks to the clear delineation of the business into distinct
focus areas.
Retail
The implementation of the new enterprise resource planning (ERP)
system was concluded during October 2013, completing the rollout
of new capabilities that are expected to contribute to our furniture
operations going forward.
Incredible Connection and HiFi Corp saw operational and structural
changes to drive both efficiencies and market positioning. Cost
efficiencies have been achieved by collapsing the two brands’ back
offices into a single function, while using the combined purchasing
power to gain further cost benefits. This transformation of the
businesses is ongoing, and work remains to be done to strengthen
the positioning of these brands to deliver better returns in a market
under considerable margin pressure.
A key focus going forward is to continue improving utilisation of
retail space without compromising on range or choice, which we
have been able to achieve in selected stores delivering the resultant
bottom line benefits. We continue to raise the value proposition in
these stores by providing a full technology service that is designed
to satisfy the needs of customers.
The building materials and DIY business is still small in the context
of the entire Group and therefore holds valuable growth potential,
which has been illustrated in its first full-year contribution to the
Group. In the forthcoming period we plan to capitalise further
from the recently acquired Hardware Warehouse brand, applying
the retail skills and experience we have built up in our other retail
David Sussman CHIEF EXECUTIVE OFFICER
24 >> JD GROUP INTEGRATED REPORT 2013
businesses. We believe we can bring our financial services expertise
to bear in this sector of the market as it has a similar customer
type as in the furniture market. The same benefits and efficiencies
are being applied to the other brands like Pennypinchers and
Timbercity.
Total dividend per
share maintained at
232 cents which was
supported by our
high level of cash
generation
In line with the Group’s strategic focus to reduce the cost base
and complexity in the business, the furniture retail brands were
restructured into four clusters dedicated to the specific consumer/
market segments they serve, subsequent to year end.
Consumer finance
Our Consumer Finance business has continued to show strong
growth despite the pressure on disposable income, and has
managed to do so while keeping within conservative risk limits.
Having said that, we continue to exercise the same caution in
managing our risk profile and believe our risk model, back-end
systems and loyal customer base are sufficiently robust to override
concerns about the consumer credit environment.
Automotive Retail
The Unitrans Automotive retail business has delivered another
strong performance in the past period.
The acquisition of 19 automotive dealership properties during the
year has bolstered the Group’s balance sheet. This transaction
had little effect on the operations as these properties were already
occupied by Unitrans Automotive.
Management’s continued evaluation of acquisition opportunities
resulted in the acquisition of the Reeds Motor Group in the Western
Cape, adding to the scale of the business.
Progress on strategy
We are well on track to realise the benefits of our diversification
strategy that relies on us to transfer our extensive furniture retail
experience to other areas of the business.
Footprint optimisation
Our footprint was expanded during the year with the acquisition of
Hardware Warehouse and the Reeds Motor Group. The Hardware
Warehouse brand focuses on the rural building and housing market
with concentration in the Eastern Cape province and we are excited
about the growth prospects within this business. The acquisition
of the Reeds Motor Group strengthens our representation in the
Western Cape province and the integration of the business is
progressing well.
We have also been able to reduce some of our store sizes without
compromising on turnover. This was the result of efforts ensuring
that the right product range is available in stores to sufficiently meet
customer demand.
Our total footprint of 1 308 stores, dealerships and car rental outlets
has increased slightly compared to the previous year. This includes
a number of furniture store closures resulting from sustained poor
performance. In response to this we are continually reassessing our
footprint to ensure that each store is optimally located to deliver the
best returns.
Meeting customer demand through product and
service differentiation
We recognise how valuable our customers are to our business
and have made them our number one priority. Without the trusted,
long-term relationships that we have with our customers JD Group
would not be the business it is today. To this end we have adopted
the Art of Service culture to further entrench the importance of this
central tenet of our business. This culture has introduced a new
energy and respect for each other throughout the organisation as
we focus on exceeding customer expectations.
Throughout the Group we have also focused on fulfilling customers’
needs in a way that results in a tangible improvement in their
lifestyles compared to merely maximising revenue.
At Incredible Connection the launch of Techxperts is adding
tremendous value to our customers’ experience in purchasing the
right product to serve their needs, coupled with assistance on its
installation and operation.
The building materials and DIY stores are also positioning
themselves as project partners, advising customers on projects
in terms of product specifications, budgeting and financing of the
project. This enables customers to complete DIY projects faster
and in a cost-effective manner.
A unique partnership has been forged with the Department of
Human Settlements, representing an exciting development and
a demonstration of the value that a group such as ours can add
to the upliftment of people’s lives. Through this agreement, the
contracts division will project manage certain mass housing projects
JD GROUP INTEGRATED REPORT 2013 <<
25
GROUP REVIEW / Chief Executive Officer’s report CONTINUED
A key focus
going forward is to
continue improving
utilisation of retail space
without compromising
on range or choice
while also supplying construction materials directly to contractors
for which the department reimburses them directly.
Risk management
JD Group not only supplies customers with lifestyle products but
also provides customers with the means to better their lifestyles
through our Consumer Finance business, providing responsible
credit to customers.
We continue to apply a conservative lending philosophy that has
served us well. Our loan scoring, management and collections
capabilities are today on a par with the best in the industry,
giving us the confidence that we are sufficiently covered against
unforeseen circumstances. We acknowledge that consumer
spending is under pressure and disposable income remains a
scarce commodity.
Delivering required returns
Notwithstanding the less than satisfactory performance over
the past period, the total dividend per share was maintained at
232 cents which was supported by our high level of cash
generation.
This performance is expected to continue in the year ahead,
particularly as large, capital-intensive projects such as the
enterprise resource planning system and centralised distribution are
completed. We are conscious of the fact that a project of this scale
will take a significant amount of time to be bedded down and to
perform at optimal levels, providing us with the anticipated benefits
in terms of margin growth in the long term.
Optimising retail efficiency
The supply chain optimisation project, consisting of a new,
streamlined network of 26 centralised distribution centres,
is expected to deliver significant improvements in inventory
management that will directly impact our supply chain costs
and efficiencies.
Further, the consolidation of the back office functions of Incredible
Connection and HiFi Corporation will reduce overhead costs and
improve our buying power.
Product and market development
Optimising property portfolio
Our Consumer Finance business has successfully introduced
diversified products and services throughout the Group, capitalising
on our in-depth knowledge of our customers’ behaviour. In
particular, the conclusion of a partnership with a number of African
faith-based organisations for group funeral cover expands our
customer base and represents various opportunities to the Group.
We continue to evaluate our property strategy and holdings in order
to deliver the best returns at acceptable risk levels. Our strategy is
predicated on creating value and reducing operating expenses in
both owned and rented properties.
26 >> JD GROUP INTEGRATED REPORT 2013
Our property portfolio has grown significantly following the
acquisition of 19 automotive dealerships, as mentioned previously.
Skills and talent management
As already stated, our people are the real engine of this business
and we therefore continue to invest in their skills and the strong
pool of talent that help us to continue building this business. More
than 260 000 hours of training was provided to employees during
the year.
Biophysical environment
Our initiatives to reduce the impact of our operations on the
environment are progressing well with benefits in the form of cost
savings becoming evident. In particular, the centralised distribution
centres resulted in a significant rationalisation of our delivery vehicle
fleet, resulting in a reduction in the use of fuel, and by implication,
carbon emissions.
Looking forward
We’re well poised to look back on the past and start benefiting from
all the various strategic initiatives and investments of the past few
years. I know we have the right people, processes, infrastructure
and products in place.
There is no lack of support for our brands, and the only way
we can grow is by growing our market share which can only come
from offering the customer a real value proposition that goes
beyond prices.
Finally, I would like to express my gratitude to all members of the
Executive committee and Board for their tremendous support
during the year.
David Sussman
Chief Executive Officer
JD GROUP INTEGRATED REPORT 2013 <<
27
GROUP REVIEW
Chief Financial Officer’s report
Highlights and key features
EBITDA of R2,2
R1,8 billion – 10 months: 30 June 2012
billion
R2,0 billion – 12 months: 30 June 2012
Operating cash flow of R1,6
billion
R777 million – 10 months: 30 June 2012
Headline earnings per share of 395
385 cents – 10 months: 30 June 2012
cents
441 cents – 12 months: 30 June 2012
Provision on loan book increased to R966
million
R557 million – 12 months: 30 June 2012
Introduction
Following the Group’s change in year end in 2012, the results
as included in the audited financial statements for the year
ended 30 June 2013, are presented for the 12 months ended
30 June 2013 (FY13) with comparative results for the 10 months
ended 30 June 2012 (FY12). To enable improved comparability,
the commentary included in this report compares the FY13 results
and performance to the 12-month comparable period ended
30 June 2012.
R millions
Revenue
Operating profit before capital items
Capital items
EBITDA
12 months
ended
30 June 2013
12 months
ended
30 June 2012
10 months
ended
30 June 2012
32 210
29 885
25 284
1 387
1 499
1 306
(356)
(12)
(10)
2 205
2 011
1 752
632
959
836
395,2
440,8
384,5
Attributable earnings
Headline earnings per share (cents)
Ongoing pressure on the disposable income of customers and
increased debt-to-income levels are continuing to put the consumer
under strain. In response to this, the Group applied a more
conservative lending strategy and this ultimately placed pressure
on the Group’s retail sales.
Restatement of comparatives
In the prior year, the Income Tax Act was amended to state that
capital gains tax would in future be calculated at an inclusion rate
of 66%. Despite the legislation change only being promulgated
subsequent to the year end, IAS 12, Income Tax, requires deferred
tax to be measured at tax rates expected to apply when the asset is
realised or the liability settled, based on the tax rates substantively
enacted by the end of the reporting period. Deferred tax on certain
intangible assets was incorrectly raised at the previous inclusion
rate of 50%. The deferred taxation was restated at the correct
inclusion rate which resulted in a prior year restatement of taxation
and deferred taxation of R55 million. The restatement had the
following effect on comparative amounts:
Jan van der Merwe CHIEF FINANCIAL OFFICER
28 >> JD GROUP INTEGRATED REPORT 2013
R millions
Amounts as
restated
Amounts as
previously
reported
Taxation
405
350
Deferred taxation liabilities
716
661
4 529
4 584
Retained income
Operating performance
The segmental revenue and operating profit breakdown detailed
in the charts below, illustrate the contribution by the different
business units.
Customers of the Furniture Retail segment were under greater
financial pressures during the year as their disposable income levels
reduced and their debt-to-income levels increased. In line with
the Group’s conservative lending strategy, the average credit sale
acceptance rate decreased by 2,3% in FY13 as a result of stricter
credit-granting criteria adopted and fewer customers qualifying
for credit due to increased indebtedness. This affected retail
sales growth.
The consumer electronics market also experienced difficult trading
conditions as a number of their product lines have become highly
commoditised in the market. This trend placed pressure on the
average selling price.
The building materials and DIY operations continued its good
performance, which was bolstered by the acquisition of Hardware
Warehouse during the second half of the financial year.
REVENUE (%)
Retail operations 38%
Consumer Finance 15%
Automotive 47%
Consumer Finance
The Consumer Finance revenue increased from R3,8 billion to
R4,8 billion. The revenue of the Consumer Finance segment
comprises insurance product income, finance charges earned,
as well as initiation and service fees earned on loans granted.
Despite the reduced credit approval rates, the total loan book
increased from R7,2 billion to R9,7 billion which supported the
strong growth in revenue.
Automotive
The Automotive segment’s revenue grew at a healthy rate of
8,1% to R15,5 billion. A portion of the growth is as a result of
the acquisition of the Reeds Motor Group in December 2012
(four dealerships). In a market where sales are negatively impacted
by longer vehicle replacement cycles, sales were also boosted by
a good performance in parts and servicing.
OPERATING PROFIT (%)
Operating profit
The Group’s operating profit reduced to R1 billion (2012:
R1,5 billion). EBITDA, however, increased by 9,6% to R2,2 billion.
Retail operations 22%
Consumer Finance 50%
Automotive 28%
Revenue
The Group’s revenue increased by 7,8% to R32,2 billion (2012:
R29,9 billion).
Retail operations
Revenue in this segment, comprising the furniture, consumer
electronics, appliances and building materials and DIY operations,
increased by 2,4% to R12,6 billion (2012: R12,3 billion). Merchandise
sales increased by 2% to R11,6 billion. The remainder of the
revenue comprises delivery fees and commissions received from
the Consumer Finance segment.
Operating expenses for the year increased by R1,2 billion, on
a comparable basis, to R9,0 billion. Apart from the normal
inflationary increases in employee and occupancy costs, the
increase includes duplicated implementation costs (R74 million),
additional depreciation (R140 million) and an impairment charge
of the enterprise resource planning (ERP) system (R345 million).
At year end, the carrying value of the ERP system was compared
to its replacement value which resulted in an impairment charge.
Retail operations
Gross margins in the Retail business were maintained at 30%.
However, operating profit reduced from R542 million to R383 million
at an operating margin of 3,0% (2012: 4,4%). The main contributing
factors to the decrease are duplicated implementation costs as
well as increased occupancy and refurbishment costs. Duplicated
costs were incurred due to the continued implementation of
infrastructure investments in the furniture chains, including the
centralised distribution centres (CDCs). These duplicated costs
amount to approximately R74 million and include distribution,
transition, occupation and employment costs. The implementation
of the ERP system was completed during October 2013. The time
JD GROUP INTEGRATED REPORT 2013 <<
29
GROUP REVIEW / Chief Financial Officer’s report CONTINUED
required for bedding down the system and processes will result in
some continued duplication of operating costs in FY14, whereafter
the anticipated savings from these investments will be realised.
Increased occupancy costs were as a result of HiFi Corp selectively
moving stores into high-foot traffic shopping centres.
to a total of R3,1 billion, between October 2012 and May 2013
at floating interest rates varying between 65 and 183 basis points
above the three-month Jibar rate. We have now achieved our
objective of having diversified sources of funding, with reduced
reliance on only bank funding as illustrated in the chart below.
Consumer Finance
The Consumer Finance business reported increased profits despite
the deteriorating financial position of the target market consumer
and the stricter lending criteria which resulted in reduced credit
approval rates. Operating profit of the Consumer Finance segment
increased by 10% to R862 million.
The funding structure of the Group is driven by the needs of three
distinct streams:
• The retail segment that requires working capital facilities to
fund through-the-cycle mismatches between stock
and creditors
• Our property group (included in the Corporate segment) housing
all the strategic property assets, including the CDCs, Automotive
dealerships and office buildings
• The Consumer Finance segment that houses all the loans
granted.
Automotive
Although there was pressure on consumer spending the
Automotive segment successfully maintained its operating
margin of 3,0% at similar levels to the prior year (2012: 3,3%).
Statement of financial position
The management of the Group’s financial position remains a
top priority due to the increased funding that was required during
the year. The summarised statement of financial position is
detailed below:
R millions
Total assets
Shareholders’ equity
Total liabilities
Net asset value per share (cents)
2013
2012
23 134
19 532
9 141
8 881
13 993
10 651
4 013
4 075
The Retail segment is funded through general banking and other
short-term funding facilities. The long-term debt of the Group is
utilised to fund the longer-term assets of the property investments
and the Consumer Finance business.
Funding metrics
R millions
2013
2012
Shareholders equity
9 141
8 881
Net debt
6 767
3 100
Gearing – Net debt to total shareholders’
equity – Group
• Consumer Finance
• Remaining segments
74%
35%
132%
84%
28%
10%
4,5
8,0
Interest cover
Capital structure
3,1
1,5
7,4%
8,2%
Interest-bearing debt to EBITDA
JD Group’s debut Domestic Medium Term Note (DMTN) issue was
well received by the market and the Group raised notes, amounting
2013 (%)
2012 (%)
Banks 29%
Banks 52%
DMTN 43%
Convertible bond 22%
Convertible bond 13%
Other capital markets 26%
Other capital markets 15%
30 >> JD GROUP INTEGRATED REPORT 2013
Average cost of funding
Repayment profile
The Group’s repayment profile (capital, excluding interest) is detailed below and indicates that the Group has a low risk of re-financing:
REPAYMENT PROFILE (R)
1 200
1 107*
1 022#
1 000
600
FY14
FY15
158
FY17
Q4
Q3
Q1
Q2
30
Q4
Q3
Q1
Q4
Q3
Q1
Q2
FY16
Q2
81 57
72
Jun
Apr
Feb
171
50
24 15
Mar
Dec
Oct
Nov
Jul
Aug
Jun
Apr
May
Feb
74
Jan
74
32
Jan
Dec
Oct
Nov
Jul
0
200
108
72
32 22 50
Sep
88
Aug
200
300
274
250
Sep
217
382
365
355
273
May
400
400
Mar
Debt to income
858
800
FY18
* Includes R1 billion DMTN.
#
Includes R1 billion Convertible Bond.
Cash flow
The Group continues to generate strong cash flows, highlighted by
the increase in cash generated by operations from R777 million to
R1,6 billion.
R millions
2013
2012
Cash generated by trading
1 874
1 651
(296)
(874)
Increase in working capital
Cash generated by operations
1 578
777
Net increase in instalment sale and loan receivables
(2 478)
(1 332)
(167)
(57)
Taxation and dividends paid
(1 171)
(195)
Net additions to property, plant and equipment
(1 180)
(1 108)
Net interest paid
Acquisition of business
Financing activities
Other
Net (decrease)/increase in cash and cash
equivalents
(304)
(105)
3 000
2 046
(10)
149
(732)
175
Credit risk
The Consumer Finance credit risk is managed by a Credit Risk
committee that meets on a monthly basis. The Group manages
and grants credit based on a combination of empirically developed
applications, behaviour and credit bureau scoring models. These
models (and accompanying business rules) are reviewed, approved
by the Credit Risk committee and updated on an ongoing basis.
Credit is therefore granted based on the Group’s appetite for risk
and within the ambit of relevant regulations. Our third generation
behaviour scorecards, in addition to the information sourced from
the credit bureau, enable the Group to measure the credit risk of
customers during the application phase with a higher degree of
sophistication, further reducing our credit risk.
The Group allocates all customers into 13 (2012: 12) possible credit
risk grades (RG) based on the Bureau and the internal behaviour
scores. The Group considers RG0 to RG3 as high-risk customers,
RG4 to RG6 as medium-risk customers and RG7 to RG13 as
low-risk customers.
The loan book, before credit impairments, has grown by
R2,5 billion, consisting of R1,0 billion in secured loans and
R1,5 billion in unsecured loans. The growth rate in unsecured
loans decreased during the year, as a result of the pressure on
consumers and the stricter qualification criteria applied by the
Group. Unsecured loans grew by R1,0 billion in the first half of the
year and by only R0,5 billion during the second half.
In line with the Group’s loan provision methodology, this growth,
and deterioration of credit quality, in particular the growth in
unsecured loans which require higher provisioning, resulted in
debtors’ cost increasing to R914 million. Monthly secured loan
collection rates were also impacted by the deteriorating financial
position of consumers, decreasing to 7% (FY12: 8%). At year
end the impairment provision of R966 million (FY12: R557 million)
represented approximately 9,9% (FY12: 7,7%) of the book and is
in line with the Group’s loan provision methodology.
The graphs which follow illustrate the percentage of new business
granted to customers per risk grade, and indicate the conservative
JD GROUP INTEGRATED REPORT 2013 <<
31
GROUP REVIEW / Chief Financial Officer’s report CONTINUED
lending strategy that the Group adopted during the year. The
percentage of new furniture loan customers in the low-risk
grade increased. In the personal loan space, we do not grant
any unsecured credit to high-risk customers and also exclude
customers in the four highest risk grades from personal loan
disbursement. In the last quarter of the year, the disbursement
of new unsecured loans to low-risk customers increased to
approximately 70%.
High risk
Medium risk
High risk
Low risk
Medium risk
Q4-2013
Q3-2013
Q2-2013
Q1-2013
0
Q4-2012
10
0
Q3-2012
20
10
Q2-2012
30
20
Q4-2013
40
30
Q3-2013
50
40
Q2-2013
60
50
Q1-2013
70
60
Q4-2012
80
70
Q3-2012
90
80
Q2-2012
90
Q1-2012
100
Q1-2012
PERSONAL LOANS (%)
FURNITURE LOANS (%)
100
Low risk
Disbursements of unsecured personal loans is also focused on existing customers with a known risk profile and repayment profile.
New customers
Existing customers
32 >> JD GROUP INTEGRATED REPORT 2013
Furniture credit
Personal loans
Q4-2013
Q3-2013
Q2-2013
Q1-2013
0
Q4-2012
10
0
Q3-2012
20
10
Q4-2013
30
20
Q3-2013
40
30
Q2-2013
50
40
Q1-2013
60
50
Q4-2012
70
60
Q3-2012
80
70
Q2-2012
90
80
Q1-2012
90
Q2-2012
ACCEPT RATES (%)
100
Q1-2012
PERSONAL LOANS – NEW VS EXISTING CUSTOMERS (%)
100
The average credit term of the furniture loans at just over 25 months is in line with 2012. Personal loans credit term is limited to a maximum
of 24 months.
FURNITURE LOANS
PERSONAL LOANS
7 500
7 000
28
12 000
28
27
11 000
27
10 000
26
6 500
26
9 000
25
Average deal size
Average loan amount
Debtors’ costs included in the statement of comprehensive income
is categorised between the change in the credit impairment
provision and actual bad debts written off.
2013
2012
Increase in provisions
409
12
Bad debts written off
505
499
Total debtors’ costs
914
511
Impairment provision
966
557
Although we have adopted a more conservative lending strategy
during the year, the debtors’ costs as well as the impairment
provision increased significantly during the year. The increase in
the impairment provision is a combined result of the growth in the
loan book as well as the deterioration of the credit quality of our
customers.
Impairment provision
R millions
Balance at 30 June 2012
Increase due to growth in the book
Furniture
loans
Personal loans
473
84
557
62
129
191
Q4-2013
Q3-2013
Q1-2012
Average sales term
R millions
22
Q2-2013
5 000
Q1-2013
22
23
Q4-2012
6 000
Q3-2012
23
Q4-2013
Q3-2013
Q2-2013
Q1-2013
Q4-2012
Q3-2012
Q2-2012
Q1-2012
5 000
24
7 000
Q2-2012
5 500
Rands
24
8 000
Average sales term
Conclusion
The over-extended consumer and challenging trading environment
will most likely continue into the foreseeable future. The Group
will nevertheless focus on growing market share while protecting
margins, conservative credit-granting, responsible lending and
intensive cost containment.
We will also continue our focus on the strength of the Group’s
statement of financial position, including the sources and pricing of
funding, the recoverability of the loans receivable and the effective
utilisation of our property investments.
The implementation of the ERP system, centralisation of distribution
and optimisation of the Group’s store footprint is nearing
completion, enabling the Group to realise the benefits of these
significant investments in the coming years.
Total
Increased due to credit quality
157
61
218
Balance at 30 June 2013
692
274
966
Jan van der Merwe
Chief Financial Officer
JD GROUP INTEGRATED REPORT 2013 <<
33
Months
6 000
Months
Rands
25
OPERATIONAL REVIEW
Retail
1 193 retail stores
HIGHLIGHT: Acquisition of Hardware Warehouse with 17 stores
Footprint optimisation
HIGHLIGHT: Successful launch of Techxperts by Incredible Connection
Product and service differentiation
Optimising retail efficiency
HIGHLIGHT: Implementation of an additional 12 centralised distribution centres during the year
137
91
34 >> JD GROUP INTEGRATED REPORT 2013
130
169
111
159
THEO DE KLERK / MANAGING DIRECTOR: STEINBUILD
MARCO VAN NIEKERK / CHIEF EXECUTIVE: CONSUMER
ELECTRONICS AND APPLIANCES
Retail key features
Group
contribution
%
2013
2012*
Revenue (Rm)
38
12 562
12 312
Operating profit (Rm)
22
383
542
Stores
91
1 193
1 186
–
828 640
821 240
59
16 399
14 917
Retail square meterage
Employees
* 2012 Furniture and Cash Retail segments have been combined and are presented for the
12 months ended 30 June 2012.
PAT KIMMINCE / CHIEF EXECUTIVE: FURNITURE
During the year 12 centralised
distribution centres (CDCs) were
implemented, each serving
their own respective network of
furniture stores.
The past reporting period could be described as
a year of two halves, with the promise shown in the
first being eroded in the second as the implementation
of the new centralised distribution and enterprise
resource planning (ERP) system initially hindered,
rather than boosted, performance.
Trading conditions were challenging in the furniture
market in the year under review. The economy was
taking strain and our customers, who are heavily
influenced by food and transport costs, were put
under greater pressure as those continued to rise.
The consumer electronics market has undergone a
dramatic shift over the past five years that has seen
previously high-end products become commoditised
at a rate never seen before. This has led to significant
margin pressure across the board, resulting in
focused cost containment.
JD now has a broader reach into the building
materials and DIY market following the acquisition
of the Hardware Warehouse business during the
year. This acquisition provides access to the lower
LSM market, as well as giving the Group a wider
geographic reach, particularly in the rural areas.
197
17
36
69
17
28
7
25
and other
JD GROUP INTEGRATED REPORT 2013 <<
35
Footprint optimisation
The furniture market in provinces like Gauteng and the Western
Cape has become overtraded over the years with numerous new
shopping centres being opened. This has fragmented the critical
mass of customers in some of these centres and resulted in the
closure of some JD stores in these provinces.
Conversely other provinces are less competitive due to reduced
access to shopping centres and lower occupancy and operational
costs. The lower to middle LSM customer groups in these areas
are also less affected from an over-indebtedness perspective
representing opportunities for the Group to expand further in these
areas. The mass emerging market is also where higher numbers of
customers are.
In response to the conditions mentioned above, more than
20 stores were closed in the Gauteng and Western Cape provinces
and 15 stores opened in the Eastern Cape, KwaZulu-Natal and
Mpumalanga provinces, bringing the total number of furniture stores
to 1 011. Stores with sustained poor performance were also closed
during the year.
The Group’s Incredible Connection and HiFi Corp number of
stores has remained largely unchanged, although space utilisation
has been improved without impacting range or choice of product
categories.
The acquisition of the Hardware Warehouse business resulted in
the Group increasing its store footprint in the Eastern Cape and
Mpumalanga by 17 stores. This business focuses on the rural
building and housing market and provides JD with an opportunity to
strengthen its position within this market. The Hardware Warehouse
brand has a strong presence in these under-serviced regions and
prospects exist to grow the store footprint in the next financial year
in Limpopo and KwaZulu-Natal.
Meeting customer demand through product and
service differentiation
In the furniture chains the Group’s differentiating factor has always
been the strength of our relationship with our customers. The Art
of Service culture is continuing to provide benefits to the Group in
terms of reserve opportunities. Initiatives are underway to review
product ranges across brands to identify opportunities to optimise
the Group’s furniture product offering.
The ever-changing world of consumer electronics demands that
the Group offers the latest technologies and trends in the market.
Incredible Connection is therefore continually adapting its stockmix to reflect these changes, but also adapting to customer buying
behaviour in order to remain relevant to the market.
HiFi Corp is re-establishing itself as a provider of home appliances,
entertainment and technology products, focusing on value pricing.
During the year three stores were relocated into high-traffic
shopping centres, appealing to a different market as opposed to
destination shopping.
In line with the JD Group’s philosophy of increasing the value
proposition by selling solutions rather than simply products, some
36 >> JD GROUP INTEGRATED REPORT 2013
exciting new schemes and services have been introduced. One of
these is the ‘project partner’ service that is offered to customers
to assist them in the completion of building and DIY projects. This
includes costing of projects and advising customers on the correct
grade of materials to be used which will best service their needs.
Investments have also been made in value-added equipment for all
stores so that materials can be cut, sized and finished on-site. This
is an invaluable service to smaller contractors and homeowners
who do not have the means or equipment to do this.
Towards the end of the year financial services products were rolled
out to qualifying customers undertaking building or renovations.
This is a tremendous value-add for customers and represents an
additional source of revenue for the business. Providing the onestop service, enhanced with the credit offering, allows customers to
complete projects faster, thereby helping people to live
better, sooner.
Optimising retail efficiency and property portfolio to
maximise margins
During the year 12 centralised distribution centres (CDCs) were
implemented, each serving their own respective network of furniture
stores. A further four CDCs will be implemented during the next
financial year, bringing the total number of CDCs to 30. The new
ERP platform was also implemented in 15 of these CDC networks.
This process, although challenging at times, became easier with
every implementation and the Group is confident that this, together
with the ERP platform will result in new levels of operational
efficiencies becoming evident in the next reporting year. In addition
to efficiency gains, further cost reductions are expected through
the rationalisation of stockholding, physical resources and the
economies of scale this will bring.
The continued pressure on margins of consumer electronics and
appliances has resulted in management focusing on cutting costs
and driving efficiencies. The back-office functions of the Incredible
Connection and HiFi Corp chains have been consolidated, including
purchasing, human resources and finance while retaining chainspecific marketing and planning functions.
Incredible Connection has implemented strategies to reduce
exposure to low-margin products. One strategy in this regard is to
encourage customers to buy online and to collect their purchases
in-store (click and collect). This enables the selling of value-added
services such as extended warranties, services, accessories which
carry higher margins. The introduction of Techxperts has proven
successful in providing expert advice to customers on which
products to purchase as well as after-sales support in the form of
technical assistance.
Delivering required return to shareholders
The Retail business increased merchandise sales by 2% to
R11,6 billion during the year with gross margins being maintained
at 30%. The implementation of the ERP system and CDCs resulted
in duplicated costs of approximately R74 million and included
distribution, transition, occupation and employment costs. At year
end the carrying value of the ERP system was compared to its
replacement value and an impairment of R345 million had to be
recognised. The impact of these items resulted in a 29% decrease
in operating profit of R383 million.
Skills and talent management
As painful and disruptive as the implementation of the new CDCs
and ERP system have been for the furniture chains, it has created
a tremendous opportunity for employees to undergo a massive
learning exercise in dealing more effectively with large-scale change
interventions. For 9 500 employees, the new system has also
provided an opportunity to upgrade their skills on a system that is
recognised and utilised the world over.
At Incredible Connection we have invested heavily in providing
our employees with the best sales and product training to enable
them to provide customers with expert advice through the in-store
Techxperts initiative. This initiative has proven very successful
as it provides customers with support from selecting the right
product, to exploring its features and capabilities, together with
after-sales support in the form of installation and set up in the
customer’s home.
SteinBuild operates a modular retail management training
programme accredited by the Wholesale and Retail Seta which
produces degreed graduates after completing a three-year
course. In the past reporting period, fourteen store managers
completed and received this certification. In addition, ongoing
in-store customer and product training are undertaken to ensure
that employees are empowered to consult with customers and not
merely to act as sales agents.
Incredible Connection continues with its responsible disposal
programme for electronic components, batteries and printer
cartridges. Recently, a partnership was entered into with the
Swop Kit initiative that pays customers a nominal fee for their
old electronic equipment, which is then refurbished and sold into
other emerging markets.
Looking forward
Externally, the economic outlook for the year ahead shows little
growth in the furniture and consumer electronics and appliances
retail markets. The Group’s focus for the year ahead will be
on growing market share through realisation of the benefits of
the newly implemented infrastructure driving efficiencies and
to strengthen margins. The Group is at the end of a massive
centralised distribution and new ERP system rollout programme,
which has required considerable investment of time and operational
resources that can now be directed fully to the business at hand.
The acquisition of Hardware Warehouse presents exciting growth
opportunities for the Group, not only into new geographies but also
in reaching new customers through other services delivered through
the JD Group.
Biophysical environment
While energy-saving measures have been introduced where
possible and practicable, the consolidation of the supply chain into
the centralised distribution model will go far in reducing the Group’s
impact on the environment. An example of this is the logistic fleet
being reduced from more than 1 000 vehicles to approximately
400. This has a significant effect on fuel usage and the Group’s
carbon footprint.
JD GROUP INTEGRATED REPORT 2013 <<
37
OPERATIONAL REVIEW
3 contact centres employing
more than 2 500 agents
Consumer Finance
HIGHLIGHT: Strong growth in operating profit
HIGHLIGHT: Product diversification
HIGHLIGHT: Implementation of operating platform
38 >> JD GROUP INTEGRATED REPORT 2013
Delivering required return to shareholders
Product and service differentiation
Risk management
JD Group Front_V1_02Oct_7492
BENNIE VAN ROOY / CHIEF EXECUTIVE OFFICER
CONSUMER FINANCE
RENEÉ GRIESSEL / CHIEF EXECUTIVE OFFICER
JDG INSURANCE
Consumer Finance key features
Group
contribution
%
2013
Revenue (Rm)
15
4 809
3 825
Operating profit (Rm)
50
862
784
–
3
3
23
6 304
6 671
Contact centres
Employees
2012*
* 2012 Financial Services and Blake segments have been combined and are presented for
the 12 months ended 30 June 2012.
PHILIP KRUGER / CHIEF EXECUTIVE OFFICER
JD FINANCIAL SERVICES
The Consumer Finance business
reported strong balance sheet
growth in a tough economic and
operating environment. Particularly
encouraging was the expansion in
the range of services and products
provided to our customer base.
The past financial year has been successful on
the back of growth in the total loan book from
R7,2 billion to R9,7 billion. Both unsecured and
furniture loans grew strongly during the year, although
growth rates slowed during the last six months.
We have taken advantage of the strong relationship
with both our retail partners and consumer base, to
further grow and diversify the business, which has
resulted in substantial growth across all revenue lines.
We have been successful in containing costs, in
an environment where increased volumes require
additional resources to effectively execute on the
credit management processes.
JD GROUP INTEGRATED REPORT 2013 <<
39
Meeting customer demand through product and
service differentiation
Matching demand with the consumer’s ability to honour the
repayment of loans is a constant focus for the business. In addition,
product diversification has been a key development area during
the year, with the launch of the embedded funeral benefit in our life
insurance policy and the launch of a new loan product in HiFi Corp,
Incredible Connection and SteinBuild.
A dedicated social media development team was established
in Blake, to take advantage of the latest internet-based
communication channels. This unit is also starting to develop
e-commerce platforms for the various retail brands to bring the
JD Group firmly in line with prevailing online shopping trends.
Risk management
Risk management is at the core of the division’s operations.
Consumers are under increasing pressure resulting from an
oversupply of credit extended to the Group’s customer base.
This resulted in reduced approval rates and lower collection rates.
In line with the concerns about the state of household debt, the
Group has seen an increase in the growth of delinquencies.
The Group has maintained its cautious approach to credit granting
by further tightening the affordability rules adopted in determining
the net disposable income of a customer when assessing an
application for credit.
The Group’s unsecured loan strategy is still focused on JD Group’s
existing customer base which the Group has granted credit to and
collected from for a period of almost 30 years now. Two-thirds of
unsecured loans have been granted to existing customers, which
provides an acceptable level of comfort in the quality of the book.
The absolute increase in the provision ratio is representative of the
fact that there has been an increase in delinquencies.
In the period under review the average loan size and term have
been maintained in line with the Group’s conservative credit
granting approach. Lending criteria were further tightened in the
course of the year by being more selective in some of the consumer
categories that represent greater risk. The maximum unsecured
loan amount for which certain of our customers qualify was, as a
40 >> JD GROUP INTEGRATED REPORT 2013
result, reduced for certain risk categories. The impairment provision
was increased to R966 million from R557 million in the prior period,
representing 9,9% of the loan book.
Future growth strategies will be aimed largely at the existing
customer base, capitalising on the familiarity with customer
behaviour, enabling quality growth in the loan book.
There are a number of pending and proposed changes to the
regulatory environment that may materially affect the Consumer
Finance business. Management is cognisant of the changes and
is taking the necessary measures through active engagement
with regulators.
Product and market development
In addition to diversifying the customer base, the Consumer
Finance business has also been developing capabilities to offer
a diversified product suite. One way in which this is being put
to the test is through a pilot credit offering to the Hardware
Warehouse chain.
One of the highlights of the year was the conclusion of partnership
agreements with a number of African faith-based organisations for
which the Group’s insurance business has been granted preferred
supplier status for group funeral cover. This exposes the Group
to a new potential distribution channel that can be used to further
support the rest of the Group and be a source of business for the
consumer finance component.
Collection optimisation
There has been a deterioration in the Group’s collection
performance. The quality of the loan book is, however still healthy,
providing a solid base from which to continue to grow the business.
Management is proactively managing this by the re-engineering of
its collection strategy and process by involving retail branches more
effectively and making more use of external debt collectors.
Delivering required return to shareholders
Key financial and performance ratios
2013
%
2012
%
Return on equity
25
26
Provision ratio
10
8
Income yield
55
59
Debtors’ cost as a percentage of the average book
12
8
Skills and talent management
Talent management and skills development have remained a
top priority of the division. In this regard all our store staff been
subjected to training programmes relating to the implementation
of the new loan management platform VisionPLUS. Ongoing
management and leadership training has also contributed to the
skills development initiatives of operational and contact centre staff.
Looking forward
Management is encouraged by the growth and progress achieved
in the past reporting period. This positions the business for further
growth in the year ahead despite the difficult economic climate and
pressure on consumers. Management expects to take advantage of
new products and services that are available to our customer base
without significantly changing the risk profile of the business.
JD GROUP INTEGRATED REPORT 2013 <<
41
OPERATIONAL REVIEW
Automotive
HIGHLIGHT: Acquisition of the Reeds Motor Group including four dealerships
HIGHLIGHT: Maintained margins in a challenging operating environment
HIGHLIGHT: Apprenticeships currently offered to 226 employees
42 >> JD GROUP INTEGRATED REPORT 2013
32 car rental outlets
83 dealerships
Footprint optimisation
Delivering required returns
Skills and talent management
BRYNN STEPHENSON / MANAGING DIRECTOR
Automotive key features
Group
contribution
%
2013
Revenue (Rm)
47
15 504
14 348
Operating profit (Rm)
28
472
468
–
83
80
18
5 051
4 538
Dealerships
Employees
2012*
Progress has been made towards
employing a dynamic logistics
and stock management process
that enables the business to meet
customer demand more effectively.
* 12 months ended 30 June 2012.
Despite the satisfactory results delivered by the
Unitrans Automotive business for the period, the
past financial year was characterised by pressure
on consumer spending resulting in a trend of
customers buying down in terms of new vehicles.
The replacement cycles of vehicles are also
becoming longer, negatively impacting new vehicle
sales with some solace provided by stronger
performance in parts and servicing. Considering
the resultant pressure on margins, it is pleasing
that these were largely maintained.
The Hertz car rental business is on the road to
recovery with the restructuring of management
resulting in promising performance and improved
employee morale.
JD GROUP INTEGRATED REPORT 2013 <<
43
Footprint and property optimisation
The footprint was expanded with the acquisition of the Reeds Motor
Group in December 2012. This acquisition provides a stronger
presence in the Western Cape with its four motor dealerships.
Two dealerships were consolidated in KwaZulu-Natal, bringing
the total number of dealerships at year end to 83.
During the year JD Group purchased 19 automotive dealership
properties from Steinhoff International Holdings Limited in exchange
for shares in JD. These properties were already occupied by
Unitrans Auto and the transaction merely placed these properties
under JD Group’s control.
potential. Dealerships are autonomously managed with a focus on
bottom-line profit, empowering dealerships to be responsible for
their own cost containment and profitability.
Delivering required return to shareholders
The Automotive business grew revenue 8,1% on a comparable
basis to R15,5 billion and maintained margins at 3%. Despite this
solid performance, the market conditions and shift to entry-level
buying kept the operating profit under pressure, growing slightly
to R472 million.
Skills and talent management
Meeting customer demand through product and
service differentiation
The established manufacturers such as Toyota, Volkswagen and
Renault have responded to the entry of cheaper motor vehicles into
the market by lowering their price points with the introduction of
competitively priced models such as the Etios, Vivo and Sandero.
This response had a positive impact on the Group’s sales as these
brands feature prominently in the Group’s stable of dealerships.
Unitrans Auto offers its employees various training and development
opportunities and understands the importance of having an
adequately skilled workforce in place. During the year more than
58 000 hours of training was provided to employees. Motor
and Diesel apprenticeships, accredited by the Manufacturing,
Engineering and Related Services Sector Education and Training
Authority (Merseta), are currently being offered to 226 employees
within the business.
Optimising retail efficiency and to maximise margins
Biophysical environment
Progress has been made towards employing a dynamic logistics
and stock management process that enables the business to
meet customer demand more effectively, with the added benefit
of improved cost containment. Dealerships are also provided
with comprehensive support through centralised specialist skills
and know-how to ensure that each dealership operates to its full
The energy efficiency programme, in partnership with the Eskom
Standard Product Project, was initiated in the 2012 financial period.
The programme involves the audit of facilities to identify inefficient
lighting and, should a business case exist, lighting is replaced with
a rebate receivable from Eskom on the cost incurred. To date,
64 dealerships have been audited with 43 being upgraded.
44 >> JD GROUP INTEGRATED REPORT 2013
As part of the business’s environmental initiative, dealerships make
use of certified waste recyclers and, to facilitate full disclosure
regarding waste generation, are registered on their appropriate
authority’s waste information system.
Looking forward
The Group’s current dealership footprint, with substantial
geographic and brand coverage, stands it in good stead in the
year ahead. In the forthcoming year, management will continue
to assess opportunities for expanding this footprint.
JD GROUP INTEGRATED REPORT 2013 <<
45
FINANCIAL STATEMENTS
Contents
annual financial statements
47 Directors’ approval of the audited financial statements
48 Independent auditor’s report
49 Certificate by Company Secretary
50 Directors’ report
53 Audit committee report
57 Definitions
58 Accounting policies
66 Group statement of comprehensive income
67 Group statement of financial position
68 Group cash flow statement
69 Group statement of changes in equity
70 Segmental analysis
72 Notes to the Group financial statements
104 Company financial statements
106 Notes to the Company financial statements
109 Analysis of shareholders
110 Subsidiaries
46 >> JD Group Integrated Report 2013
Directors’ approval of the audited
financial statements
Responsibility for the audited financial statements
The directors are responsible for the preparation, integrity and objectivity of audited financial statements that fairly present the state of affairs of the
Group and the Company at the end of the financial year, the income and cash flow for that year and other information contained in this annual report.
To enable the directors to meet these responsibilities:
• The Board and management set standards and management implements systems of internal control, accounting and information systems aimed
at providing reasonable assurance that assets are safeguarded and the risks of error, fraud or loss are reduced in a cost-effective manner. These
controls, contained in established policies and procedures, include the proper delegation of responsibilities and authorities within a clearly defined
framework, effective accounting procedures and adequate segregation of duties
• The Group’s outsourced internal audit function, which operates independently and unhindered and has unrestricted access to the Audit committee,
appraises, evaluates and, when necessary, recommends improvements in the systems of internal control and accounting practices, based on audit
plans which take cognisance of the relative degrees of risk of each function or aspect of the business
• The Audit committee, assisted by the combined assurance providers, plays an integral role in assessing matters relating to financial internal
control, accounting policies, reporting and disclosure.
To the best of their knowledge and belief, based on the above, the directors are satisfied that no material breakdown in the operation of the systems
of internal control and procedures has occurred during the year under review.
The Group consistently adopts appropriate and recognised accounting policies.
The audited financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the SAICA Financial
Reporting Guide as issued by the Accounting Practices Committee and the Financial Reporting Pronouncements as issued by the Financial Reporting
Standards Council, the JSE Listings Requirements and the requirements of the Companies Act of South Africa. The report has been prepared using
accounting policies that comply with IFRS which are consistent with those applied in the financial statements for the 10-month period ended
30 June 2012, except for the adoption of accounting standards and interpretations that became effective during the current year. The adoption of
these standards had no material impact on the Group.
The directors are of the opinion that the business will be a going concern for the foreseeable future, and accordingly, the annual financial statements
are prepared on a going concern basis.
It is the responsibility of the independent external auditors to express an opinion on the audited financial statements. Their report to the shareholders
of the Company is set out on page 48.
Approval of the audited financial statements
The directors’ report and the audited financial statements, which appear on pages 50 to 115, were approved by the Board of directors on
26 August 2013.
ID Sussman
Chief Executive Officer
JHN van der Merwe
Chief Financial Officer
JD Group Integrated Report 2013 <<
47
FINANCIAL STATEMENTS
Independent auditor’s report
To the shareholders of JD Group Limited
We have audited the annual Group financial statements and financial statements of JD Group Limited set out on pages 58 to 111, which comprise the
consolidated and separate statement of financial position as at 30 June 2013, the consolidated and separate statement of comprehensive income,
the consolidated and separate statement of changes in equity and consolidated and separate statement of cash flows for the year then ended, and
the notes, comprising a summary of significant accounting policies and other explanatory information.
Directors’ responsibility for the financial statements
The Company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International
Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine
is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International
Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures
selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due
to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation
of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and
the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the Group financial statements and the financial statements of JD Group Limited present fairly, in all material respects, the
consolidated and separate financial performance and its consolidated and separate financial position as at 30 June 2013, and its consolidated and
separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies
Act of South Africa.
Other reports required by the Companies Act
As part of our audit of the financial statements for the year, we have read the directors’ report, the Audit committee’s report and the Secretary’s
certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements.
These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies
between these reports and the audited financial statements. However, we have not audited these reports and accordingly do not express an opinion
on these reports.
Deloitte & Touche
Registered auditors
Per B Escott
Partner
26 August 2013
National Executive: LL Bam Chief Executive AE Swiegers Chief Operating Officer GM Pinnock Audit DL Kennedy Risk Advisory NB Kader Tax
TP Pillay Consulting K Black Clients & Industries JK Mazzocco Talent & Transformation CR Beukman Finance M Jordan Strategy S Gwala Special
Projects TJ Brown Chairman of the Board MJ Comber Deputy Chairman of the Board
A full list of partners and directors is available on request.
B-BBEE rating: Level 2 contributor in terms of the Chartered Accountancy Profession Sector Code
Member of Deloitte Touche Tohmatsu Limited
48 >> JD Group Integrated Report 2013
Certificate by Company Secretary
In terms of section 88(2)(e) of the Companies Act 71 of 2008, I certify that, to the best of my knowledge and belief, the Company has lodged with the
Company and Intellectual Property Commission, all such returns and notices as required of a public company for the year ended 30 June 2013 and
that all such returns are true, correct and up to date.
JMWR Pieterse
Company Secretary
26 August 2013
JD Group Integrated Report 2013 <<
49
FINANCIAL STATEMENTS
Directors’ report
The directors are pleased to submit their report together with the Group and Company financial statements for the year ended 30 June 2013.
Nature of business
The Group is a diversified furniture, appliances, electronic and technology products, automotive and building materials retailer. It also provides
consumer finance, insurance, micro-lending and debt-recovery services, as well as contact-centre solutions.
The Group operates its retail operations through eight furniture chains and two appliance, electronic and technology product chains in southern
Africa. The automotive business offers a broad range of vehicles, parts and accessories, servicing and insurance, whilst the building materials
business operates under four key, well-entrenched brands in South Africa that retail timber, building materials and tiles, amongst others.
Results of operations
More details of the aforementioned businesses, their retail outlets and the results of their operations are set out in the Group and Company
statements of comprehensive income and in the Group segmental analysis.
Going concern
The financial statements have been prepared using appropriate and consistent accounting policies, supported by reasonable and prudent judgements
and estimates. The directors have a reasonable expectation, based on an appropriate assessment of a comprehensive range of factors, that the
Group and the Company have adequate resources to continue as going concerns in the foreseeable future.
Accounting policies
The annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and their interpretation as
adopted by the International Accounting Standards Board (IASB), the Listings Requirements of the JSE (the JSE Rules) and the requirements of the
Companies Act, 71 of 2008 (the Act). The accounting policies applied in the preparation of these annual financial statements remain consistent with
those of the previous financial period, except for the adoption of revised accounting standards as disclosed in the accounting policies note.
Change in financial year end
During the previous financial period, the Company and all Group subsidiaries changed their financial year ends from 31 August to 30 June to coincide
with the financial year end of the controlling shareholder, Steinhoff International Holdings Limited (Steinhoff).
Corporate governance
The Group is totally committed to the principles of transparency, integrity and accountability as set out in the Third King Report on Governance for
South Africa and the King Code of Governance Principles (jointly King III). The directors are fully committed to conducting the Group’s business in
accordance with generally accepted corporate practices. Although the Board is accountable to the Company itself, and at all times acts in the best
interests of the Company, its inclusive decision-making approach accommodates the legitimate interests and expectations of its stakeholders.
The directors support the notion that good governance is essentially about effective leadership and that sustainability is a moral and economic
imperative. The Company therefore regards itself as a leading corporate citizen of South Africa and endeavours to achieve sustainable outcomes for
people and the planet, whilst making a fair profit. During the year under review, the directors have applied the recommendations of King III to the
Group’s activities. In exceptional instances, where the Board regarded the recommendations or principles not to be in the best interests of the
Company, they have not been applied. In each such instance, a rational and judicious reason has been given for the Board’s decision. These and other
related matters are set out in detail in a comprehensive overview of the Group’s governance status in the corporate governance section included in
the Integrated report.
Independent auditors
After having assessed and verified the independence of Deloitte & Touche, the JD Group Audit committee, at its meeting in August 2013,
recommended that shareholders appoint Deloitte & Touche as the Company’s external independent auditor for the 2014 financial year, with Mr Brian
Escott as the designated lead engagement partner. The latter was nominated to serve as the designated auditor for JD Group until the 2015
fiscal year. Deloitte & Touche has confirmed that Mr Brian Escott is registered with the JSE and eligible to serve as the designated auditor. Both
Deloitte & Touche and Mr Brian Escott are registered with the Independent Regulatory Board for Auditors (IRBA) and the firm is a JSE-accredited firm,
entitling it to provide services to a listed entity. All non-audit services provided by Deloitte & Touche are rendered in terms of an approved non-audit
services policy and all such work is presented to and approved by the Audit committee. In terms of the policy, certain non-audit services are approved
prior to commencement of such work. The financial value of non-audit services rendered is insignificant and did not affect the independence of the
external auditor.
Suitability of the Company Secretary
Following an assessment, the directors agreed that the Board had been assisted appropriately by a suitably qualified and experienced Company
Secretary. In addition, the Board concluded that the Company Secretary has maintained an arm’s-length relationship with the Board based on,
amongst others, the fact that he is not a director of the Company; he is ultimately accountable to the Company’s Board (as opposed to management
only) in respect of his statutory responsibilities; the non-executive directors took part in his performance assessment; he is appointed or removed by
the Board (as opposed to management); following removal, he may report to shareholders the reasons and circumstances that resulted in his removal
(affording him protection against retribution or an unjust dismissal); his remuneration package is approved by the Remuneration committee; his
actual conduct in raising sensitive matters from time to time; the fact that he has a direct channel of communication to the Chairman of the Board;
and his own admission, confirming that he had not been restricted or constrained in his role of carrying out his obligations as the Company’s
gatekeeper of good governance.
stated capital and shares under the control of the directors
At its annual general meeting (AGM) on 30 November 2012, the Company converted its par value shares of five cents (R0,05) each to shares of no
par value and also increased the number of its authorised shares to 500 000 000 (2012: 250 000 000). A new Memorandum of Incorporation (MOI),
reflecting the aforementioned, was also adopted at this meeting. On 1 March 2013, the Company issued 9 508 322 shares of no par value to
Steinhoff as consideration for 19 dealership premises acquired. As a consequence, the number of issued shares increased to 229 338 322
(2012: 219 830 000), which was also the number of shares in issue at 30 June 2013.
50 >> JD Group Integrated Report 2013
Neither the Company nor any of its subsidiaries acted on the mandate from shareholders to repurchase the Company’s own shares, obtained at
the AGM on 30 November 2012.
Details of the authorised and issued shares and the movements during the year are provided in note 23 of the annual financial statements.
Share incentive trust
Approval will be sought from shareholders at the Company’s AGM in November 2013 for the placement of approximately 2 500 000
(2012: 10 000 000) shares) under the control of the directors for the purpose of implementing a new share incentive scheme. (More details of
the Group’s share incentive schemes are included in the Remuneration report and in note 34 to the financial statements.)
In addition, shareholders will be requested to place 24 784 967 unissued shares under the control of the directors for purposes other than the share
incentive scheme, to amongst others make provision for the potential conversion of the Group’s five-year fixed-rate senior unsecured convertible
bond into ordinary shares and for the allotment and issue when commercial opportunities arise.
Subsidiary companies
Details of the Company’s subsidiaries are set out on page 110 of the financial statements. The Company’s interest in the profits and losses after
taxation of subsidiaries are as follows:
Profits
Losses
2013
Rm
2012
Rm
1 794
(67)
1 076
(6)
Distribution to shareholders
A gross interim dividend of 115 cents per share (2012: 100 cents per share) was declared, and paid on 29 April 2013. A final gross dividend of
117 cents per share (2012: 132 cents per share) has been recommended by the directors for payment to shareholders on 21 October 2013 to
maintain the overall dividend for the year unchanged at 232 cents per share, at an increased cover of 1,7 (2012: 2,0) times. The aforementioned
will result in the need to reserve 590 411 additional shares for conversion in respect of the Group’s aforementioned convertible bonds.
Changes to the board and board committees
On 20 February 2013, Mr Grattan Kirk resigned as the Group Chief Executive and with effect from 21 February 2013, Mr David Sussman was
appointed in this vacant position. On the same date and as a consequence of the aforementioned, Mr Vusi Khanyile was appointed the independent
non-executive Chairman of the Board. Dr Henk Greeff and Mr Ian Thompson resigned as directors of the Company on 22 February 2013 and
23 May 2013 respectively. Together with Mr Kirk, they also resigned as members of the Risk Management committee and the Group’s Executive
committee. Mr Günter Steffens was appointed a member of the Remuneration committee (Remcom) with effect from 1 March 2013. He was also
elected Chairman of the Remcom, replacing Mr Martin Shaw who acted in a caretaker role for an interim period of eight days. Mr Jan van der Merwe
was appointed as the Group Chief Financial Officer with effect from 1 March 2013 in place of Mr Bennie van Rooy, who became the Chief Executive
Officer of JD Consumer Finance whilst also retaining his seat on the Company’s Board. Both Mr Sussman and Mr Van der Merwe were appointed to
the Risk Management committee following their appointments in their new roles. After the year-end date, on 9 October 2013, Mr PM Griffiths was
appointed as an executive director on the Board.
Five directors will be elected/re-elected at the Company’s forthcoming AGM in November 2013 in terms of the provisions of the Company’s MOI
(retirement by rotation), the King III principles (rotation of non-executive directors) and the Act (shareholders to confirm “casual vacancy”
appointments and to elect at least 50% of the directors on the Board).
The MOI and the Act provide that all directors appointed between two AGMs (so-called “casual vacancy appointments”), shall retain office until the
first AGM following their appointment, when they shall retire. As a consequence, shareholders will be requested to confirm the casual vacancy
appointment and re-election of Messrs Jan van der Merwe and Peter Griffiths who have been appointed between two AGMs. In addition, Mrs Maureen
Lock, Messrs Martin Shaw and Günter Steffens and Ms Nerina Bodasing (all independent non-executive directors), shall retire by rotation at the
forthcoming AGM in terms of the recommendations of King III. Ms Bodasing has made herself available for re-election at the AGM.
Having regard to the aforementioned and the fact that shareholders have confirmed/elected nine directors in the previous financial period, the
Company has fulfilled its obligations under the Company’s MOI, King III and the Act, since shareholders would have re-elected at least one-third of
the directors by way of rotation and overall, would have elected at least 50% of all directors on the Board.
An abbreviated curriculum vitae of each director standing for re-election is provided in the Integrated report.
The performance of the Board of directors as a whole has been assessed during the past financial year and was found adequate. In addition,
the independence status of the independent non-executive directors was considered and found untainted. The performance and status of the
non-executive directors who have served more than nine years on the Board, was assessed robustly. In accordance with the requirements of the
JSE Listings Requirements read with King III, the directors were categorised as follows at 30 June 2013:
Executive directors
David Sussman (Chief Executive Officer)
Jan van der Merwe (Chief Financial Officer)
Richard Chauke
Bennie van Rooy
JD Group Integrated Report 2013 <<
51
FINANCIAL STATEMENTS
Directors’ report continued
Independent non-executive directors
Vusi Khanyile (Non-executive Chairman)
Nerina Bodasing
Maureen Lock
Matsobane Matlwa
Jacques Schindehütte
Martin Shaw
Günter Steffens
Non-executive directors
Markus Jooste
Dr Len Konar
Ben la Grange
Danie van der Merwe
The full and current membership of the Board committees as at the date of this report, as well as an overview of their operations, is set out in the
Corporate governance report which is available online at www.jdg.co.za.
Directors’ interests
The aggregate beneficial interest of directors in the Company’s issued share capital, share options on ordinary shares and share appreciation rights
are as follows:
Number of shares, options and share rights
Direct
Total
2013
2012
2 192 500
2 192 500
3 795 903
3 795 903
No director has any non-beneficial interests in the stated capital of the Company.
No director holds directly or indirectly an interest in excess of 1% of the Company’s stated capital. Mr KR Chauke (jointly with his associate) acquired
400 JD Group shares after the financial year-end date.
A detailed breakdown of each individual director’s direct and indirect shareholding in the Company is provided in note 37 on page 103.
Significant shareholders
Details of significant shareholders are included in the shareholder analysis table on page 109.
Special resolutions passed by JD Group and its major subsidiaries
During the period under review, shareholders of JD Group have passed the following special resolutions:
• On 30 November 2012, the Company adopted a new MOI
• On 30 November 2012, the Company converted its par value shares to shares of no par value
• On 30 November 2012, the Company increased the number of its authorised shares
• On 30 November 2012, authority was given for the Company (and/or its subsidiaries) to purchase the Company’s own shares. However, neither
the Company nor its subsidiaries have acted on this mandate
• On 30 November 2012, the non-executive directors’ forward-looking remuneration for the 2013 calendar year was approved
• On 30 November 2012, the Board was mandated to determine and pay fair and responsible remuneration to the executive directors in accordance
with the guiding principles of the Company’s remuneration policy
• On 30 November 2012, a general authority was given to the Board to provide direct or indirect financial assistance to any related or inter-related
company in the Group in accordance with the provisions of section 45 of the Act
• On 30 November 2012, a general authority was given to the Board to provide financial assistance to any subsidiary or related or inter-related
company in the Group for the subscription or purchase of securities in accordance with the provisions of section 44 of the Act.
In addition to the above, similar special resolutions in respect of financial assistance, payment of directors’ remuneration and the replacement of
MOIs have been passed by most key subsidiaries in the Group. There have also been specific instances where subsidiaries have changed names and
passed special resolutions to give effect to acquisitions and restructurings.
Subsequent events
No material events that require reporting have occurred between 30 June 2013 and the date of this report.
ID Sussman
Chief Executive Officer
26 August 2013
52 >> JD Group Integrated Report 2013
JHN van der Merwe
Chief Financial Officer
Audit committee report
MACRO OVERVIEW OF THE DUTIES CARRIED OUT BY THE JD GROUP AUDIT COMMITTEE DURING THE 2013 FINANCIAL YEAR
1.
Introduction and background
JD Group Limited (the Company or JD Group) has a constituted Audit committee whose members were appointed by shareholders at the
Company’s annual general meeting in November 2012 in terms of section 94(2) of the Companies Act, 71 of 2008 (the Act).
The JD Group Audit committee (the committee) is an independent statutory committee, as well as a committee of the JD Group Board
(the Board) in respect of other duties assigned to it by the Board.
T he overall objective of the committee is to assist the Board in discharging its duties relating to, inter alia, the safeguarding of assets, the
operation of adequate internal controls and systems, ensuring that adequate financial accounting controls and processes exist, reviewing
sustainability reporting information and the annual financial statements for presentation to shareholders, as well as overseeing that statutory
and regulatory requirements are met on an ongoing basis.
T he committee’s operations are guided by a formal terms of reference (ToR) that is in line with the requirements of the Company’s
Memorandum of Incorporation (MOI), the provisions of the Act, the recommendations of the third King Report on Governance for South Africa
and the King Code of Governance Principles (King III), as well as the JSE Limited Listings Requirements.
The committee presents its report for the financial year ended 30 June 2013 to the Board for onward recommendation to shareholders,
which report is presented in accordance with the prerequisite of the aforementioned codes and legislation.
2.Membership
There has been no change in membership of the committee during the past financial year.
t the Company’s annual general meeting in November 2012, shareholders reappointed the below-mentioned independent non-executive
A
directors as members of the committee:
Mr MJ Shaw
Mr MP Matlwa
Mr JH Schindehütte
Mr GZ Steffens
Mr Shaw has been appointed Chairman of the committee by the JD Group Board of directors (the Board).
In accordance with the requirements of legislation, names of at least three directors, whose independence, knowledge, skills and
experience are adequate to fulfil the obligations of the committee, will be put forward as the nominated directors for election to the
committee by shareholders at the Company’s annual general meeting in November 2013.
3.
Duties carried out
During the financial year ended 30 June 2013, the committee has met four times to discharge both its statutory and Board responsibilities.
As an overview only, and not to be regarded as an exhaustive list, the committee carried out the following duties:
Annual financial statements
The committee has evaluated JD Group’s consolidated annual financial statements for the financial year ended 30 June 2013. Among others,
the committee:
• Reviewed the principles, policies and accounting practices and standards adopted in preparation of the financial statements of all the
companies in the JD Group and commented thereon and monitored compliance with all statutory/legal/regulatory requirements
• Reviewed interim reports, result announcements, and other releases of price-sensitive information
• Reviewed the Group’s provisioning, impairments and valuation of unlisted investments.
Since the annual financial statements complied, in all material aspects, with the aforementioned and appropriate International Financial
Reporting Standards, and as no complaints relating to the accounting practices or the contents or auditing of the financial statements,
or any related matter, were noted, the committee has approved and recommended the annual financial statements for approval to the
Board. The Board has subsequently approved the financial statements for presentation to shareholders.
Integrated annual report
In addition to the annual financial statements, the committee has overseen the Integrated report process and amongst others has mandated
a subcommittee to finalise, on its behalf, certain of the key reports contained in the Integrated report for the financial year ended
30 June 2013. Amongst others, the committee:
• Considered all factors and risks that may impact on the financial information disclosed in the Integrated report
• Ensured, in cooperation with the Group’s Social and Ethics committee, that the sustainability issues in the Integrated report are reliable,
consistent and do not conflict with the financial information
• Recommended that external assurance not be sought for sustainability reporting in 2013.
JD Group Integrated Report 2013 <<
53
FINANCIAL STATEMENTS
Audit committee report continued
Via its subcommittee, the committee has recommended the Integrated report to the Board, which has approved the report for
presentation to shareholders.
Internal Audit function
KPMG, the Company’s outsourced Internal Audit function (IAF), is accountable to the JD Group Chief Audit Executive (CAE). In accordance
with the approved internal audit plan, KPMG has carried out internal audit engagements at JD Group’s Furniture Retail division, the Financial
Services division, the Cash Retail division, the JDG Insurance division and at Blake & Associates. Steinhoff Internal Audit has retained the
internal audit responsibilities for SteinBuild and Unitrans Automotive (including U-Insure and Hertz).
The committee has played an oversight role in respect of the IAF and Steinhoff Internal Audit (SIA) functions to ensure their effectiveness.
It approved the IAF’s mandate and obtained confirmation that the IAF maintains a quality assurance and improvement programme. In addition,
the committee ensured that the IAF:
• Is an effective risk-based function that adheres to the Institute of Internal Auditors’ (IAA) Standards and Code of Ethics
• Applied and utilised a risk-based audit plan to address the full spectrum of risks
• Has adopted an Internal Audit Charter, which it reviewed and approved
• Has an appropriate budget and is appropriately skilled and resourced
• Has assessed the risk management and internal control framework and the business processes
• Has submitted a written statement in respect of the adequacy of the Company’s prevailing system of internal controls
• Has submitted a written statement in respect of the adequacy of the risk management process.
In addition to the above, the committee approved the internal audit plan and the internal audit fees, met separately in committee with the IAF
and the CAE on several occasions during the review period, and ensured that the CAE has managed the relationship with KPMG in a proficient
manner on an ongoing basis.
The committee did not receive any complaints relating to KPMG or its internal audit work.
The committee reviewed the quality and effectiveness of the internal audit process and is satisfied that KPMG has carried out its internal
audit obligations adequately. In addition and based on the reports submitted to it by Steinhoff Internal Audit, the committee is satisfied
that SIA has adequately carried out its obligations in terms of its internal audit plan.
External audit and related matters
Deloitte & Touche (D&T) is the Company’s appointed external auditors. The committee has exercised an oversight role in respect of the external
audit process to ensure its effectiveness. Amongst others, the committee:
• Set and approved D&T’s terms of engagement
• Assessed D&T’s quality control procedures
• Reviewed the external auditors’ report and management’s responses thereto
• Reviewed significant judgements and/or unadjusted differences resulting from the audit, as well as any reporting decisions made
• Satisfied itself through enquiry that D&T and Mr B Escott, the designated auditor, are independent as defined in terms of prescribed
legislation and that there has been no occurrence during the review period that has impaired this independent relationship between the
Company and D&T
• Obtained assurance that D&T is a JSE-accredited audit firm and that each of its partners is registered with the Independent Regulatory
Board for Auditors (IRBA)
• Ensured that the proposed appointment of auditors comply with the provisions of all relevant legislation relating to the appointment
of auditors
• Maintained a non-audit services policy which determines the nature and extent of any non-audit services that D&T may provide to
the Company
• Pre-approved a number of proposed engagements with D&T for the provision of non-audit services to the Company
• Ensured that the details and monetary scope of the non-audit services carried out by D&T have been disclosed in the annual financial
statements of the Company
• Through enquiry, ascertained that D&T has not identified any irregularity that required reporting thereof to IRBA
• Considered the need for an interim external audit or review and decided that there was no need presently.
In addition to the above, the committee approved the external audit plan and determined the fees to be paid to D&T, ensuring that the fees
are fair and equitable.
54 >> JD Group Integrated Report 2013
The committee met separately in confidence with D&T, the CAE and the Chief Risk Officer on several occasions during the review period.
The committee did not receive any complaints relating to D&T or its external audit work.
F ollowing an assessment of D&T’s delivery versus planned expectations and having found the quality and effectiveness of the external audit
process satisfactory, and further being satisfied that D&T and the designated auditor are appropriately independent, accredited, qualified and
eligible from a rotation perspective to serve as auditors, and having obtained confirmation that the appointment of auditors will comply with
the provisions of all applicable legislation, the committee recommends that shareholders appoint D&T and Mr Brian Escott as the Company’s
audit firm and designated auditor respectively.
Risk, combined assurance and ethics
The committee formed an integral component of the risk management framework and, amongst others, monitored financial reporting risks,
internal financial controls, fraud risks as it relates to financial reporting and IT risks as it relates to financial reporting. It has played an
oversight role and reviewed the management of risk, ethics and combined assurance in cooperation with the JD Group Risk Management and
JD Group Social and Ethics committee.
T o give credence to and enhance the combined assurance principle, the Chairman of the JD Group Audit committee serves as a member on
the JD Group Risk Management committee, whilst the Chairman of the Risk Management committee in turn serves on the JD Group Audit
committee. In addition, a former member and permanent invitee on the Audit committee acts as Chairman of the Social and Ethics committee.
This ensures proper coordination amongst the three committees in respect of interrelating risks and other important facets of the business.
Amongst others, the committee:
• Approved a combined assurance framework for the Company and ensured the application of this framework
• Ensured that close cooperation has existed throughout the review period between the IAF, KPMG, the Risk Management Function, the
Secretariat and the Legal and Compliance function
• Considered developments in corporate governance and ensured that the principles of King III are embedded within the Company
• Reviewed reports on the conduct of the Company and its officials in respect of the JD Group Code of Conduct (ethics)
• Reviewed processes for monitoring compliance with laws, regulations and corporate governance codes and practices applicable to the
Company and considered the effectiveness, impact and implications of the aforementioned on the Company’s operations
• Assisted the Board in assessing IT governance risks, IT controls and their overall effectiveness
• Reviewed tax and other relevant reports
• Fulfilled the audit function on behalf of certain subsidiaries of the Company and secured regular feedback from the Audit/Risk committees
of such subsidiaries
• Reviewed and updated the committee’s terms of reference and annual work plan to ensure that it is respectively aligned to the most recent
applicable legislation and governance codes, and that all key aspects are covered by its agenda throughout the year
• Reviewed the text of various reports, including the internal audit assurance statement and the risk management assurance statement for
inclusion in the Integrated Report
• Reviewed related-party transactions
• Reviewed the going concern assumptions and statement
• Reviewed the letters of representation and management’s responses thereto
• Conducted a self-assessment of the effectiveness of the committee
• Assessed the suitability, skills and effectiveness of the Financial Director and the Finance function
• Assessed the suitability, skills and effectiveness of the Company Secretary.
Suitability of the Chief Financial Officer (CFO) and the Finance function
Following an assessment, the Board found the attributes, skills, qualifications, experience and expertise of the CFO, Mr Jan van der Merwe,
appropriate and agreed that he has an adequate understanding of the organisation’s business and that he has competently carried out his
obligations since his appointment. A formal management structure exists for the Finance function, with appropriate embedded disciplines,
policies and procedures. Overall the Board concluded that both the CFO and the Finance function are appropriate, effective and suitable to
serve the Company.
Based on the above, the committee concluded that the combined assurance framework had appropriately and adequately addressed the
significant risks facing the Company.
JD Group Integrated Report 2013 <<
55
FINANCIAL STATEMENTS
Audit committee report continued
4.Conclusion on fulfilment of duties and obligations
The committee members are subject-matter specialists and collectively have sufficient qualifications and experience in the fields of
commerce, finance, economics, external and internal audit processes, risk, financial, integrated and sustainability reporting, risk management,
governance, compliance and law to fulfil their obligations. In addition, the members have kept up to date with the latest developments in the
business and in the audit environment.
T he members all bring invaluable integrity and experience to the committee’s deliberations and make positive contributions on an ongoing
basis. Throughout the review period, they remained independent of character and individually their judgement has not been impaired in
any way.
Given the above, the committee is of the opinion that it has appropriately addressed its key responsibilities in respect of internal control,
financial accounting control, stakeholder reporting and statutory and regulatory requirements.
5.
Recommendation to shareholders
In view of the above conclusions, the Board has recommended that shareholders adopt this Audit committee report and appoint at least three
independent non-executive directors to be the members of the Company’s Audit committee for the 2014 financial year.
MJ Shaw
Chairman
On behalf of the Audit committee
21 August 2013
56 >> JD Group Integrated Report 2013
Definitions
Revenue
Revenue comprises net invoiced value of merchandise sold excluding value added tax, net finance charges earned and income generated from
financial and other services.
Cost of sales
Cost of sales comprises costs of purchase and other costs incurred in bringing inventories to their present location and condition, net of volume and
settlement discounts.
Operating margin
Operating profit divided by revenue.
Interest cover
Earnings before interest, tax, impairments, depreciation and amortisation (EBITDA) divided by net finance costs.
Earnings per share
Profit attributable to shareholders divided by the weighted average number of shares in issue, excluding treasury shares.
Headline earnings per share
The Group previously adopted Circular 2/2012, issued by the South African Institute of Chartered Accountants, replaced by Circular 3/2013.
It provides guidance on the calculation of headline earnings, ensuring that headline earnings reflect the operating earnings of the business by
generally excluding items of re-measurement.
Diluted earnings and headline earnings per share
As for earnings and headline earnings per share after including the dilutive impact of share options in respect of unissued shares granted to
employees and the dilutive effect of convertible bonds issued, in the weighted average number of shares in issue, and adjusting the profit attributable
to shareholders with the post-tax interest effect of convertible bonds.
Dividend cover
Earnings per share divided by cash equivalent dividends per share.
Return on closing shareholders’ equity
Profit attributable to shareholders divided by shareholders’ equity at year end.
Return on average shareholders’ equity
Profit attributable to shareholders divided by average shareholders’ equity.
Return on assets managed
Operating profit and investment income divided by average total assets (excluding deferred taxation) less average non-interest-bearing debt.
Net asset value per share
Shareholders’ equity divided by the total number of shares in issue, including treasury shares.
Gearing ratio
Interest-bearing debt less cash resources divided by shareholders’ equity.
Current ratio
Current assets divided by current liabilities.
JD Group Integrated Report 2013 <<
57
FINANCIAL STATEMENTS
Accounting policies
JD Group Limited is a South African registered company. The consolidated audited financial statements of JD Group Limited for the period ended
30 June 2013 comprise JD Group Limited and its subsidiaries (together referred to as the Group) and the Group’s interest in associate companies and
joint ventures.
Statement of compliance
The principal accounting policies of the Company, which are set out below, comply with International Financial Reporting Standards (IFRS) and
Interpretations adopted by the International Accounting Standards Board (IASB) and the International Financial Reporting Interpretations Committee
(IFRIC) of the IASB and the Companies Act and are audited in compliance with all the requirements to section 29(1) of the Companies Act, as required.
Revised standards and interpretations adopted during the year
The following revised standards and interpretations and/or amendments to standards and interpretations were adopted during the year.
IFRS 7 Financial Instruments: Disclosures – Amendments resulting from May 2011 Annual Improvements to IFRSs
IFRS 7 Financial Instruments: Disclosures – Amendments enhancing disclosures about transfers of financial assets
IFRS 9 Financial Instruments – Classification and Measurement
IAS 12 Income Taxes – Limited scope amendment (recovery of underlying assets)
IAS 24 Related Party Disclosures – Revised definition of related parties
The adoption of these standards and interpretations did not have a material impact on the financial statements of the Group and Company.
Basis of preparation
The audited financial statements are presented in South African rand on the historical cost basis, except for financial assets and liabilities which are
stated at fair value or amortised cost as appropriate. South African rand is the currency in which the majority of the Group’s transactions are
denominated. Unless otherwise stated, all amounts in the audited financial statements are shown rounded off to the nearest rand million (Rm).
The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that may
affect the application of policies and reported amounts of assets, 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.
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 affects only that period, or in the period of the revision and future periods if the revision affects both
current and future periods.
The accounting policies have been applied consistently by all Group entities.
Basis of consolidation
Subsidiaries
Subsidiaries are entities controlled by the Company (including special purpose entities). Control exists when the Company has the power to, directly
or indirectly, govern the financial and operating policies of an entity in order to obtain benefits from its activities and when the entity depends solely
on JD Group for its funding requirements.
On acquisition, the assets and liabilities and contingent liabilities of the subsidiary are measured at fair value at the acquisition date. Any excess of
the cost of acquisition over the fair values of the identifiable net assets acquired is recognised as goodwill. Any deficiency of the cost of acquisition
below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to profit and loss in the period of acquisition.
The interest of non-controlling shareholders is stated at the non-controlling interests’ proportion of the fair values of assets and liabilities recognised.
Subsequently, any losses applicable to the non-controlling interest in excess of the non-controlling interest are allocated against the interests of
the parent, unless the non-controlling interest has a binding obligation to fund the losses and is able to make an additional investment to cover
their losses.
The results of subsidiaries are included from the effective dates of acquisition and up to the effective dates of disposal. All material inter-group
transactions and balances between Group companies are eliminated on consolidation.
Associate companies
An associate is an enterprise over which the Group is in a position to exercise significant influence, through participation in the financial and
operating policy decisions of the investee, but which it does not control.
The results of associates are incorporated in these financial statements using the equity method of accounting based on their most recent financial
statements. If the most recent available financial statements are for an accounting period which ended more than six months prior to the Group’s
year end, the most recent available management accounting results have been brought into account.
The carrying value of such interests is reduced to recognise any decline, other than a temporary decline, in the individual investments.
Where a Group enterprise transacts with an associate of the Group, unrealised profits and losses are eliminated to the extent of the Group’s interest
in the relevant associate company, except where unrealised losses provide evidence of an impairment of the asset transferred.
Any difference between the cost of acquisition and the Group’s share of the net identifiable assets, liabilities and contingent liabilities, fairly valued,
is recognised and treated according to the Group’s accounting policy for goodwill and included in the carrying value of the investment.
Joint venture companies
A joint venture is defined as a contractual arrangement whereby two or more entities undertake an economic activity which is subject to joint control.
Joint control implies that neither of the contracting parties is in a position to unilaterally control the assets of the venture. Joint venture companies
are accounted for using the equity method of accounting based on their most recent financial statements as described in the policy above relating to
interest in associate companies.
58 >> JD Group Integrated Report 2013
Intangible assets and goodwill
Goodwill
All business combinations are accounted for by applying the purchase method. In respect of business acquisitions that have occurred since
31 March 2004, goodwill arising on consolidation represents the excess of the cost of acquisition over the Group’s interest in the fair value of the net
identifiable assets and liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition.
Goodwill is stated at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group’s
cash-generating units expected to benefit from the synergies of the combination irrespective of whether other assets or liabilities of the acquiree are
assigned to those units or groups of units. Cash-generating units to which goodwill has been allocated are tested for impairment annually or sooner if
an impairment indicator exists. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary, associate or joint venture company, the attributable amount of goodwill is included in the determination of profit or loss
on disposal.
Where the Group’s interest in the fair value of the net assets and liabilities acquired exceeds the cost of acquisition, the amount is directly recognised
in profit or loss.
Research and development
Research costs are recognised as an expense in the period in which they are incurred.
Expenditure on development activities is charged to income in the year in which it is incurred except where a clearly defined project is undertaken
and it is reasonably anticipated that development costs will be recovered through future commercial activity. Such development costs are capitalised
as an intangible asset and amortised on a straight-line basis over the life of the project from the date of commencement of commercial operation.
Other intangible assets
Other intangible assets that are acquired by the Group are stated at cost less accumulated amortisation and impairment losses. If an intangible asset
is acquired in a business combination, the cost of that intangible asset is measured at its fair value at the acquisition date.
Expenditure on internally generated goodwill and brands is recognised in profit and loss when incurred.
Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific
asset to which it relates. All other expenditure is expensed as incurred.
Amortisation
Amortisation of intangible assets is recognised in profit and loss on a straight-line basis over the assets’ estimated useful lives unless such lives are
indefinite. Goodwill, intangible assets with an indefinite useful life and intangible assets not yet available for use are not amortised but are tested for
impairment annually and whenever there is an indication that the asset may be impaired. Other intangible assets are amortised from the date they
are available for use.
The amortisation methods, estimated useful lives and residual values are reassessed annually.
Property, plant and equipment
Owned assets
Property, plant and equipment are stated at historical cost to the Group, less accumulated depreciation and impairment losses.
The gross carrying amount of property, plant and equipment is initially measured using the historical cost basis of accounting. Subsequent
expenditure relating to an item of property, plant and equipment is capitalised to the carrying value of the asset when it is probable that future
economic benefits, in excess of the originally assessed standard of performance of the item concerned, will flow to the Group. All other subsequent
expenditures are recognised as expenses in the period in which they are incurred.
Depreciation is provided on the straight-line basis at rates that will reduce the book values to estimated residual values over the expected useful lives
of the assets. The method and rates used are determined by conditions in the industry. The estimated useful lives and residual values are reviewed
annually. Depreciation rates vary between 3% and 33% per annum. Land is not depreciated. Lease improvements on capitalised leased premises are
written off over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the lease.
The recorded value of depreciated assets is periodically compared to the anticipated recoverable amount if assets were to be sold. Where an asset’s
recorded value has declined below the recoverable amount, and the decline is expected to be of a permanent nature, the asset is written down to its
recoverable amount and the decline is recognised as an expense.
Surplus or loss arising on disposal of assets is determined as the difference between the sale proceeds and carrying value of the asset and is
recognised in net profit or loss for the period.
Vehicle rental fleet
The vehicle rental fleet is depreciated over the period of the buy-back agreement or estimated holding period.
Leased assets
Lease agreements which transfer substantially all the risks and rewards associated with ownership of an asset to the lessee are regarded as finance
leases. Assets subject to finance lease agreements are capitalised at the lower of the present value of the minimum lease payments and their cash
cost equivalent and the corresponding liability to the lessor is raised.
Lease payments are allocated using the effective interest rate method to determine the lease finance cost, which is charged against operating profit
and the capital repayment, which in turn reduces the liability to the lessor. These assets are depreciated on the same basis as the property, plant and
equipment owned by the Group over the period of the lease.
JD Group Integrated Report 2013 <<
59
FINANCIAL STATEMENTS
Accounting policies continued
Other leases, which merely confer the right to the use of an asset, are treated as operating leases, with lease payments charged against operating
profit on a straight-line basis over the period of the lease. Lease incentives received or granted are recognised in the income statement as an integral
part of the total lease expense or revenue.
Subsequent costs
The Group recognises the carrying value of an item of property, plant and equipment the cost of replacing part of such an item when the cost is
incurred, if it is probable that additional future economic benefits embodied within the item will flow to the Group and the cost of such item can be
measured reliably. Costs of the day-to-day servicing of property, plant and equipment are recognised in profit and loss when incurred.
Impairment of tangible and intangible assets (excluding goodwill)
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication of
an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment
loss, if any. Where it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the recoverable amount of the
cash-generating unit to which the asset belongs.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or
cash-generating unit is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit, except for goodwill, is increased to the
revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been
determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is
recognised in profit and loss immediately.
Inventories
Inventories comprise merchandise for resale and are stated at the lower of cost and net realisable value. Cost is determined on the weighted
average cost basis. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of selling and
distribution expenses.
Where necessary, the carrying value of inventory is adjusted for obsolete, slow moving and defective inventories.
Stated capital
Treasury shares
Shares purchased by wholly-owned Group companies in their holding company and by the employee share trust are classified as treasury shares,
held at cost. For presentation purposes, treasury shares are netted off against the Group’s stated capital in the consolidated statement of
financial position.
Dividends received on treasury shares are eliminated on consolidation. Treasury shares are taken into account in the calculation of earnings per share.
Dividends
Dividends declared to equity holders are included in the statement of changes in equity in the year in which they are declared. Taxation costs incurred
on dividends are dealt with in profit and loss in the year in which they are paid.
Repurchase of issued shares
When issued shares are repurchased, the consideration paid is accounted for as a set off against equity and reserves in the Group’s statement of
financial position.
Share-based payment transactions
Equity settled
The fair values of share options and share appreciation rights granted to employees are recognised in profit and loss with a corresponding increase in
equity. The fair value is measured at grant date and expensed over the period during which employees are required to provide services in order to
become unconditionally entitled to equity instruments. The fair value of the instruments granted is measured using the “binomial” option pricing
model, taking into account the terms and conditions upon which the instruments are granted.
The amount recognised as an expense is adjusted to reflect the actual number of share options or share appreciation rights that vest, except where
forfeiture is only due to share prices not achieving the threshold for vesting. Adjustments due to the non-achievement of market conditions are
recognised in profit and loss at the end of the vesting period.
Taxation
Current taxation
Income tax on the profit or loss for the period comprises current and deferred tax. Taxable profit differs from profit as reported in profit and loss
because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable
or deductible.
Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the reporting date and
any adjustment to tax payable in respect of previous years.
Deferred taxation
Deferred tax is accounted for using the statement of financial position liability method in respect of temporary differences. Temporary differences
arise from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax base. In general,
deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that is it probable that
taxable profit will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the
temporary difference arises from goodwill or from the initial recognition of other assets and liabilities (other than a business combination) which
affects neither taxable profit nor the accounting profit. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax
benefits will be realised.
60 >> JD Group Integrated Report 2013
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates and interests in joint
ventures, except where the Group is able to control the reversal of temporary differences and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled. Deferred tax is
charged or credited in profit and loss, except when it relates to items credited or charged directly to equity, in which case the deferred taxation is also
dealt with in equity. However, for the convertible bond, the discount associated with the liability component of the compound financial instrument
unwinds, the reduction of the associated deferred tax liability is recognised in profit or loss and not directly in equity. The recognition of the deferred
tax credit in profit or loss is consistent with the recognition of the associated discount expense in profit or loss.
Withholding taxation (WHT)
Dividend tax is levied on the shareholders rather than the Group itself. The Group is responsible for the collection of the tax and the payment of the
amounts collected to the South African Revenue Service. As the tax is levied on the shareholders and not the Group, the dividend tax does not form
part of the expense recognised in profit or loss or in other comprehensive income. Instead the liability to shareholders on the declaration of the
dividend is reduced and a liability for the amount payable to SARS is recognised.
Foreign currency
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity
operates (its functional currency). For the purpose of the Group financial statements, the results and financial position of each entity are expressed
in currency units (CUs), which is the functional currency of the Company, and the presentation currency for the consolidated financial statements.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign
currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each reporting date, monetary items denominated
in foreign currencies are retranslated at the rates prevailing at the reporting date. Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in
terms of historical cost in a foreign currency are not retranslated.
Exchange differences are recognised in profit or loss in the period in which they arise except for:
• Exchange differences which relate to assets under construction for future productive use, which are included in the cost of those assets where
they are regarded as an adjustment to interest costs on foreign currency borrowings
• Exchange differences on transactions entered into in order to hedge certain foreign currency risks
• Exchange differences on monetary items receivable from or payable to a foreign operation, and which are recognised in the foreign currency
translation reserve and recognised in profit or loss on disposal of the net investment.
For the purpose of presenting the Group financial statements, the assets and liabilities of the Group’s foreign operations are expressed in CUs using
exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period, unless
exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange
differences arising, if any, are recognised through other comprehensive income and transferred to the Group’s translation reserve. Such exchange
differences are recognised in profit or loss in the period in which the foreign operation is disposed of. Goodwill and fair value adjustments arising on
the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
Revenue recognition
Instalment sales
Consideration from transactions under instalment sales are included in revenue when goods are delivered and title has passed. Finance charges,
calculated on the effective interest rate method, are accounted for over the period of the agreements as instalments become due. This method
approximates the net present value of anticipated future cash flows.
Sale of merchandise
Revenue from the sale of merchandise is recognised when substantially all the risks and rewards of ownership have been transferred to the buyer
and the enterprise does not retain continuing managerial control of the goods to a degree usually associated with ownership, when the amount of
revenue and costs incurred or to be incurred in respect of the sale transactions can be measured reliably and when the collectability of the
consideration in respect of the sale is reasonably assured.
Merchandise consists mainly of furniture, electronics, motor vehicles and building material.
Service fees
Fees charged by an entity for servicing a loan are recognised as revenue as the services are provided.
Initiation fees
Initiation fees are deferred and recognised over the term of the contract.
Interest
Interest revenue is recognised on a time basis by reference to the principal outstanding and at the effective interest rate applicable, which is the rate
that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying value.
Dividend income
Dividend income from investments is recognised when the shareholders’ rights to receive payment have been established.
Car rental
Revenue from car rental is recognised when the significant risks and rewards of the service have been transferred, the costs incurred or to be
incurred in respect of the transaction can be reliably measured and when the entity retains neither managerial involvement nor effective control over
the assets rented.
JD Group Integrated Report 2013 <<
61
FINANCIAL STATEMENTS
Accounting policies continued
Revenue from car rental is further only recognised to the extent that future economic benefits will flow to the Company and the amount of revenue
can be reliably measured.
Revenue from car rental from partially completed rentals is based on the percentage of completion method for contracts, determined with reference
to the uninvoiced number of days to year end, at the average rate per day for each vehicle in the Group for the month.
Rendering of services relating to motor vehicles
Revenue from services is recognised as they are provided.
Revenue from extended guarantees
Revenue from extended guarantees is recognised when the guarantee is sold and a provision is made for estimated claims.
Membership fees
Revenue is recognised when no significant uncertainty as to its collectability exists and is recognised over the period of the membership.
Insurance contracts
Classification of insurance contracts
Contracts under which the Group accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder
or other beneficiary if a specified uncertain future event (the insured event) adversely affects the policyholder or other beneficiary are classified as
insurance contracts. Insurance risk is risk other than financial risk. Financial risk is the risk of a possible future change in one or more of a specified
interest rate, security price, commodity price, foreign exchange rate, index of prices or rates, a credit rating or credit index or other variable, provided
in the case of a non-financial variable it is not specific to a party to the contract. Insurance contracts may also transfer some financial risk.
Principles of valuation and profit recognition – long-term insurance contracts
Assets and liabilities in respect of insurance contracts are valued according to the requirements of the professional guidance notes (PGNs) issued by
the Actuarial Society of South Africa (ASSA). Of particular relevance to the insurance asset and liability calculation is PGN 104: Life Offices – Valuation
of Long-term insurers.
The insurance contracts are valued in terms of the financial soundness valuation (FSV) basis contained in PGN 104 issued by the ASSA. An asset or
liability for contractual benefits that are expected to be realised or incurred in the future is recorded in respect of the existing policy book when the
premiums are recognised. The liability consists of both an incurred but not reported (IBNR) and an unearned premium (UPR) component.
Compulsory margins to adverse deviations are included in the assumptions as required in terms of PGN 104.
Premiums
Written premiums comprise the premiums on contracts (including inward reinsurance) entered into during the year, irrespective of whether they relate in
whole or in part to a later accounting period. Premiums are disclosed gross of commission payable to intermediaries and exclude value added tax.
The earned portion of premiums received is recognised as revenue. Premiums are earned from the date of attachment of risk, over the indemnity
period, based on the pattern of risks underwritten.
Unearned premium provision
The provision for unearned premiums comprises the proportion of gross premiums written which is estimated to be earned in the following or
subsequent financial years, computed separately for each insurance contract using the daily pro rata method.
Claims
Claims incurred in respect of general business consist of claims and claims handling expenses paid during the financial year together with the
movement in the provision for outstanding claims.
The outstanding claims provision comprises provisions for the Group’s estimate of the ultimate cost of settling all claims incurred but unpaid at the
reporting date whether reported or not, and related internal and external claims handling expenses.
Deferred acquisition costs
Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts. Deferred acquisition costs represent the
proportion of acquisition costs incurred which correspond to the unearned premium provision.
Contingency reserve
In terms of the Short-term Insurance Act in South Africa, a contingency reserve of 10% of premiums written less approved reinsurance (as defined in
the Short-term Insurance Act, 1998) is required. This reserve can only be utilised with prior permission of the Registrar of Insurance. Transfers to and
from this reserve are treated as appropriations of retained earnings. The requirement to hold a contingency reserve was eliminated with the Solvency
Assessment and Management Interim Measures which became effective from 1 January 2012.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets (i.e. assets that necessarily take a substantial
period of time to get ready for their intended use or sale) are capitalised as part of the cost of those assets. The capitalisation rate applied is the
weighted average of the net borrowing costs applicable to the net borrowings of the Group. Capitalisation of such borrowing costs ceases when the
assets are substantially ready for their intended use or sale. Investment income earned on temporary investment of specific borrowings pending their
expenditure on qualifying assets is deducted from borrowing costs capitalised.
All other borrowing costs are expensed in the period in which they are incurred.
Employee benefits
Short-term employee benefits
The cost of all short-term employee benefits are recognised during the period in which the employee renders the related service. The provisions for
employee entitlements to salaries, performance bonuses and annual leave represent the amounts which the Group has a present obligation to pay as
a result of the employees’ services provided. The liabilities have been calculated at undiscounted amounts based on current salary levels.
62 >> JD Group Integrated Report 2013
Defined contribution plans
Payments to defined contribution retirement benefit plans are recognised as an expense in the income statement as incurred. Obligations to state
managed pension schemes are dealt with as defined contribution plans where the Group’s obligations under the schemes are equivalent to those
arising in a defined contribution benefit plan.
Defined benefit plans
For defined retirement benefit plans the cost of providing the benefit is determined using the projected unit credit method. The scheme is actuarially
valued for financial reporting purposes at each reporting date. Past service costs are recognised immediately to the extent that the benefits are
already vested, and otherwise are amortised on a straight-line basis over the average remaining working lives of members.
The amount recognised in the balance sheet represents the present value of defined benefit obligations as adjusted for unrecognised actuarial gains
and losses, past service costs, and as reduced by the fair value of plan assets. Any asset resulting from the calculation is limited to the unrecognised
actuarial losses and past service costs, plus the present value of available refunds and reductions in future contributions to the plan.
Provisions
Provisions are recognised when the Group has a present, constructive or legal obligation as a result of a past event and it is probable that it will result
in an outflow of economic benefits that can be reasonably estimated.
An onerous contract is a contract under which the unavoidable costs of meeting the obligation exceeds the economic benefit expected to be received
under it. When a contract becomes onerous, the present obligation under a contract is recognised and measured as a provision.
A restructuring provision is recognised when the Group has developed a detailed formal plan for the restructuring and has raised a valid expectation
in those affected that it will carry out the restructuring by starting to implement the plan or announcing its main features to those affected by it. The
measurement of a restructuring provision includes only the direct operating expenditures arising from the restructuring, which are those amounts
that are both necessarily entailed by the restructuring and not associated with the ongoing activities of the entity.
If the effect is material, provisions are determined by discounting the expected future cash flows that reflect current market assessments of the time
value of money and, where appropriate, the risks specific to the liability.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand and deposits on call with banks and investment banks and other short-term, highly liquid
investments that are readily convertible to cash and are subject to an insignificant risk of changes in value. Bank overdrafts are only included where
the Group has a legal right of set off due to cash management.
Financial instruments
Initial recognition and measurement
Financial instruments include all financial assets and liabilities held for liquidity, investment or trading purposes. Financial instruments are initially
recognised at fair value plus transaction costs, except those carried at fair value through profit and loss (FVTPL), where transaction costs are
recognised immediately through profit and loss. Financial instruments are recognised on trade date.
Subsequent measurement
Subsequent to initial measurement, financial instruments are measured either at fair value or amortised cost, depending on their classification.
Equity instruments
An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments
issued by the Group are recorded at the proceeds received, net of direct issue costs.
Financial assets and liabilities at fair value through profit or loss (FVTPL)
Financial assets and liabilities are classified as FVTPL where the financial instrument is either held for trading or designated at FVTPL.
A financial asset or liability is held for trading if:
• It has been acquired or incurred principally for the purpose of selling or repurchasing in the near future
• It is part of an identified portfolio that the Group manages together and has a recent actual pattern of short-term profit-taking
• It is a derivative that is not designated and effective as a hedging instrument.
The Group has designated foreign exchange contracts as financial instruments at FVTPL.
Financial assets at FVTPL are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit
or loss incorporates interest earned on the financial asset.
Available-for-sale (AFS) financial assets
Unlisted shares held by the Group that are traded in an active market are classified as being AFS and are stated at fair value. Fair value is determined
in the manner described in note 9.
For AFS investments, gains and losses arising from changes in fair value are recognised directly in equity, in the investments revaluation reserve
with the exception of impairment losses, interest calculated using the effective interest method and foreign exchange gains and losses on monetary
assets, which are recognised directly in profit or loss. Where the investment is disposed of or determined to be impaired, the cumulative gain or loss
previously recognised in the investments revaluation reserve is included in profit or loss for the period.
Loans and receivables
Trade and other receivables that have fixed or determinable payments that are not quoted in an active market, other than those classified by the
Group as FVTPL or AFS, are classified as loans and receivables. Loans and receivables are measured at initial recognition at fair value and are
subsequently measured at amortised cost using the effective interest rate method, less any impairment losses. Interest income is recognised by
applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.
JD Group Integrated Report 2013 <<
63
FINANCIAL STATEMENTS
Accounting policies continued
Other financial liabilities
Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an
effective yield basis.
The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability,
or (where appropriate) a shorter period, to the net carrying amount on initial recognition.
Impairment of financial assets
Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each reporting date. Financial assets are impaired where
there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future
cash flows of the investment have been impacted.
For unlisted shares classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective
evidence of impairment.
Certain categories of financial assets, such as up to date and early stage delinquent trade receivables, i.e. assets that are assessed not to be
impaired individually, are subsequently assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables
includes the level of arrears of a customer, part payment of instalments or missed instalments, as well as observable changes in national or economic
conditions that correlate with defaults on receivables.
For financial assets carried at amortised cost, the amount of impairment is the difference between the asset’s carrying amount and the present value
of estimated future cash flows, discounted at the financial asset’s original effective interest rate.
The carrying amount of the financial asset is reduced by the impairment loss directly in respect of all financial assets with the exception of trade
receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectable,
it is written off against the carrying value of the trade receivable. Subsequent recoveries of amounts previously written off as well as changes in the
carrying amount of the allowance account are recognised in the profit and loss for the year.
With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or
loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would
have been had the impairment not been recognised.
In respect of AFS equity securities, impairment losses previously recognised through profit or loss are not reversed through profit or loss. Any increase
in fair value subsequent to an impairment loss is recognised directly in equity.
Derecognition
The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire or it transfers the financial asset
and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the
risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an
associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial
asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.
The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.
Effective interest method
The effective interest method is a method of calculating the amortised cost of a financial asset or liability and of allocating interest or expense over
the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts or payments (including all fees on
points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the
expected life of the financial asset or financial liability, or where appropriate, a shorter period.
Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at FVTPL.
Derivative financial instruments
The Group uses derivative financial instruments to manage its risk associated with foreign currency and interest rate fluctuations relating to certain
firm commitments and forecast transactions, including foreign exchange forward contracts. Such derivatives are initially recorded at fair value at the
date a derivative contract is entered into and are subsequently re-measured to their fair value at each reporting date. The resulting gain or loss is
recognised in profit or loss immediately.
A derivative is presented as a non-current asset or non-current liability if the remaining maturity of the instrument is more than 12 months and it is
not expected to be realised or settled within 12 months. Other derivatives are presented as current assets or current liabilities.
Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating rate interest amounts calculated on
agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed
rate debt and the cash flow exposures on the issued variable rate debt. The fair value of interest rate swaps at the end of the reporting period is
determined by discounting the future cash flows using the curves at the end of the reporting period and the credit risk inherent in the contract.
The average interest rate is based on the outstanding balances at the end of the reporting period.
Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics
are not closely related to those of the host contracts and the host contracts are not measured at fair value with changes in fair value recognised in
profit or loss.
64 >> JD Group Integrated Report 2013
Fair value of derivatives and other financial instruments
As described in note 9, the directors use their judgement in selecting an appropriate valuation technique for financial instruments not quoted in an
active market. Valuation techniques commonly used by market practitioners are applied. For derivative financial instruments, assumptions are made
based on quoted market rates adjusted for specific features of the instrument. Other financial instruments are valued using a discounted cash flow
analysis based on assumptions supported, where possible, by observable market prices or rates. The estimation of fair value of unlisted shares
includes some assumptions not supported by observable market prices or rates. Details of the assumptions used and of the results of sensitivity
analyses regarding these assumptions are provided in note 9.
Offsetting financial assets and liabilities
Financial assets and liabilities are set off where the Group has a legal and enforceable right to set off and there is an intention to settle the liability
and realise the asset simultaneously, or to settle on a net basis.
Convertible bonds
Bonds which are convertible to share capital, where the number of shares to be issued does not vary with changes in their fair value, are accounted
for as compound financial instruments. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and
equity components in proportion to the allocation of the proceeds. The equity component of the convertible bonds is calculated as the excess of the
issue proceeds over the present value of the future interest and principal payments, discounted at the market rate of interest applicable to similar
liabilities that do not have a conversion option. The interest expense recognised in profit or loss is calculated using the effective-interest method.
Non-current assets held for sale and discontinued operations
Non-current assets are classified as held for sale if their carrying amount will be recoverable principally through a sale transaction, not through
continuing use. The condition is regarded as met only when the sale is highly probable and the asset is available for immediate sale in its present
condition. These assets may be a component of an entity, a disposal group or an individual non-current asset. Upon initial classification as held for
sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair values less cost to sell.
A discontinued operation is a significant distinguishable component of the Group’s business that is abandoned or terminated pursuant to a single
formal plan, and which represents a separate major line of business or geographical area of operation. Classification as a discontinued operation
occurs upon disposal or when the operation meets the criteria to be classified as held for sale. A disposal group that is to be abandoned may also
qualify as a discontinued operation, but not as assets held for sale.
The profit or loss on sale or abandonment of a discontinued operation is determined from the formalised discontinuance date. Discontinued
operations are separately recognised in the financial statements once management has made a commitment to discontinue the operation without
a realistic possibility of withdrawal which should be expected to qualify for recognition as a completed sale within one year of classification.
Segment reporting
IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by
the chief operating decision-maker in order to allocate resources to the segments and to assess their performance.
Segment accounting policies are consistent with those adopted for the preparation of the financial statements of the Group. A segment is a
distinguishable component of the Group that is engaged in providing products or services which are subject to risks and rewards that are different
from those of other segments.
Information reported to the chief operating decision-maker for the purposes of resource allocation and assessment of segment performance focuses
on the types of goods or services delivered or provided. The directors of the Company have chosen to organise the Group around differences in
products and services.
Specifically, the Group’s reportable segment under IFRS 8 are as follows:
Retail
Furniture and household appliances, consumer electronics, technology, building material supplies and DIY retail.
The Furniture Retail, HiFi Corp, Connection Group and SteinBuild operating segments have been aggregated in arriving at the Retail operation
segments of the Group as they operate similarly and serve retail customers of similar backgrounds.
Consumer Finance
Consumer finance, insurance, debt management and collection services.
Automotive
Motor vehicle retail parts, accessories, servicing, short-term car rental.
Corporate
Support functions to the Group.
Contingencies and commitments
Transactions are classified as contingencies where the Group’s obligation depends on uncertain future events.
Items are classified as commitments where the Group commits itself to future transactions or if the items will result in the acquisition of assets.
Related-party transactions
Steinhoff International Holdings Limited exercises control over the issued share capital of JD Group, owning 56,4% of the issued share capital net of
treasury shares, directly and indirectly through its subsidiaries as at 30 June 2013.
All subsidiaries and associated companies of the Group are related parties. A list of the major subsidiaries and associated companies is included in
these financial statements. Details of loans to and from subsidiaries and associated companies are also provided.
JD Group Integrated Report 2013 <<
65
FINANCIAL STATEMENTS
Group statement of comprehensive income
for the year ended 30 June 2013
Restated*
10 months ended
June 2012
Rm
Notes
12 months ended
June 2013
Rm
2
32 210
25 284
27 401
(20 974)
22 071
(16 888)
6 427
5 183
4 809
(323)
(914)
3 213
(149)
(417)
Risk-adjusted consumer finance income
3 572
2 647
Operating expenses
Administration and other expenses
Depreciation and amortisation
Employees
Marketing
Occupancy
Share-based payment
Transport and travel
Capital items
(1 804)
(489)
(3 979)
(469)
(1 340)
22
(553)
(356)
(1 356)
(307)
(3 035)
(369)
(1 004)
(33)
(420)
(10)
Total operating expenses
(8 968)
(6 534)
Operating profit
Investment income
Net finance cost
Share of profit of associate
Share of loss of joint venture
3
15
16
1 031
8
(167)
2
(2)
1 296
4
(61)
2
–
5
6
872
(240)
1 241
(405)
Profit for the year
632
836
Attributable to:
Shareholders
Non-controlling interests
606
26
822
14
Profit for the year
632
836
Group statement of other comprehensive income
Profit for the year
Exchange differences on translating foreign operations
632
3
836
(3)
Total comprehensive income for the year
635
833
Attributable to:
Shareholders
Non-controlling interests
609
26
819
14
635
833
Revenue
Retail operations
Revenue
Cost of sales
#
Gross retail margin
Consumer finance#
Revenue
Net finance cost
Debtors’ costs
Profit before taxation
Taxation
3
4
5
Headline earnings
7
866
829
Earnings per share (cents)
– basic
– diluted
7
7
276,3
275,5
381,1
377,9
Headline earnings per share (cents)
– basic
– diluted
7
7
395,2
391,3
384,5
381,3
Cash equivalent dividends per share (cents)
8
232,0
232,0
*The prior year figures have been restated to reflect the correct capital gains taxation inclusion rate for deferred taxation provided on indefinite useful life intangible
assets (refer to note 1).
#
The increased focus on consumer finance products within the Group has led to a re-presentation of the statement of comprehensive income in a manner that more
appropriately reflects the results of both the Consumer Finance and other segments in the Group.
66 >> JD Group Integrated Report 2013
Group statement of financial position
as at 30 June 2013
Restated*
2012
Rm
Notes
2013
Rm
9
10
11
12
13
14
15
16
17
18
19
973
34
3
4 049
10 804
455
254
81
–
47
2 788
2 127
1 519
1 532
41
1
3 723
8 209
372
196
63
4
–
2 364
1 631
1 396
23 134
19 532
182
99
5 275
6
562
237
7 632
9
66
5 024
6
716
207
4 623
13 993
10 651
4 693
(221)
162
4 245
(245)
265
Retained earnings
Shareholders’ equity
Non-controlling interests
4 422
9 056
85
4 529
8 794
87
Total equity
9 141
8 881
23 134
19 532
Assets
Bank balances and cash
Taxation
Financial assets
Inventories
Trade, loan and other receivables
Vehicle rental fleet
Deferred taxation
Investments and loans
Interest in associate company
Interest in joint venture company
Property, plant and equipment
Intangible assets
Goodwill
Total assets
Equity and liabilities
Bank overdraft
Taxation
Trade and other payables
Provisions
Deferred taxation
Non-interest-bearing liabilities
Interest-bearing liabilities
20
21
13
20
22
Total liabilities
Stated capital
Treasury shares
Other reserves
Total equity and liabilities
23
24
25
Note: The statement of financial position is presented in order of liquidity, as permitted in terms of IAS 1. The prior year comparatives are adjusted to reflect the change.
*The prior year figures have been restated to reflect the revised capital gains taxation inclusion rate for deferred taxation provided on intangible assets and the
reclassification of shareholders for dividends to retained earnings (refer to note 1).
JD Group Integrated Report 2013 <<
67
FINANCIAL STATEMENTS
Group cash flow statement
for the year ended 30 June 2013
Notes
12 months ended
June 2013
Rm
Re-presented*
10 months ended
June 2012
Rm
1 874
(296)
1 651
(874)
1 578
(2 478)
(761)
(412)
(215)
48
2
–
777
(1 332)
(216)
21
(103)
42
–
4
Cash flows from operating activities
(2 238)
(807)
Additions to property, plant and equipment
Additions to intangible assets
Acquisition of subsidiary companies
Investment and loan (advances)/receipts
Proceeds on disposal of property, plant and equipment
Proceeds on disposal of associate company
Increase in investment in joint venture company
Shares acquired bought from non-controlling shareholders
Net cash flow on deconsolidation of subsidiary
Loan repaid by associate
(1 104)
(121)
(259)
(9)
45
12
(33)
(12)
(13)
–
(1 143)
–
(105)
21
35
126
–
–
–
2
Cash flows from investing activities
(1 494)
(1 064)
Long-term borrowings raised
Long-term borrowings repaid
Finance lease liabilities raised
Finance lease liabilities repaid
Proceeds on disposal of treasury shares by share incentive trust
Acquisition of shares by share incentive trust
Share-based payment settled
Funding from non-controlling shareholders
Dividends paid to non-controlling shareholders
Convertible bonds raised
4 304
(1 302)
538
(531)
7
–
(8)
–
(8)
–
1 693
(738)
421
(345)
10
(2)
(5)
20
(8)
1 000
Cash flows from financing activities
3 000
2 046
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
(732)
1 523
175
1 348
791
1 523
Cash generated by trading
Increase in working capital
Cash generated by operations
Net increase in instalment sale and loan receivables
Dividends paid
Taxation (paid)/received
Finance costs paid
Interest received
Dividends received
Investment income
Cash and cash equivalents at end of year
26
27
28
29
30
*The prior year cash flow numbers have been re-presented, in line with the current year classification, to reflect the cash flows on the acquisition and disposal of rental
fleet vehicles under operating activities (previously under investing activities) as well as the re-presentation of Consumer Finance’s interest paid included in cash
generated by trading, as a result of the income statement reclassification due to increased consumer finance products within the Group (refer to statement of
comprehensive income).
68 >> JD Group Integrated Report 2013
Group statement of changes in equity
for the year ended 30 June 2013
Stated capital
Rm
Treasury
shares
Rm
Other
reserves
Rm
Balance at 31 August 2011
Profit attributable to shareholders
Translation of foreign entities
Distribution to non-controlling interests
Refinancing of non-controlling interests
Dividends paid to shareholders
Dividends paid to share incentive trust
Reserves in discontinued operations
Disposal of subsidiaries
Convertible bond – equity portion
– deferred taxation
Premium on acquisition of shares from
non-controlling interests
Shares purchased by share incentive trust
Proceeds on disposal of treasury shares
by share incentive trust
Loss on disposal of treasury shares
included in retained earnings
Share-based payment
Share-based payment paid
Transfer from statutory reserve
4 245
(263)
231
Balance at 30 June 2012 as restated
4 245
Profit attributable to shareholders
Translation of foreign entities
Distribution to non-controlling interests
Dividends paid to shareholders
Dividends paid to share incentive trust
Shares issued
Disposal of subsidiaries
Premium on acquisition of shares
from non-controlling interests
Proceeds on disposal of treasury
shares by share incentive trust
Loss on disposal of treasury shares
included in retained earnings
Share-based payment
Share-based payment paid
Transfer from statutory reserve
Balance at 30 June 2013
Restated
Retained
earnings
Rm
Noncontrolling
interests
Rm
Discontinued
operations
(ABRA)
Rm
3 860
822
58
14
34
(3)
(8)
20
(220)
4
34
(3)
(34)
(4)
71
(20)
Total
Rm
8 165
836
(3)
(8)
20
(220)
4
–
(7)
71
(20)
(2)
7
7
(2)
10
10
10
(245)
(10)
–
33
(5)
–
33
(5)
(42)
42
265
4 529
87
606
26
–
(19)
632
3
(8)
(774)
13
448
(19)
(1)
(12)
3
(8)
(774)
13
448
(11)
8 881
7
7
17
4 693
(221)
(17)
(22)
(8)
(65)
65
162
4 422
–
(22)
(8)
–
85
–
9 141
JD Group Integrated Report 2013 <<
69
FINANCIAL STATEMENTS
Segmental analysis
for the year ended 30 June 2013
Retail*
Revenue
Operating profit
Depreciation and amortisation
Total assets
Total current liabilities
Capital expenditure
Operating margin
Number of stores
Instalment sale and other loan
receivables
Impairment provision
Bad debts written off
Rm
Rm
Rm
Rm
Rm
Rm
%
Consumer Finance
12 months ended
30 June 2013
10 months ended
30 June 2012
12 months ended
30 June 2013
10 months ended
30 June 2012
12 562
383
142
3 181
2 032
1 204
3,0
1 193
10 380
488
105
2 996
2 344
180
4,7
1 186
4 809
862
62
10 958
511
126
17,9
3 213
643
35
7 930
280
230
20,0
9 731
966
505
7 253
557
405
Rm
Rm
Rm
The segmental analysis has been presented to reflect the current Group reporting structure in terms of IFRS 8 and as a result the prior year
was re-presented.
* Includes the Furniture Retail chains, HiFi Corp, Incredible Connection and SteinBuild.
Elimination of inter-divisional origination fees.
Includes all impairment losses under note 18.
#
$
70 >> JD Group Integrated Report 2013
Automotive
Corporate
12 months ended
30 June 2013
10 months ended
30 June 2012
15 504
472
134
6 096
2 951
816
3,0
114
12 194
411
113
5 379
2 358
488
3,4
115
12 months ended
30 June 2013
(665)#
(686)$
151
2 899
2 086
314
Group
10 months ended
30 June 2012
12 months ended
30 June 2013
10 months ended
30 June 2012
(503)
(246)
54
3 227
1 207
714
32 210
1 031
489
23 134
7 580
2 460
3,2
1 307
25 284
1 296
307
19 532
6 189
1 612
5,1
1 301
9 731
966
505
7 253
557
405
JD Group Integrated Report 2013 <<
71
FINANCIAL STATEMENTS
Notes to the Group financial statements
for the year ended 30 June 2013
1.
Restatement of comparatives
Re-presentation of statement of comprehensive income
The increased focus on consumer finance products within the Group has led to a re-presentation of the statement of comprehensive income
in a manner that more appropriately reflects the results of both the Consumer Finance and other segments in the Group.
Re-presentation of statement of financial position
The statement of financial position is presented in order of liquidity, as allowed in terms of IAS 1. The prior year comparatives are adjusted to
reflect the change.
Re-presentation of segment analysis
The segmental analysis has been presented to reflect the current Group reporting structure in terms of IFRS 8 and as a result the prior year
was re-presented.
Deferred taxation
In the prior year the Income Tax Act was amended to state that capital gains taxation would in future be calculated at an inclusion rate of 66%
(previously 50%). Despite the legislation change only being promulgated subsequent to the year end, IAS 12 Income Tax, requires deferred
taxation to be measured at taxation rates expected to apply when the asset is realised or the liability settled, based on the taxation rates
substantively enacted by the end of the reporting period.
eferred taxation on certain intangible assets was incorrectly raised at the previous inclusion rate of 50%. The deferred taxation was restated
D
at the revised inclusion rate which resulted in a prior period restatement of taxation and deferred taxation of R55 million. The restatement had
the following effect on comparative amounts:
Taxation
Deferred taxation liabilities
Retained income
Amounts as
previously reported
Rm
Amounts as restated
Rm
350
661
4 584
405
716
4 529
4 028
4 529
12 months ended
June 2013
Rm
10 months ended
June 2012
Rm
25 461
2 257
1 881
1 437
727
447
20 446
1 404
1 268
1 162
533
471
Reclassification of vehicle rental fleet and interest paid in cash flow statement
The prior year cash flow numbers have been reclassified, in line with the current year
classification, to reflect the cash flows on the acquisition and disposal of rental fleet
vehicles under operating activities (previously under investing activities) as well as the
representation of Consumer Finance’s interest paid included in cash generated by trading.
Reclassification of shareholders for dividend prior period
Shareholders for dividends of R501 million included in equity in the prior period were
reclassified to retained earnings.
2.
3.
Revenue
Sale of merchandise
Finance charges earned
Financial services
Other services
Car service sales
Car rental
32 210
25 284
Finance costs – net
Finance costs
Interest paid – finance leases
– bank
– interest-bearing liabilities
– other
25
13
439
61
21
7
154
70
Net interest paid
538
252
Finance income
Interest received
(48)
(42)
Net finance costs
490
210
Net finance costs are included in the statement of comprehensive income as follows:
Consumer finance operations
Other operations
323
167
149
61
490
210
72 >> JD Group Integrated Report 2013
4.
5.
Debtors’ costs
Increase in impairment provision of instalment sales receivable
Bad debts written off net of post write-off recoveries
Profit before taxation
Is stated after taking account of the following items:
Auditors’ remuneration
Audit fees – current year
– prior year
12 months ended
June 2013
Rm
10 months ended
June 2012
Rm
409
505
12
405
914
417
17
–
15
1
17
16
Depreciation of property, plant and equipment
261
193
Depreciation on vehicle rental fleet
100
87
Amortisation of intangible assets
128
27
(2)
(3)
962
29
735
36
991
771
220
–
141
10
220
151
Write-down of inventories to net realisable value
65
53
Profit on disposal of associate company
(8)
–
Loss on disposal of property, plant and equipment and scrapping of rental fleet
Impairment of property, plant and equipment
Impairment of goodwill
Impairment of intangible assets
Profit on disposal of business interests
2
5
12
345
(8)
10
–
–
–
–
Capital items
356
10
Foreign exchange gains
Operating leases
Business premises
Office equipment
Retirement benefit costs
Defined contribution funds
Defined benefit funds
JD Group Integrated Report 2013 <<
73
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
12 months ended
June 2013
Rm
6.
Taxation
South African taxation
Normal – current year
– prior year
Deferred – current year
– prior year
– rate change
Secondary taxation on companies
Restated
10 months ended
June 2012
Rm
452
(6)
(208)
(1)
–
–
304
(2)
17
2
55
22
237
398
6
–
3
(6)
6
3
–
(2)
3
7
Total taxation
240
405
Dealt with as follows:
Current taxation
Deferred taxation
452
(212)
333
72
240
405
Reconciliation of tax charge
Domestic standard normal rate of taxation
%
28,0
%
28,0
Taxation at standard rate
Adjusted for
Current taxation – prior year adjustment
Deferred taxation – prior year adjustment
Expenditure disallowed
Exempt income
Movement in unutilised tax losses
Secondary taxation on companies
Rate change
244,0
347,0
(6,0)
(7,0)
99,0
(98,0)
8,0
–
–
2,0
–
7,0
(19,0)
(9,0)
22,0
55,0
Taxation charged to income
240,0
405,0
Effective rate of taxation
27,5
32,7
Estimated tax losses available for set off against future taxable income
Taxation losses available
Deferred taxation assets not raised
619
(45)
555
(219)
Deferred taxation assets raised
574
336
Effective taxation assets at country rate of tax
161
95
Foreign taxation
Normal – current year
– prior year
Deferred – current year
– prior year
Deferred tax assets relating to tax losses of R45 million (2012: R219 million) have not been raised in accordance with Group policy as the
probability of utilising these losses in the foreseeable future is considered to be remote.
74 >> JD Group Integrated Report 2013
7.
Earnings per share and headline earnings per share
Weighted average number of shares in issue during the year
Basic earnings per share
2013
Number of shares
(’000)
2012
Number of shares
(’000)
219 157
215 742
Cents
Cents
276,3
381,1
Reconciliation to headline earnings
Profit attributable to shareholders
Impairment of goodwill, property, plant and equipment and intangible assets
Loss on disposal of property, plant and equipment and scrapping of rental fleet
Profit on disposal of business interests
Taxation thereon
606
362
2
(8)
(96)
822
–
10
–
(3)
Headline earnings
866
829
395,2
384,5
2013
Number of shares
(’000)
2012
Number of shares
(’000)
Diluted
Weighted average number of shares in issue during the year
Dilutive effect of bonus element in share options
Dilutive effect of convertible bonds#
219 157
615
–
215 742
1 230
580
Diluted weighted average number of shares in issue for calculation of basic
earnings per share
Dilutive effect of convertible bonds#
219 772
17 837
217 552
–
Diluted weighted average number of shares in issue for calculation of headline
earnings per share
237 609
217 552
Cents
Cents
Diluted earnings per share
275,5
377,9
Diluted headline earnings per share
391,3
381,3
Distribution to shareholders
Interim dividend
– 115 cents on 229 338 322 shares (2012: 100 cents on 219 830 000 shares)
264
220
Final dividend (proposed)
– 117 cents on 229 338 322 shares (2012: 132 cents on 219 830 000 shares)
268
290
Total distribution to shareholders for year
532
510
Headline earnings per share
#
The convertible bond has an anti-dilutive effect on the current year’s basic earnings per share.
Consequently, the number of shares relating to the convertible bond is only included in the
calculation of the shares for purpose of diluted headline earnings per share.
The above are calculated based on R000 amounts.
8.
JD Group Integrated Report 2013 <<
75
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
9.
Financial instruments
9.1Capital risk management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximising the return
to stakeholders through the optimisation of the debt and equity balance. The Group’s overall strategy remains unchanged from 2012.
The capital structure of the Group consists of debt, which includes borrowings and finance leases disclosed in note 22, cash and cash
equivalents and equity attributable to equity holders of the parent, comprising issued capital, reserves and retained earnings as disclosed
in the statement of changes in equity and notes 23 to 25.
9.1.1 Gearing ratio
The Group’s Risk Management committee reviews the capital structure on a semi-annual basis. As part of this review, the committee
considers the cost of capital and the risks associated with each class of capital.
The gearing ratio at year end was as follows:
2013
Rm
7 558
(791)
Debt(i)
Cash and cash equivalents
Restated
2012
Rm
4 623
(1 523)
Net debt(ii)
6 767
3 100
Shareholders’ equity(iii) – Restated
9 056
8 794
75
35
11,00
2,30
6,15
7,35
2,00
3,50
Net debt-to-equity ratio (%)
Debt is defined as long- and short-term borrowings, as detailed in note 22, excluding accrued interest.
(ii)
Cash and cash equivalents include bank balances and overdrafts.
(iii)
Equity includes all capital and reserves of the Group.
(i)
9.1.2 Capital adequacy cover
JD Group – Micro Life
JD Group – Micro Insurance
Unisure
9.2Categories of financial instruments
9.2.1 Financial assets
Designated at
fair value
through
profit/loss
Rm
Loans and
receivables
Rm
Held to maturity
Rm
Non-financial
instruments
Rm
Total
carrying value
Rm
–
–
3
–
–
–
–
69
–
–
–
–
72
777
–
–
–
10 587
–
–
12
–
–
–
–
11 376
196
–
–
–
–
–
–
–
–
–
–
–
196
–
34
–
4 049
217
455
254
–
47
2 788
2 127
1 519
11 490
973
34
3
4 049
10 804
455
254
81
47
2 788
2 127
1 519
23 134
–
–
1
–
–
–
–
63
–
–
–
–
64
1 337
–
–
–
8 015
–
–
–
–
–
–
–
9 352
195
–
–
–
–
–
–
–
–
–
–
–
195
–
41
–
3 723
194
372
196
–
4
2 364
1 631
1 396
9 921
1 532
41
1
3 723
8 209
372
196
63
4
2 364
1 631
1 396
19 532
2013
Assets
Bank balances and cash
Taxation
Financial assets
Inventories
Trade and other receivables
Vehicle rental fleet
Deferred taxation
Investments and loans
Interest in joint venture company
Property, plant and equipment
Intangible assets
Goodwill
Total assets
2012 – Restated
Assets
Bank balances and cash
Taxation
Financial asset
Inventories
Trade and other receivables
Vehicle rental fleet
Deferred taxation
Investments and loans*
Interest in associates
Property, plant and equipment
Intangible assets
Goodwill
Total assets
* Reclassified from available-for-sale financial assets.
76 >> JD Group Integrated Report 2013
9.
Financial instruments continued
9.2
Categories of financial instruments continued
9.2.2 Financial liabilities
2013
Bank overdraft
Taxation
Trade and other payables
Provisions
Deferred taxation
Non-interest-bearing long-term liabilities
Interest-bearing liabilities
Financial liabilities
at amortised cost
Rm
Non-financial
instruments
and equity
Rm
Total carrying value
Rm
182
–
4 929
–
–
–
7 632
–
99
346
6
562
237
–
182
99
5 275
6
562
237
7 632
12 743
1 250
13 993
2012 – Restated
Bank overdraft
Taxation
Trade and other payables
Provisions
Deferred taxation
Non-interest-bearing long-term liabilities
Interest-bearing liabilities
9
–
4 526
–
–
–
4 623
–
66
498
6
716
207
–
9
66
5 024
6
716
207
4 623
Total
9 158
1 493
10 651
Total
9.2.3 Financial liabilities
IFRS 7 Financial Instruments: Disclosure (IFRS 7) has established a three-level hierarchy for making fair value measurements:
• Level 1 – Unadjusted quoted prices for financial assets and financial liabilities traded in an active market for identical financial assets or
financial liabilities
• Level 2 – Inputs other than quoted prices included in Level 1 that are observable for the financial asset or financial liability, either directly
(i.e. as prices) or indirectly (i.e. derived from prices)
• Level 3 – Inputs for the financial asset or financial liability that are not based on observable market data
The fair value of investment and loans has been classified as a Level 2 determination. The fair value of forward exchange contracts has been
classified as a Level 2 determination.
9.3 Financial risk management objectives
Senior executives meet on a regular basis to analyse interest rate exposures and evaluate treasury management strategies against revised
economic forecasts. Compliance with Group policies and exposure limits is reviewed at quarterly meetings of the Board. The directors believe,
to the best of their knowledge, that there are no undisclosed financial risks.
These risks include market risk (currency risk and fair value interest rate risk), credit risk, liquidity risk and cash flow interest rate risk.
The Group does not enter into or trade financial instruments for speculative purposes.
9.3.1 Market risk
The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates (see note 9.3.2) and interest
rates (see note 9.3.3). The Group may enter into a variety of derivative financial instruments to manage its exposures to interest rate and
foreign currency risk. As at the reporting date the Group had entered into forward exchange contracts to hedge the exchange rate risk arising
on the importation of goods for sale.
There has been no other change to the Group’s exposure to market risks or the manner in which it manages and measures the risk.
9.3.2 Foreign currency risk management
The Group undertakes certain transactions denominated in foreign currencies. Hence, exposures to exchange rate fluctuations arise.
Exchange rate exposures are managed within approved policy parameters utilising forward exchange contracts.
The fair value of forward exchange contracts has been classified as a Level 2 determination.
All the Group financial assets and liabilities are denominated in the functional currency of the relevant reporting entities.
Foreign currency sensitivity analysis
The Group is mainly exposed to fluctuations in pula and dollars. However, as most of the foreign currency denominated assets and liabilities
are located in the Group’s foreign operations, fluctuations in exchange rates between these currencies and the South African rand are
reflected in the movement in the foreign currency translation reserve and not in the Group’s income statement. Refer to the statement of
changes in equity.
JD Group Integrated Report 2013 <<
77
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
9.
Financial instruments continued
9.3
Financial risk management objectives continued
9.3.2 Foreign currency risk management continued
The closing rates used to translate assets and liabilities denominated in foreign currency at year end were as follows:
Euro
Metical
Pula
US dollar
Zloty
Kwacha
Rupee
2013
2012
12,859
0,332
1,154
9,930
2,967
1,799
0,306
10,460
0,299
1,103
8,285
2,407
0,002
0,278
Forward exchange contracts
It is the policy of the Group to enter into forward exchange contracts to cover specific foreign currency payments and receipts based on
a predefined profile that takes into account the future expected date of payment or receipt. The writing of option contracts is prohibited.
The amounts presented below represent the rand equivalents of commitments to purchase foreign currencies and all of these commitments
mature within six months of the year end.
Foreign currency
000
Rand equivalent
R000
Market value
R000
Fair value
R000
Covered forward commitments
2013
US dollars – purchase
5 416
52 312
55 097
2 785
2012
US dollars – purchase
6 499
54 371
53 872
498
The fair values of the forward exchange contracts of R2,8 million (2012: R0,5 million) are included in financial assets and financial liabilities.
9.3.3 Interest rate risk management
The Group is exposed to interest rate risk as entities in the Group borrow funds with both fixed and floating interest rates. As part of the
process of managing the Group’s fixed and floating rate borrowings mix, the interest rate characteristics of new borrowings and the
refinancing of existing borrowings are positioned according to expected movements in interest rates.
In order to hedge specific exposures in the interest rate repricing profile of existing borrowings and anticipated peak additional borrowings,
the Group may make use of interest rate derivatives, only as approved in terms of Group policy limits.
Interest rates charged to customers on credit agreements are fixed for the duration of the contract. The interest rates charged to customers
are set at the time the deal is written.
Interest earned on short-term cash surpluses invested with major banking institutions is earned at variable market-related rates.
The Group entered into an interest rate swap agreement, for the JDG01 note issued in terms of the Domestic medium term note programme
(refer note 22) where fixed interest is paid at 7,17% and variable interest received of three-month JIBAR plus 1,83% on a notional amount of
R1 000 million. The swap commenced on 30 April 2013 and terminates on 30 October 2015.
Interest rate sensitivity analysis
The sensitivity analysis below has been determined based on the exposure to interest rates for both financial assets and financial liabilities at
the reporting date. For floating rate liabilities, the analysis is prepared assuming that the amount of the liability outstanding at the reporting
date was outstanding for the whole year. A 100 basis points increase or decrease in interest rates is used when reporting interest rate risk
internally to key management personnel and represents management’s assessment of the reasonable change in interest rates.
If interest rates had been 100 basis points higher/lower and all other variables were constant, the Group’s profit for the year ended
30 June 2013 would decrease/increase by R31,3 million (2012: decrease/increase by R19,9 million).
T his is mainly attributable to the Group’s exposure to interest rates on its variable rate borrowings and variable rate short-term
cash investments.
9.4Credit risk management
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the Group.
Potential concentrations of credit risk consist principally of short-term cash investments and trade and instalment sale receivables.
With regard to short-term cash investments, the Group has adopted a policy of dealing only with creditworthy counterparties as a means
of mitigating the risk of financial loss from defaults. The Group transacts only with entities that are rated the equivalent of investment grade
and above. This information is supplied by independent rating agencies where available and, if not available, the Group uses other publicly
available financial information and its own trading records to rate its customers. The Group’s exposure and the credit ratings of such
counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst its approved counterparties.
Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. At present,
the Group deposits short-term cash surpluses between five major South African banks of high credit standing, and where appropriate, are
held in short-term Government Treasury Bills.
78 >> JD Group Integrated Report 2013
9.
Financial instruments continued
9.4Credit risk management continued
Trade and instalment sale and loan receivables comprise a large, widespread customer base. The Group manages and grants credit based on
a combination of empirically developed applications, behaviour and credit bureau scoring models. These models (and accompanying business
rules) are reviewed, approved by JD Consumer Finance Proprietary Limited’s Credit Risk committee and updated on an ongoing basis. Credit
is therefore granted based on the Group’s appetite for risk and within the ambit of relevant regulations. Our third generation behaviour
scorecards, in addition to the information sourced from the credit bureau, enable the Group to measure the credit risk of customers during the
application phase with a higher degree of sophistication, further reducing our credit risk.
As at 30 June 2013, the Group did not consider that any significant concentration of credit risk existed in the instalment sale receivables book
which had not been adequately provided for.
The tables below provide an analysis of credit risk exposures inherent in the instalment sale and loan receivables at the year-end reporting
dates, reconciled to the carrying value of net instalment sale receivables as reported in note 11.
2013
Credit exposures by class
Up to date
Rehabilitated
Arrears ≤ one instalment
Arrear > one instalment
Arrear ≤ 2 instalments
Arrear ≤ 3 instalments
Arrear ≤ 4 instalments
Arrear ≤ 5 instalments
Arrear >5 instalments
Class 1
Rm
Class 2
Rm
Class 3
Rm
Class 4
Rm
Total
Rm
1 049
6
70
447
1 591
5
187
1 385
1 063
7
145
1 143
1 508
11
173
941
5 211
29
575
3 916
58
53
46
41
249
171
156
138
123
797
138
127
112
98
668
161
139
128
110
403
528
475
424
372
2 117
1 572
3 168
2 358
2 633
9 731
Roll forward of the impairment
provision
Balance at the beginning of the year
Bad debts written off net post
write-off recoveries
Increase in impairment provision
71
201
146
139
557
(48)
105
(203)
342
(184)
323
(70)
144
(505)
914
Balance at the end of the year
128
340
285
213
966
Net carrying value
1 444
2 828
2 073
2 420
8 765
2012
Credit exposures by class
Up to date
Rehabilitated
Arrears ≤ one instalment
Arrear > one instalment
1 026
29
135
216
1 710
81
348
628
837
36
304
656
875
9
172
191
4 448
155
959
1 691
34
26
24
19
113
95
75
65
58
335
114
81
66
57
338
38
26
19
19
89
281
208
174
153
875
1 406
2 767
1 833
1 247
7 253
83
(53)
41
230
(174)
145
159
(137)
124
74
(40)
105
546
(404)
415
Arrear ≤ 2 instalments
Arrear ≤ 3 instalments
Arrear ≤ 4 instalments
Arrear ≤ 5 instalments
Arrear >5 instalments
Roll forward of the impairment
provision
Balance at the beginning of the year
Bad debts written off
Increase in impairment provision
Balance at the end of the year
Net carrying value
71
201
146
139
557
1 335
2 566
1 687
1 108
6 696
JD Group Integrated Report 2013 <<
79
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
9.
Financial instruments continued
9.4Credit risk management continued
Definitions applied in compiling these tables:
The ‘classes’ have been determined on the basis of the market segment in which the individual trading brands operate.
Class 1 = Bradlows, Morkels and Hi-Finance
Class 3 = Barnetts, Price ’n Pride and Supreme
Class 2 = Joshua Doore, Russells and Electric Express
Class 4 = Personal loan and third parties
The debtors book has been analysed into the following types of accounts, reflecting the accounts in the following categories:
a. Up to date
These accounts have no arrears, are therefore up to date and are therefore neither past due nor impaired. An unidentified impairment is
raised for these accounts.
b. Rehabilitated
These accounts, while being in arrears and considered past due, have paid their last six instalments. An unidentified impairment is raised for
these accounts.
c. Arrears ≤ one instalment
These accounts are in arrears by less than one contractual instalment and are considered to be past due. Arrears is defined as less than 95%
of an instalment. An unidentified impairment is raised for these accounts.
d. Arrears > one instalment
These accounts are in arrears by more than one contractual instalment. Arrears is defined as less than 95% of a contractual instalment. Accounts that are two instalments in arrears carry an unidentified impairment provision, while accounts that are three and more instalments
in arrears carry an identified impairment provision.
Risk analysis –
up to date accounts
2013
Low risk
Medium risk
High risk
Total up to date accounts
2012
Low risk
Medium risk
High risk
Total up to date accounts
Class 1
Rm
Class 2
Rm
Class 3
Rm
Class 4
Rm
Total
Rm
469
244
336
542
564
485
244
435
384
728
458
322
1 983
1 701
1 527
1 049
1 591
1 063
1 508
5 211
567
168
291
766
303
641
309
163
365
353
166
356
1 995
800
1 653
1 026
1 710
837
875
4 448
The Group allocates all customers into 13 (2012: 12) possible credit risk grades (RG) based on the Bureau and the internal behaviour scores.
The Group considers RG0 to RG3 as high-risk customers, RG4 to RG6 as medium-risk customers and RG7 to RG13 as low-risk customers.
The tables below provide an analysis of credit risk exposures inherent in trade receivables at the year-end reporting dates, reconciled to the
carrying value of the trade receivables as reported in note 11. By nature of their classification, these are receivable within one year.
2013
Rm
2012
Rm
893
161
497
109
One month
Two months
Three and more months
75
26
60
70
15
24
Impaired
51
53
1 105
(51)
659
(53)
Not past due
Past due but not impaired
Provision for impairment
1 054
606
Roll forward of the impairment provision
Balance at the beginning of the year
Bad debts written off
Increase in impairment provision
53
(20)
18
53
(22)
22
Balance at the end of the year
51
53
Other receivables have not been impaired and are not past due.
80 >> JD Group Integrated Report 2013
9.
Financial instruments continued
9.4Credit risk management continued
9.4.1 Liquidity risk management
Ultimate responsibility for liquidity risk management rests with the Board of directors, which has built in an appropriate liquidity risk
management framework for the management of the Group’s short-, medium- and long-term funding and liquidity management requirements.
The Group manages liquidity risk by maintaining adequate reserves, banking facilities and reserve borrowing facilities, by continuously
monitoring forecast and actual cash flows and matching the maturity profiles of financial assets and liabilities.
Included below is a listing of additional undrawn facilities that the Group has at its disposal to further reduce liquidity risk. All facilities listed
are held with reputable banking institutions.
Banking facilities
Total banking and loan facilities
Domestic medium-term note programme
Bank borrowings (note 22)
Domestic medium-term note programme (note 22)
Unutilised banking facilities
2013
Rm
2012
Rm
5 793
8 000
5 108
–
13 793
(3 145)
(3 075)
5 108
(3 209)
–
7 573
1 899
In addition, the Group had net cash on hand of R791 million (2012: R1 523 million) at year end.
The contractual maturity profile of financial liabilities of the Group is analysed further in the tables below. The contractual payments for
interest bearing liabilities include both capital and interest payable.
0 – 6 months
Rm
7 – 12 months
Rm
> 1 year
Rm
2 – 5 years
Rm
Total
Rm
766
4 687
182
1 413
241
–
2 038
–
–
4 413
–
–
8 630
4 928
182
5 635
1 654
2 038
4 413
13 740
723
4 298
9
415
718
–
893
–
–
3 324
–
–
5 355
5 016
9
5 030
1 133
893
3 324
10 380
2013
Interest-bearing liabilities
Trade and other payables
Bank overdraft
2012
Interest-bearing liabilities
Trade and other payables
Bank overdraft
2013
Rm
10.
Inventories
Merchandise net of obsolescence
Provision for write down to net realisable value
Restated
2012
Rm
4 094
(45)
3 760
(37)
4 049
3 723
JD Group Integrated Report 2013 <<
81
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
11.
2013
Rm
Restated
2012
Rm
Trade, loan and other receivables
Secured loans
Unsecured loans
6 953
2 778
6 167
1 086
Instalment sale and loan receivables(1)
Less: Impairment provision
9 731
(966)
7 253
(557)
8 765
6 696
1 105
(51)
659
(53)
1 054
606
Trade receivables
Less: Impairment provision
985
907
10 804
8 209
9,9
7,7
The maturity profile of instalment sale and loan receivables is as follows:
– receivable within one year
– receivable thereafter
6 644
3 087
4 800
2 453
Total instalment sale and loan receivables
9 731
7 253
Vehicle rental fleet
Opening balance
Cost
Accumulated depreciation
451
(79)
426
(57)
Net book value
372
369
Additions
Depreciation
Transfer to inventories
Cost
Accumulated depreciation
785
(100)
469
(87)
(703)
101
(444)
65
At the end of the year
Cost
Accumulated depreciation
533
(78)
451
(79)
Total net book value
455
372
Other receivables
Total trade, loan and other receivables
Provisions as a percentage of instalment sale and loan receivables (%)
The credit terms of instalment sale and loan receivables range from 3 to 36 months.
The directors consider the carrying amount of trade and other receivables to approximate
their fair values.
Classified as originated loans and receivables and carried at amortised cost.
(1)
12.
Vehicle fleet assets with a net book value of R302 million (2012: R260 million) are encumbered under part of the finance lease liabilities as
described in note 22.
The vehicle rental fleet is depreciated over the period of the buy-back agreement (9 to 12 months) or estimated holding period at 20% p.a.
82 >> JD Group Integrated Report 2013
2013
Rm
13.
Deferred taxation
Amount provided at the beginning of the year
Deferred taxation asset on deconsolidation of subsidiary companies
Deferred taxation at acquisition of subsidiary companies
Charged to statement of comprehensive income (note 6)
Equity component of convertible bonds
Rate change relating to prior year balance (note 1)
The deferred taxation provision comprises the following temporary differences:
Instalment sale receivables’ allowances
Provisions disallowed and equalisation of operating lease costs
Intangible assets
Assets unrealised
Payments in advance
Taxation losses (note 6)
Equity component of convertible bonds
Share-based payments
Other
Deferred taxation is disclosed as:
Asset
Liability
14.
14.1
Investments and loans
Unlisted
Shares and investments at fair value
Loan
Directors’ valuation of unlisted investments
Restated
2012
Rm
520
1
(1)
(212)
–
–
428
–
–
17
20
55
308
520
352
(195)
212
7
14
(161)
17
(24)
86
403
(112)
304
(36)
57
(95)
20
–
(21)
308
520
(254)
562
(196)
716
308
520
69
12
63
–
81
63
69
63
The loan arose on disposal of the Group’s share in Censeo Proprietary Limited and bears interest at prime and is receivable over five years.
JD Group Integrated Report 2013 <<
83
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
15.
2013
Rm
Restated
2012
Rm
Interest in associate company
Shares at cost
Attributable share of post-acquisition retained earnings
– Opening equity accounted profit
– Current year equity accounted profit
– Dividends received
–
–
4
2
(2)
2
2
–
Total investment
– Disposal
4
(4)
4
–
Carrying value
–
4
Aggregate financial information in respect of associate company
The information presented for the year ended 30 June 2013:
Statement of financial position
Non-current assets
Current assets
–
–
5
13
Total assets
–
18
Capital and reserves
Current liabilities
–
–
8
10
Total equity and liabilities
–
18
Statement of comprehensive income
Profit before tax
Tax
–
–
7
(2)
Profit after tax
–
5
50
–
(3)
(2)
2
–
–
–
47
–
98
9
–
–
107
–
90
2
15
–
–
–
107
–
Statement of comprehensive income
Loss before tax
Tax
6
(2)
–
–
Loss after tax
4
–
Nature of business
Blake and Associates Proprietary Limited, a subsidiary of the Group, had a 37,5% interest
in Censeo Proprietary Limited which it disposed of during the year to non-controlling
shareholders of the business. Refer to note 14.
16.
Interest in joint venture company
Interest in joint venture
Shares at cost
Attributable share of post-acquisition retained earnings
– Opening equity previously consolidated
– Current year equity accounted loss
– Loan to joint venture
Total investment
Nature of business
Ariva Proprietary Limited is a joint venture in which the Group has a 50% shareholding.
The company provides full maintenance vehicle leasing services.
Aggregate financial information in respect of the joint venture company
The information presented for the period ended 30 June 2013:
Statement of financial position
Non-current assets
Current assets
Total assets
Capital and reserves
Non-current liabilities
Current liabilities
Total equity and liabilities
Ariva Proprietary Limited was previously consolidated as a subsidiary. During the current year the level of control (50%) was reassessed and a
decision was taken to account for the entity as a joint venture company (refer to note 30) in accordance with the Group’s accounting policy to
equity account.
84 >> JD Group Integrated Report 2013
Leasehold
improveProperty
ments
Rm
Rm
17.
Property, plant and equipment
30 June 2013
At the beginning of the year
Cost
Accumulated depreciation
Net book value
Reclassification of assets under
construction
Transfer to intangible assets (note 18)
Cost
Accumulated depreciation
Impairment
Acquisition/(disposal) of subsidiaries
Cost
Accumulated depreciation
Additions#
Depreciation
Disposals
Cost
Accumulated depreciation
At the end of the year
Cost
Accumulated depreciation
and impairment
Vehicles
and
forklift
trucks
Rm
Computer
hardware
Rm
Computer
software
Rm
Furniture
Assets
and under confittings struction*
Rm
Rm
Total
2013
Rm
427
(4)
562
(284)
286
(127)
198
(149)
91
(65)
440
(265)
1 254
–
3 258
(894)
423
278
159
49
26
175
1 254
2 364
555
59
–
202
–
9
(825)
–
–
–
(5)
–
–
–
–
–
–
–
–
–
(91)
65
–
–
–
–
(810)
–
–
(901)
65
(5)
1
–
461
(8)
5
(2)
120
(100)
(16)
(3)
19
(27)
5
(3)
26
(71)
–
–
–
–
23
(12)
41
(55)
–
–
884
–
18
(20)
1 551
(261)
(3)
2
(60)
54
(39)
31
(22)
22
–
–
(50)
42
–
–
(174)
151
1 441
686
250
409
–
463
503
3 752
(15)
(332)
(126)
(201)
–
(290)
–
(964)
Total net book value
1 426
354
124
208
–
173
503
2 788
Depreciation rates (%)
Directors’ valuation of property
3–5
10 – 20 12.5 – 20 20 – 33.3 10 – 33.3
10 – 25
–
2 019
Includes capitalised interest of R18 million at an average weighted cost of debt of 7,7% as well as properties of R447 million acquired through
the issue of shares to Steinhoff.
#
30 June 2012
At the beginning of the year
Cost
Accumulated depreciation
Net book value
Reclassified as held for sale
Cost
Accumulated depreciation
Additions
Depreciation
Disposals
Cost
Accumulated depreciation
Foreign currency translation
Cost
Accumulated depreciation
At the end of the period
Cost
Accumulated depreciation
and impairment
Total net book value
Depreciation rates (%)
Directors’ valuation of property
294
(10)
486
(241)
248
(111)
184
(133)
78
(46)
421
(242)
512
–
2 223
(783)
284
245
137
51
32
179
512
1 440
–
–
141
(2)
(8)
(8)
–
–
–
108
(74)
(32)
(32)
–
–
–
71
(25)
(33)
(33)
–
(5)
5
38
(36)
(19)
(19)
–
5
(5)
10
(15)
(2)
(2)
–
–
–
46
(41)
(27)
(27)
–
–
–
742
–
–
–
–
–
–
1 156
(193)
(121)
(121)
–
–
8
–
31
–
9
–
15
–
1
–
18
–
–
–
82
427
562
286
198
91
440
1 254
3 258
(4)
(284)
(127)
(149)
(65)
(265)
–
(894)
423
278
159
49
26
175
1 254
2 364
20 12.5 – 20
25
25
10 – 25
–
3 – 5.5
* Capitalised assets under construction comprises:
– Property development
– Software development
1 012
2013
Rm
2012
Rm
336
167
809
445
503
1 254
JD Group Integrated Report 2013 <<
85
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
17.
Property, plant and equipment continued
A register of property is available for inspection by members at the registered office of the Company.
A n impairment charge of R5 million was recorded for the year ended 30 June 2013 (2012: Rnil) on four of the Group’s properties where
the carrying value exceeded the recoverable amount. The recoverable amount was based on the latest property valuation performed by an
independent property valuer. This valuation formed the basis of the impairment calculation, with fair value less costs to sell determined to be
its recoverable amount.
T here was no change in the nature of property, plant or equipment or in the policy regarding their use. Refer note 35 for applicable
judgements and estimates.
T he directors have used an independent valuator in arriving at their valuation of the 19 newly acquired dealerships from Steinhoff Properties
Proprietary Limited.
A ssets with a net book value of R17 million (2012: R19 million) are encumbered under part of the finance lease liabilities as described in
note 22.
Amortisable
trademarks
Rm
18.
Intangible assets
30 June 2013
At the beginning of the year
Cost
Accumulated amortisation
Net carrying value
Movement for the year
Transfer from assets under
construction (note 17)
Cost
Accumulated amortisation
Impairment
Acquisition of subsidiaries
Additions*
Amortisation
Disposals
Cost
Accumulated depreciation
Amortisable
Indefinite Amortisable
Indefinite
supplier
supplier
customer
trademarks relationships relationships relationships
Rm
Rm
Rm
Rm
Information
database
Rm
Software*
Rm
Total*
2013
Rm
381
(245)
28
–
48
(48)
1 453
–
19
(7)
7
(5)
–
–
1 936
(305)
136
28
–
1 453
12
2
–
1 631
–
–
–
–
–
(3)
–
–
–
16
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3)
–
–
–
–
–
(1)
901
(65)
(345)
–
121
(121)
901
(65)
(345)
16
121
(128)
–
–
–
–
–
–
–
–
–
–
–
–
(5)
1
(5)
1
381
44
48
1 453
19
7
1 017
At the end of the year
Cost
Accumulated amortisation and
impairment
(248)
–
(48)
–
(10)
(6)
(530)
(842)
Net carrying value
133
44
–
1 453
9
1
487
2 127
2012
At the beginning of the year
Cost
Accumulated amortisation
381
(221)
29
–
48
(48)
1 453
–
19
(7)
7
(3)
–
–
1 937
(279)
Net carrying value
Amortisation
160
(24)
29
(1)
–
–
1 453
–
12
–
4
(2)
–
–
1 658
(27)
At the end of the period
Cost
Accumulated amortisation
381
(245)
29
(1)
48
(48)
1 453
–
19
(7)
7
(5)
–
–
1 937
(306)
Net carrying value
136
28
–
1 453
12
2
–
1 631
* Includes capitalised interest of R45 million at an average weighted cost of debt of 7,7%.
86 >> JD Group Integrated Report 2013
2 969
18.
Intangible assets continued
The amortisable trademarks comprise trademarks arising from the acquisition of Profurn, Connection Group and Blake & Associates.
The intangible assets arising on the acquisition of Profurn consist of acquired trademarks that are amortised over a remaining period
of four years.
The trademarks are amortised over four, five and 15 years respectively.
The indefinite trademarks comprise trademarks arising from the acquisition of SteinBuild.
T he intangible assets arising on the acquisition of Blake & Associates comprise trademarks, customer relationships and a database.
The trademarks are amortised over a period of either five or 15 years, while the customer relationships are amortised over either five
or 10 years. The database is amortised over a five-year period.
Amortisable supplier relationships is now fully amortised and relates to Connection Group.
Indefinite supplier relationships arose from the Unitrans acquisition and comprise indefinite life supplier relationships.
T he amortisable customer relationships and information database relates to the acquisition of Blake & Associates and amortised over
five and ten years respectively.
Software is depreciated over three to 10 years.
A n impairment charge of R345 million was recorded for the year ended 30 June 2013 (2012: Rnil) on capitalised software development
costs (primarily relating to the SAP infrastructure) as the carrying value of capitalised software development costs exceeded the recoverable
amount. The impairment indicator identified in this regard was the fact that the total SAP project costs to date were materially higher than
initially budgeted. Management obtained a valuation from a third party within the IT industry evidencing the fact that the carrying amount
exceeds the recoverable amount.
Refer to note 35 for further management judgements and estimates applicable to the assessment of intangible assets.
19.
Connection
Group
Rm
Blake &
Associates
Rm
Financial
Services
Rm
Unitrans
Auto
Rm
SteinBuild
Rm
347
–
–
92
–
–
54
–
–
825
88
–
66
47
–
12
–
(12)
1 396
135
(12)
Net carrying value
347
92
54
913
113
–
1 519
2012
At the beginning of the period
Additions
At the end of the period
347
–
92
–
54
–
825
–
66
–
–
12
1 384
12
Net carrying value
347
92
54
825
66
12
1 396
Goodwill
2013
At the beginning of the year
Additions
Impairment
At the end of the year
Cloverpark
Rm
Total
Rm
The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired.
A n impairment charge is required for goodwill when the carrying amount exceeds the recoverable amount. An impairment charge of
R12 million was recorded against the Cloverpark goodwill for the year ended 30 June 2013 (2012: Rnil) as the entity is in the process of
being wound up.
T he recoverable amounts of the cash-generating units (CGUs) are determined from value in use calculations. The key assumptions for the
value-in-use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during
the period. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and
the risks specific to the CGU. The growth rates are based on industry growth forecasts. Changes in selling prices and direct costs are based
on past practices and expectations of future changes in the market. Refer to note 35 for judgements and estimates applicable to the
assessment of goodwill.
JD Group Integrated Report 2013 <<
87
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
20.
Trade and other payables
The directors consider the carrying amount of trade and other payables to approximate their fair values.
The credit period of trade payables ranges between seven and 180 days from the date of the invoice.
No interest is charged on the trade payables up to the first 180 days from the date of the invoice.
The Group has financial risk management policies to ensure that all payables are paid within the negotiated credit timeframe.
20.1
20.2
21.
2012
Rm
164
75
139
113
239
252
237
207
Balance at
30 June 2012
Rm
Utilised during
the year
Rm
Balance at
30 June 2013
Rm
6
–
6
Balance at
30 June 2011
Rm
Utilised during
the period
Rm
Balance at
30 June 2012
Rm
26
15
(26)
(9)
–
6
41
(35)
6
The following accruals are included in trade and other payables:
Leave pay
Annual bonuses
Non-interest-bearing liabilities comprise:
Operating lease costs adjustment
Provisions
Provisions comprise:
Onerous lease
Contingent liabilities
Onerous lease
2013
Rm
A n onerous lease provision is raised on unoccupied leased property. The provision is the discounted present value of the contracted
rental stream.
Certain companies in the Group are involved in disputes where the outcomes are uncertain. The Group is also involved in taxation disputes
with revenue authorities in South Africa and Botswana regarding transfer pricing interest assessments and the disallowance of a tax loss
respectively. The directors are confident that they will be able to defend these actions and that the potential of outflow or settlement is remote
and, if not, that the potential impact on the Group will not be material.
There is no other litigation, current or pending, which is considered likely to have a material adverse effect on the Group.
The Group has a number of guarantees and sureties outstanding at year end. However, the directors are confident that no material liability will
arise as a result of these guarantees and sureties.
88 >> JD Group Integrated Report 2013
22.
Interest-bearing liabilities
Analysis of closing balance
Secured financing
Bank and capital markets borrowings
Finance lease liabilities
Unsecured financing
Domestic medium-term note programme
Convertible bond
Promissory notes
Accrued interest
2013
Rm
2012
Rm
3 145
345
3 209
337
3 075
943
50
74
–
929
148
–
7 632
4 623
1 992
1 664
2 202
1 438
336
1 085
660
1 397
552
929
These liabilities are carried at amortised cost. The directors consider the carrying value
of interest-bearing liabilities to approximate their fair value.
The Company’s direct subsidiaries in conjunction with Connection Group Holdings
Proprietary Limited, an indirect subsidiary, have guaranteed the bank borrowings of
the Group.
Assets with a net book value of R319 million (2012: R279 million) are encumbered under
part of the finance lease liabilities as described in note 12 and note 17.
Interest-bearing liabilities are repayable in the following financial years:
Next year
Within two years
Within three years
Within four years
Within five years
7 632
4 623
The obligations payable under finance leases are analysed further as follows:
Minimum lease payments:
Amounts payable within one year
Amounts payable thereafter
323
33
314
34
Less: Future finance charges
356
(11)
348
(11)
Present value of lease obligations
345
337
Balance at the beginning of the period
Proceeds from issue of convertible bonds
Amount classified as equity
Coupon interest
Market implied interest
929
–
–
(75)
89
–
1 000
(71)
(2)
2
Balance at the end of the year
943
929
Convertible bond
The bond is convertible to 17,9 million ordinary shares of JD Group at R55,80 per
ordinary share. The coupon rate is 7,50% per annum and the redemption price is 100%.
The proposed final dividend required an adjustment to the conversion price of the
convertible bond. Refer to page 51.
In terms of the MOI of the Company and all its subsidiaries, borrowing powers are unlimited.
JD Group Integrated Report 2013 <<
89
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
Facility
Rm
22.
Maturity date
Interest-bearing liabilities continued
Loan details:
Secured financing
Capitalised finance lease and instalment
sale agreements
Secured hire purchase and lease agreements
repayable in monthly or annual instalments over
periods of one to five years.
Unsecured financing
Amortising term loans
Repayable in quarterly instalments
Repayable in quarterly instalments
Repayable in semi-annual instalments
Repayable in semi-annual instalments
Repayable in quarterly instalments
Repayable in quarterly instalments
Term loans
Term loan
Term loan
Revolving term loan
Revolving term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Term loan
Unsecured financing
Convertible bond due 2017
Domestic medium-term note programme
Listed notes
JDG01 – senior unsecured fixed rate note
Issued on 30 October 2012
JDG03 – senior unsecured floating rate note
Issued on 15 April 2013
JDG04 – senior unsecured floating rate note
Issued on 15 April 2013
Unlisted notes – senior unsecured floating
rate notes
JDC02U
Issued on 14 November 2012
JDC03U
Issued on 29 January 2013
JDC04U
Issued on 14 March 2013
JDC05U
Issued on 15 May 2013
JDC06U
Issued on 15 May 2013
JDG02U
Issued on 22 January 2013
JDG03U
Issued on 21 February 2013
The interest on the notes is payable
quarterly in arrears
Promissory notes
Total excluding accrued interest
90 >> JD Group Integrated Report 2013
2013
Rm
2012
Rm
SA prime less
0,90% to 2,50%
345
337
Interest rate
17
50
105
400
458
250
30 July 2013
25 February 2014
24 August 2016
8 May 2017
28 September 2017
30 November 2016
JIBAR plus 1,90%
JIBAR plus 2,20%
8,66%
9,01%
JIBAR plus 2,45%
JIBAR plus 2,40%
17
50
105
400
458
250
83
116
135
500
–
–
220
140
500
500
50
50
50
200
350
50
300
200
50
65
200
100
200
22 August 2012
20 May 2013
30 December 2013
30 December 2013
3 March 2014
3 May 2014
2 July 2014
31 July 2014
24 August 2014
16 September 2014
30 March 2015
30 April 2015
18 May 2015
17 June 2015
30 May 2016
29 June 2016
30 September 2016
JIBAR plus 2,50%
JIBAR plus 2,60%
JIBAR plus 2,00%
JIBAR plus 2,00%
JIBAR plus 2,25%
JIBAR plus 2,25%
JIBAR plus 2,25%
9,19%
8,95%
JIBAR plus 2,25%
JIBAR plus 1,98%
8,72%
JIBAR plus 2,40%
JIBAR plus 2,40%
JIBAR plus 2,60%
JIBAR plus 2,40%
JIBAR plus 4,75%
–
–
–
–
50
50
50
200
350
50
300
200
50
65
200
100
200
220
140
175
175
50
50
50
200
350
50
300
200
50
65
–
100
200
19 June 2017
7,50%
943
929
30 October 2015
7,17%
1 000
–
15 April 2016
JIBAR plus 1,65%
450
–
15 April 2018
JIBAR plus 2,03%
300
–
14 November 2013
JIBAR plus 0,80%
200
–
29 January 2014
JIBAR plus 0,76%
400
–
13 March 2014
JIBAR plus 0,76%
200
–
15 May 2014
JIBAR plus 0,70%
305
–
15 May 2014
JIBAR plus 0,65%
35
–
22 January 2015
JIBAR plus 1,25%
100
–
21 February 2016
JIBAR plus 1,80%
85
–
17 July 2013
JIBAR plus 0,41%
1 000
8 000
50
148
7 558
4 623
23.
2013
Rm
2012
Rm
Stated capital
Stated capital
Authorised
500 000 000 (2012: 250 000 000) ordinary shares of no par value
Issued
229 338 322 (2012: 219 830 000) ordinary shares of no par value
Balance at the beginning of the year
Issue of shares
4 245
448
4 245
–
Balance at the end of the year
4 693
4 245
Stated capital
4 693
4 245
3 129 750 (2012: 5 139 892) shares are under options to employees of the Group in terms of the JD Group Employee Share Incentive Scheme
at prices varying between R25,20 and R79,83 per share (note 34).
Since the JD Group Employee Share Incentive Scheme is in a run-off mode, no new share options may be granted to participants.
Unless exercised prior to 1 June 2016, the share options will lapse on that date.
Altogether 5 486 000 (2012: 8 835 500) unvested share appreciation rights exist under the JD Group Share Appreciation Rights Scheme
(note 34) at prices varying between R40,67 and R51,30 per share.
Nil (2012: 10 000 000) share appreciation rights are under the control of the directors for allocation to participants in terms of The JD Group
Share Appreciation Rights Scheme.
Approval will be sought for the placement of 2 500 000 (two million five hundred thousand) shares under the control of the directors for
purposes of implementing a new long-term share-based scheme.
In addition, shareholders will be requested to place approximately 24 784 967 unissued shares under the control of the directors for purposes
other than the share incentive scheme, to amongst others make provision for the potential conversion of the Group’s five-year fixed-rate
senior unsecured convertible bond into ordinary shares.
On 1 March 2013 the Company issued 9 508 322 shares to Steinhoff as consideration for 19 dealership premises to the value of
R447 million. An independent property valuator has valued the portfolio of properties and ascribed a fair value of R447 million to the portfolio.
The number of shares to be issued was determined by dividing the aforementioned fair value by 4 700,75 cents, being the 28-day volumeweighted average traded price per JD Group share up to and including 20 November 2013 (the date on which JD Group and Steinhoff formally
commenced negotiations around the transaction).
24.
25.
2013
Rm
2012
Rm
Treasury shares
JD Group Limited ordinary shares held by the JD Group Employee Share
Incentive Scheme, at cost:
3 656 663 (2012: 4 031 663) shares
221
245
Other reserves
Are made up as follows:
Foreign currency translation reserve
Revaluation of shares issued pursuant to the acquisition of Profurn
Share-based payment reserve
Statutory reserve – insurance contingency
Convertible bond equity reserve (net of deferred tax)
Premium on acquisition of non-controlling interests
(67)
139
50
–
51
(11)
(70)
139
102
43
51
–
162
265
JD Group Integrated Report 2013 <<
91
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
26.
Cash generated by trading
Operating profit from operations
Non-cash items
Depreciation of property, plant and equipment and rental fleet
Amortisation of intangible assets
Operating lease costs adjustments
Share-based payment
Loss on disposal of property, plant and equipment and scrapping of rental fleet
Impairment of property, plant and equipment and intangible assets
Impairment of goodwill
Profit on disposal of associate company
27.
28.
Increase in working capital
Increase in inventories
Increase in trade and other receivables
Increase in trade and other payables
Increase in financial assets
Decrease in provisions
Provision reclassified
Taxation paid
Amount (payable)/receivable at the beginning of the year
Per statement of comprehensive income (note 6)
Reallocation of provision
Amount payable at the end of the year
Reeds
Rm
29.
Hardware
Warehouse
and KHI
2013
Rm
2012
Rm
1 031
1 296
361
128
20
(22)
2
350
12
(8)
280
27
5
33
10
–
–
–
1 874
1 651
(335)
(39)
80
(2)
–
–
(754)
(157)
88
–
(35)
(16)
(296)
(874)
(25)
(452)
–
65
313
(333)
16
25
(412)
21
Total
2013
Rm
2012
Rm
Business combinations
Details of the fair values of assets acquired for each
of the above entities are set out in the notes below.
(6)
116
53
–
5
–
(107)
1
(4)
(1)
(10)
74
22
1
22
16
(69)
(2)
(5)
2
(16)
190
75
1
27
16
(176)
(1)
(9)
1
–
6
16
–
14
–
(3)
–
–
–
57
–
88
51
–
47
108
–
135
33
52
20
Cost of investment
Bank balances and cash
(145)
(6)
(98)
(10)
(243)
(16)
(105)
–
Cash consideration
(151)
(108)
(259)
(105)
Bank balances and cash
Inventories
Trade and other receivables
Investments and loans
Property, plant and equipment
Intangible assets
Trade and other payables
Deferred taxation
Non-interest-bearing liabilities
Non-controlling interests
Fair value of net assets acquired
Payment of additional purchase price
Goodwill
Steinhoff Doors and Building Materials Proprietary Limited acquired a 100% shareholding in Hardware Warehouse Limited and KHI Proprietary
Limited effective 1 March 2013 for a total consideration of R88,8 million and R8,7 million respectively.
Effective 1 December 2012, Unitrans Automotive Proprietary Limited acquired the assets and business of Reeds Motor Group, Reeds Car
Rental and a 70% shareholding in Isuzu Truck Centre for a total consideration of R145,1 million.
92 >> JD Group Integrated Report 2013
2013
Rm
30.
Deconsolidation of previously consolidated subsidiary
Ariva was previously consolidated. During the current year, the level of control was
reassessed, and it was concluded that the Group’s shareholding of 50% does not constitute
control. As a consequence the company is now equity accounted in accordance with the
Group policy on joint ventures (refer to note 16).
Property, plant and equipment
Deferred taxation
Trade and other receivables
Group loan
Trade and other payables
Bank and cash on deconsolidation
Non-controlling interests
31.
2012
Rm
(27)
(1)
–
2
3
(13)
19
–
–
–
–
–
–
–
(17)
–
Cash flow from deconsolidation
(13)
–
Commitments
Capital expenditure
Authorised and contracted
Authorised but not yet contracted
38
358
518
230
396
748
785
1 825
325
701
1 675
360
2 935
2 736
This expenditure will be financed from internal sources and borrowing facilities.
Operating lease commitments (predominantly premises)
Due within one year
Due within two to five years
Due beyond five years
32.
New accounting pronouncements
Revised standards and interpretations in issue not yet adopted
At the date of authorisation of these financial statements, the following revised standards and interpretations and/or amendments to
standards and interpretations were in issue but not yet effective:
IFRS 9 Financial Instruments
IFRS 10 Consolidated Financial Statements
IFRS 10 Consolidated Financial Statements – Amendments for investment entities
IFRS 11 Joint Arrangements – Amendments to transitional guidance
IFRS 12 Disclosure of Interests in Other Entities – Amendments to transitional guidance
IFRS 13 Fair Value Measurement
IAS 1 Presentation of Financial Statements – Amendments resulting from Annual Improvements 2009 – 2011 Cycle (comparative information)
IAS 16 Property, Plant and Equipment – Amendments resulting from Annual Improvements 2009 – 2011 Cycle (servicing equipment)
IAS 19 Employee Benefits – Amended Standard resulting from the Post-Employment Benefits and Termination Benefits projects
IAS 27 Separate Financial Statements – Reissued as IAS 27 Separate Financial Statements (as amended in 2011)
IAS 28 Investments in Associates – Reissued as IAS 28 Investments in Associates and Joint Ventures (as amended in 2011)
IAS 32 Financial Instruments: Presentation – Amendments to application guidance on the offsetting of financial assets and financial liabilities
IAS 32 Financial Instruments: Presentation – Amendments to application guidance on the offsetting of financial assets and financial liabilities.
Amendments resulting from Annual Improvements 2009 – 2011 Cycle (tax effect of equity distributions)
IAS 34 Interim Financial Reporting – Amendments to application guidance on the offsetting of financial assets and financial liabilities.
Amendments resulting from Annual Improvements 2009 – 2011 Cycle (interim reporting of segment assets)
IAS 36 Impairment of Assets – Amendments arising from recoverable amount disclosures for non-financial assets
IAS 39 Financial Instruments: Recognition and Measurement – Amendments for novations of derivatives
JD Group Integrated Report 2013 <<
93
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
33.
2013
Rm
2012
Rm
1
70
23
(2)
4
(25)
23
(2)
4
(25)
–
–
24
(2)
17
1
22
18
Related parties
Related-party relationships exist between shareholders, subsidiaries, joint venture
companies and associate companies within the Group and its Company directors and
Group key management personnel. These transactions are concluded at arm’s length
in the normal course of business. All material inter-group transactions are eliminated
on consolidation.
Directors
All dealings with directors have been dealt with elsewhere in this report and the directors’
remuneration included in note 37.
Shareholders
Trade and other balances with major shareholders comprise:
Various Steinhoff subsidiaries
Non-consolidated subsidiaries
The Group’s dealings with its non-consolidated subsidiaries comprise:
Loans
Finserve Mauritius Limited
Prosure Insurance Limited
Supreme Furnishers (Zambia) Limited
Impairment of loans
Interest of directors in contracts in the period under review:
The directors of the Group have disclosed the following interest.
Mr MJ Jooste, Mr AB la Grange, Dr D Konar and Mr DM van der Merwe are all directors
of Steinhoff International Holdings Limited, the controlling shareholder of the Group.
Transactions between JD Group and various Steinhoff subsidiaries comprised sales of
R337 million, purchases of R126 million and net expenses of R37 million as well as the
purchase of 19 dealership properties at R447 million from a Steinhoff Holdings subsidiary.
Mr VP Khanyile holds a directorship in Vodacom and Santam Limited.
Dr D Konar holds directorships in the following related parties:
– Old Mutual Investment Group (SA) Holdings, an asset management company that owns
shares in JD Group
– Alexander Forbes.
Mr JH Schindehütte is an executive director of Telkom Limited.
Mr ID Sussman holds a directorship in Homestyle Group plc, incorporated in the UK,
a subsidiary of Steinhoff.
Key management personnel
Remuneration to prescribed officers during the period comprised:
Short-term employee benefits
Share option gains
94 >> JD Group Integrated Report 2013
34.
Share-based payments
JD Group Share Appreciation Rights Scheme (SAR Scheme)
Mechanics of the SAR Scheme
Participants receive share appreciation rights as opposed to share options. Share appreciation rights are rights to receive shares equal to the
value of the difference between the grant price and the exercise price of the instrument. Of critical importance is that the vesting of rights is
subject to the achievement of challenging, predetermined performance conditions.
S ARs are granted at market value and against a face value of the average total cost to company (CTC) of an employee, adjusted to make
provision for unique and individual retention risk and other circumstances and factors. Certain maximum thresholds of awards apply, namely
that no employee, save for those on Patterson job grade F or higher, may receive an allocation in excess of 200% of the employee’s annual
CTC. The maximum number of shares that may be allocated to a participant, inclusive of all unvested awards granted to that participant in
respect of any and all incentive schemes in operation by the Group, may not exceed 1% of JD Group’s total issued share capital from time
to time.
When rights are exercised, the Company settles the difference between the then-current market price and the grant price. Consequently,
participants require no financial assistance to acquire any shares, neither at the moment of grant nor upon exercising of the SAR.
Furthermore, participants will not be liable for the payment of tax in respect of the SAR Scheme prior to the realisation of any benefits.
T he operation of the SAR Scheme is administered by the Remcom, a subcommittee of the JD Group Board (the Board). The Remcom,
exclusively comprising non-executive directors, has an independent non-executive director as Chairman.
Performance criteria and assessments
The performance criteria are set by the Remcom annually in a forward looking manner, subject to Board approval. The terms of the criteria,
including historic performance against benchmarks, are disclosed in the Integrated report. In line with global best practice, the performance
conditions are applicable to three, four and five-year periods and, whilst stretched, they are both simple to understand and achievable in order
to maximise the retention effect and motivational value. Consequently, the Board approved HEPS growth, measured against CPI to ensure a
real return in excess of inflation, as the basic performance condition. An additional condition for the vesting of rights is the achievement of
a minimum growth rate in net asset value (NAV) per share, calculated as if dividends are reinvested over the vesting period.
T he performance criteria of SAR Scheme offer numbers 2 and 3 (granted during the 2010 financial year) were assessed during the year and
due to the unlikelihood of the vesting of the scheme, the amounts previously recognised under these schemes were reversed back into profits
during the current year, together with the amounts relating to SAR number 1 granted in 2009.
T he following performance criteria have been set by the Remcom and approved by the Board in respect of SAR Scheme offer number 4
(granted during the 2011 financial year):
• 2013 HEPS of 580 cents and a minimum compounded growth in NAV of 11%, or
• 2014 HEPS of 660 cents and a minimum compounded growth in NAV of 12%, or
• 2015 HEPS of 730 cents and a minimum compounded growth in NAV of 12%.
T he following performance criteria have been set by the Remcom and approved by the Board in respect of SAR Scheme offer number 5
(granted on 18 June 2012):
• 2014 HEPS of 660 cents and a minimum compounded growth in NAV of 12%, or
• 2015 HEPS of 730 cents and a minimum compounded growth in NAV of 13%, or
• 2016 HEPS of 800 cents and a minimum compounded growth in NAV of 13%.
The aforementioned HEPS and NAV targets are aligned with the Group’s strategic growth targets.
Vesting and exercise of SARs and other rights
The vesting of SARs is subject to the achievement of set performance criteria, which are aligned to the Group’s strategic goals and which are
unique for each grant. A vesting period of three years and an expiry date of seven years after the date of grant, apply.
A t the end of the vesting period, i.e. three years after the date of grant, Remcom will assess whether fulfilment of the performance criteria has
occurred. Retesting of the performance conditions is allowed on the fourth and fifth anniversary from the date of grant. In the instance that
the performance criteria have not been achieved by then, the SARs will not vest and the rights will lapse and be of no effect.
o purchase price is payable by a participant following the vesting and exercise of a SAR. The appreciation value of the share price is settled
N
by the Company, i.e. the difference between the then-current market price and the grant price is settled.
V ested SARs that have been both exercised and released from the Scheme shall rank pari passu in all respects with existing JD Group
ordinary shares in issue. From the release date onwards, the beneficial owner of such shares will qualify for dividends from the Company and
will have full voting rights in respect of JD Group’s ordinary shares.
Note that this scheme has been ineffective and will be replaced by a new share rights scheme, as discussed on page 114.
JD Group Integrated Report 2013 <<
95
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
Number of shares
2013
34.
2012
Share-based payments continued
Details of the share appreciation rights accounted for under IFRS 2 are as follows:
Outstanding at the beginning of the year
Granted during the year
Early vested and settled
Forfeited during the year
Lapsed during the year/reversed due to unlikely vesting
8 835 500
–
–
(659 500)
(2 690 000)
6 209 500
4 061 000
(302 000)
(1 133 000)
–
Outstanding at the end of the year
5 486 000
8 835 500
SAR 5
SAR 4
18 June 2012
R10,90
R42,75
R42,98
34,57%
4,50%
6,73%
4 years
24 February 2011
R16,91
R49,98
R51,30
37,14%
4,00%
7,93%
4 years
Fair value of share appreciation rights granted and related assumptions:
Date of grant
Fair value at measurement date
Share price at grant date
Strike price
Expected volatility
Expected dividend yield
Risk-free interest rate
Expected option life
JD Group Employee Share Incentive Scheme
The Company provided a share option scheme to its employees through The JD Group Employee Share Incentive Scheme. This scheme is in
the process of being phased out and no further options may be granted under this Scheme.
Number of
share options
Weighted average
exercise price
cents
Details of the share options accounted for under IFRS 2 are as follows:
2013
Outstanding at the beginning of the year
Forfeited during the year
Exercised during the year
Lapsed during the year/reversed due to unlikely vesting
5 139 892
(1 096 512)
(703 630)
(210 000)
48,34
(64,60)
(23,26)
67,87
Outstanding at the end of the year
3 129 750
46,32
2012
Outstanding at the beginning of the period
Forfeited during the period
Exercised during the period
7 067 307
(1 043 783)
(883 632)
47,06
(55,47)
(32,00)
Outstanding at the end of the period
5 139 892
48,34
The options outstanding at 30 June 2013 have an exercise price in the range of R25,20 to R79,83 and a weighted average contractual life of
0,63 years (2012: 0,95 years).
The weighted average share price at the date of exercise for share options exercised in 2013 was R45,18 (2012: R47,73).
96 >> JD Group Integrated Report 2013
35. Judgements and estimates
Judgements and estimates are continually evaluated and are based on historical experience and other factors, including expectation of future
events that are believed to be reasonable under the circumstances.
The Group makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal
related actual results. The estimates and assumptions that have a significant risk of causing material adjustment to the carrying amounts of
assets and liabilities during the next financial year are discussed below.
Useful lives and residual values
The estimated useful lives for intangible assets with a finite life and property, plant and equipment are:
Intangible assets (refer note 18)
Acquired trademarks and capitalised supplier and customer relationships
Computer software
Property, plant and equipment (refer note 17)
Buildings
Leasehold improvements
Vehicles and forklift trucks
Computer hardware
Office equipment, furniture and fittings
5 – 20 years
3 – 10 years
20 – 35 years
5 – 10 years
5 – 8 years
3 – 5 years
4 – 10 years
The estimated useful lives and residual values are reviewed annually taking cognisance of the projected commercial and economic realities
and through benchmarking of accounting treatments in the specific industries where these assets are used.
Goodwill
The goodwill acquired in a business combination is allocated, at acquisition, to the cash-generating unit that is expected to benefit from that
business. Goodwill is assessed for impairment annually, irrespective of whether there is any indication of impairment.
The recoverable amount of the cash-generating unit is determined from the value-in-use calculation. The key assumptions for the value-inuse calculation are those regarding the discount rates, growth rates and the expected changes to the selling prices and indirect cost during
the period. Management estimated discount rates using pre-tax rates that reflect current market assessments of the time value of money and
the risk specific to the cash-generating unit. The growth rate is based on the industry growth forecast. Changes in selling prices and direct
cost are based on past practices and expectations of the future changes in the market.
The Group prepared cash flow forecasts derived from the most recent financial budgets approved by management for the next year and
extrapolated cash flows for the following years based on an estimated growth rate as set out below:
Impairment tests were carried out for goodwill of R1 519 million (2012: R1 396 million) and the main assumptions are detailed below:
Discount rate (weighted average cost of capital): 12,9%
Forecast cash flow period: 5 years
Terminal growth rate: 5%.
Intangible assets (excluding software)
The value of acquired trademarks, capitalised supplier relationships and capitalised customer relationships included in intangible assets is
R2 127 million (2012: R1 631 million).
The estimated useful lives of intangible assets with a finite life are summarised in note 18.
Intangible assets are assessed for impairment annually, irrespective of whether there is any indication of impairment.
Impairment test
Impairment tests typically take into account the most recent management forecast whereafter a reasonable rate of growth is applied based
on market industry conditions. Impairment tests are performed using a discounted cash flow model or a relief from royalty method. Discount
rates used in the discounted cash flow model are based on weighted average cost of capital, while royalty rates are determined with
reference to industry benchmarks.
In assessing potential impairments pre-tax royalty rates of 0,3% to 1,9% were used.
All cash flow forecasts used for the impairment test were over five years.
A n indefinite useful life does not mean an infinite useful life but rather that there is no foreseeable limit over which the asset can be expected
to generate cash flows and is therefore evaluated for impairment annually. The intangible assets that were determined to have indefinite
useful lives were assessed independently at the time of the acquisitions and the indefinite useful life assumptions were supported by the
following evidence:
• The industry is a mature, well-established industry
• The trade names, brand names and/or trademarks are long-established relative to the market and have been in existence for a long time
• The intangible assets relate to trade names, brand names, trademarks and patents rather than products and are therefore not vulnerable to
typical product lifecycles or to the technical, technological, commercial or other types of obsolescence that can be seen to limit the useful
lives of other trade names and brand names
• There is a relatively low turnover of comparable intangible assets implying stability within the industry.
Share-based payments
Refer to note 34 for details of judgements and estimates applicable to the determination of share-based payments.
JD Group Integrated Report 2013 <<
97
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
35.
Judgements and estimates continued
Trade receivables
A provision for bad debts held against instalment sales receivables is raised when there is objective evidence that the asset is impaired.
Factors taken into account to determine impairment of an asset are the level of arrears, part payment of instalments or missed instalments.
Estimated future cash flows, that are discounted at the effective interest rate, are determined utilising past payment history and probability
of default.
Provision for stock obsolescence
The directors use their judgement in selecting an appropriate stock obsolescence policy and establishing the related provision. When
determining an appropriate policy and provision the directors apply their industry knowledge taking into account factors including the
saleability of various stock items based on the ageing of the current stockholdings.
Provision for used vehicles
This provision is for the specific write down of individual units and is based on historic knowledge of market value movements.
Provision for demonstration vehicles
Demonstration vehicles need to be depreciated to a value that represents their true market value when ready for resale. A provision, generally
between 1,67% per month and 2% per month, based on historical data, is created on a monthly basis.
Provision for parts
Parts are valued at average cost and are written down monthly at operational level. The rates used are based on past experience and
historical data.
Deferred taxation asset
Deferred taxation assets are recognised to the extent that it is probable that taxable income will be available in the future against which these
can be utilised. Future taxable profits are estimated based on business plans which include estimates and assumptions regarding economic
growth, interest, inflation, taxation rates and competitive forces.
Contingent liabilities
Management applies its judgement to the fact patterns and advice it receives from its attorneys, advocates and other advisors in assessing
if an obligation is probable, more likely than not, or remote. This judgement application is used to determine if the obligation is recognised as
a liability or disclosed as a contingent liability.
Software impairment
An impairment charge is estimated for intangible assets when the carrying amount exceeds the recoverable amount. The recoverable amount
is determined at the lower of the value-in-use and the fair value less cost to sell. Fair value less cost to sell is determined with reference to
industry valuations. The recoverable amount is determined by discounting future benefits and using the assumptions regarding weighted
average cost of capital, terminal growth and forecast cash flow period as reflected under goodwill judgements.
Refer to note 36 for insurance judgements.
36.
36.1
Insurance
Liabilities under insurance contracts
Short-term operations
Provision for unearned premiums
Provision for outstanding claims, including the incurred but not recognised (IBNR) provision
Reinsurance premium due
Long-term operation
Provision for unearned premiums
Provision for outstanding claims, including IBNR
2013
Rm
2012
Rm
75
22
67
142
59
66
164
267
43
38
30
22
81
52
68
196
370
24
59
195
226
12
658
492
It is expected that all insurance contract liabilities will be settled within 12 months from
year end.
The Group believes that the liabilities for claims reported in the statement of financial
position are adequate. However, it recognises that the process of estimation is based upon
certain variables and assumptions which could differ when the claims arise.
The above liabilities are included in Trade and other payables.
36.2
Financial assets
Investments
Treasury bills
Short-term deposits
Cash at bank
98 >> JD Group Integrated Report 2013
2013
Rm
36.
36.3
2012
Rm
Insurance continued
Revenue
Premium income is included in the JD Group’s revenue category and comprised the
following:
Short-term operations
Gross premiums written
Provision for unearned premiums
Outward reinsurance premiums
691
(1)
(105)
676
(4)
(96)
Earned premiums
585
576
Long-term operation
Gross premiums written
Provision for unearned premiums
951
(13)
565
(7)
Earned premiums
Total premium income
938
558
1 523
1 134
36.4 Insurance risk management
Risk management objectives and policies for mitigating risk
The primary insurance activity carried out by the insurance operation assumes the risk of loss from persons that are directly subject to the
risk. The insured risks are directly associated to furniture and equipment acquired by the policyholder on credit terms from furniture retailers
within the JD Group.
The theory of probability is applied to the pricing and provisioning for the portfolio of insurance contracts. The principal risk to the operation is
pricing for the relevant insurance contracts written. Pricing risk is considered to be low due to the low sums insured and the short duration of
the indemnity period. All contracts are renewable monthly.
The operation manages its insurance risk through underwriting limits, approval procedures for transactions, and by reviewing its pricing
methodology regularly. The credit risk is low due to the creditworthiness of the policyholder being assessed at point of sale by the
furniture retailer.
Underwriting strategy
The operation’s underwriting strategy is to ensure a balanced portfolio and is based on a large portfolio of similar risks over a large
geographical area. This reduces the variability of the outcome.
Terms and conditions of insurance contracts
The short-term operation offers a single product with basic and comprehensive cover options. The insurance contract protects the
policyholder against physical loss or damage of the insured movable asset.
The long-term operation offers a credit life product with basic and comprehensive cover options. The insurance contract protects the
policyholder against the financial obligations from the credit sale agreement in the event of death, disability or retrenchment. The operation
also reinsures a funeral product with individual, immediate family, parent and extended family cover options.
Claims development
The operation is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the
contract term, subject to pre-determined time scales dependent on the nature of insurance contract. The operation is therefore exposed to
the risk that claims reserves will not be adequate to fund historic claims (run-off risk).
T he majority of the operation’s insurance contracts are classified as ‘short-tailed’, meaning that any claim is settled within a year after the
loss date.
In terms of IFRS 4, an insurer need only disclose claims run-off information where uncertainty exists about the amount and timing of claims
payments not resolved within one year. Therefore detailed claims run-off information is not presented.
Transactions in financial instruments may result in the operation assuming financial risks. These include market risk, interest rate risk, credit
risk, and liquidity risk. Each of these financial risks is described below, together with a summary of the ways in which the operation manages
these risks.
Market risk
Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the
operation’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.
The operation has no significant market risk exposure due to the nature and duration of its financial instruments. The operation does not
transact in foreign currency.
JD Group Integrated Report 2013 <<
99
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
36.Insurance continued
36.4 Insurance risk management continued
Credit risk
The operation has exposure to credit risk, which is the risk that a counterparty will be unable to pay amounts in full when due.
The operation structures the levels of credit risk it accepts by placing limits on its exposure to a single counterparty, or groups of
counterparties. Such risks are subject to an annual or more frequent review.
T he major concentration of credit risk arises from the operation’s cash balances and trade and other receivables. Reputable financial
institutions are used for investing and cash handling purposes. Management makes regular reviews to assess the degree of compliance
with the operation’s procedures on credit.
Liquidity risk
Liquidity risk is the risk that the operation will encounter difficulty in meeting obligations associated with financial liabilities. Liquidity risk
is the risk that cash may not be available to pay obligations when due at a reasonable cost. The operation’s liabilities are matched by
appropriate assets and it has significant liquid resources to cover its obligations. The operation’s liquidity and ability to meet such calls are
monitored quarterly by the Board and monthly by the Investment and Capital Management committee. Trade and other payables all fall due
within 12 months.
Capital management
The operation manages its capital base to achieve a prudent balance between maintaining capital ratios to support business growth and
confidence, and providing competitive returns to shareholders. The capital management process ensures that the operation maintains
sufficient capital levels for legal and regulatory compliance purposes. The operation ensures that its actions do not compromise sound
governance and appropriate business practices and it eliminates any negative effect on payment capacity, liquidity or profitability.
Long-term operation
The capital adequacy requirement is determined according to generally accepted actuarial principles in terms of the guidelines issued by the
Actuarial Society of South Africa. It is an estimate of the minimum capital that will be required to provide for future experience that is more
adverse than that assumed in the calculation of policyholder liabilities. As at 30 June 2013, the operation’s capital adequacy requirement was
R43,12 million (2012: R43,09 million) and the ratio of excess assets to capital adequacy requirements was 11 times (2012: 9 times).
Short-term operations
The operations submit quarterly and annual returns to the Financial Services Board in terms of the Short-Term Insurance Act, 1998. The
operations are required at all times to maintain a statutory surplus asset ratio as defined in the Short-Term Insurance Act. The quarterly return
as at 30 June 2013 submitted by the operations to the regulator showed that the companies met the minimum capital requirements as at
year end.
37.
Directors’ and prescribed officers’ remuneration
This note on remuneration and related matters covers issues which are the concern of the Board as a whole in addition to those which are
dealt with by the Remuneration committee.
Remuneration policy
The Remuneration committee has a clearly defined mandate from the Board aimed at:
• Ensuring that the Group’s Chairman, directors and senior executives are fairly rewarded for their individual contribution to the Group’s
overall performance
• Ensuring that the Group’s remuneration strategies and packages, including the remuneration schemes, are related to performance, are
suitably competitive and give due regard to the interests of the shareholders and the financial and commercial health of the Group as
detailed in the Integrated report.
Directors’ service contracts
All executive directors’ normal service contracts are subject to no more than 12 calendar months’ notice. Non-executive directors are not
bound by service contracts. No director has an employment contract with the Group exceeding three years.
The Group has a potential consulting commitment to past directors not exceeding R20 million over the next three years.
Incentive scheme
A new-generation incentive scheme, namely the JD Group Share Appreciation Rights (SAR) Scheme, was incorporated on 12 August 2009.
The scheme benefits are subject to the achievement of performance conditions that are linked to the Group’s overall strategic goals.
The Remuneration committee was appointed manager of the SAR Scheme with a mandate to administer the scheme in terms of the
provisions of the scheme rules. This scheme has been ineffective and will be replaced with a share rights scheme as discussed on page 114.
T he Group’s existing, outdated incentive scheme, the JD Group Employee Share Incentive Scheme, is being phased out and no options have
been issued in this financial period.
100 >> JD Group Integrated Report 2013
Basic salary
R
Allowances
R
Retirement
contributions
R
Medical
contributions
R
4 711 240
1 191 431
1 989 523
1 819 109
2 820 813
1 354 059
1 966 888
291 480
84 560
253 680
253 680
170 960
169 120
192 840
593 892
125 280
322 625
164 520
276 000
125 280
137 400
28 932
13 300
34 830
35 993
66 848
18 752
34 830
2 812 500
–
1 200 000
1 100 000
2 514 445
1 250 000
1 658 240
8 438 044
1 414 571
3 800 658
3 373 302
5 849 066
2 917 211
3 990 198
15 853 063
1 416 320
1 744 997
233 485
10 535 185
29 783 050
1 572 723
1 589 389
1 856 372
2 624 400
2 739 451
1 851 355
201 348
217 584
248 224
123 677
4 400
217 042
119 610
249 453
167 400
519 631
256 149
300 220
37 779
34 830
34 830
34 290
–
32 781
950 000
1 005 000
1 427 645
7 192 503
600 000
480 000
2 881 460
3 096 256
3 734 471
10 494 501
3 600 000
2 881 398
12 233 690
1 012 275
1 612 463
174 510
11 655 148
26 688 086
3 459 105
3 111 715
1 294 188
1 468 848
1 437 458
1 407 642
242 900
225 494
211 400
211 400
160 700
211 400
494 910
345 000
137 100
156 600
171 750
228 266
22 026
80 058
28 743
17 515
26 504
26 504
3 744 000
3 496 000
1 498 000
1 648 000
1 748 000
2 079 124
7 962 941
7 258 267
3 169 431
3 502 363
3 544 412
3 952 936
12 178 956
1 263 294
1 533 626
201 350
14 213 124
29 390 350
Basic salary
R
Allowances
R
Retirement
contributions
R
Medical
contributions
R
Share-based
payments
R
Total
R
1 159 910
1 069 293
736 750
1 347 575
1 220 742
503 771
164 500
164 500
–
202 800
–
81 120
132 900
173 399
121 560
139 500
281 989
54 912
17 829
26 504
13 437
26 504
5 494
16 450
1 196 000
939 595
2 766 000
1 611 000
201 375
1 711 000
–
189 438
–
–
–
378 623
2 671 139
2 562 729
3 637 747
3 327 379
1 709 600
2 745 876
6 038 041
612 920
904 260
106 218
8 424 970
568 061
16 654 470
2013
Executive directors
ID Sussman
JHN van der Merwe*
BJ van Rooy
KR Chauke
AG Kirk
Dr HP Greeff
ID Thompson
Prescribed officers++
A
B
D
E
G
H
2012
Executive directors
ID Sussman
AG Kirk
KR Chauke
Dr HP Greeff
ID Thompson
BJ van Rooy
Prescribed officers++
A
B
C
D
E
F
Variable
remuneration+
R
Variable
remuneration+
R
Total
R
Appointed 1 March 2013.
+
Cash amount paid during the period.
++
Prescribed officers have been defined as those that exercise general executive control over a significant portion of the business, and are not directors of
JD Group Limited.
*
JD Group Integrated Report 2013 <<
101
FINANCIAL STATEMENTS
Notes to the Group financial statements continued
for the year ended 30 June 2013
37.
Directors’ and prescribed officers’ remuneration continued
2013
Non-executive
directors
VP Khanyile*
N Bodasing
MJ Jooste*
Dr D Konar
AB la Grange*
M Lock
MP Matlwa
MJ Shaw
JH Schindehütte
GZ Steffens
DM van der Merwe*
2012
VP Khanyile*
N Bodasing
D Konar
M Lock
MP Matlwa
MJ Shaw
JH Schindehütte
GZ Steffens
Board
members
R
Audit
committee
R
Risk
committee
R
Remuneration
and
Nominations
committee
R
285 000
276 000
276 000
276 000
276 000
276 000
256 000
232 000
276 000
276 000
276 000
21 000
64 300
–
86 600
86 600
43 300
65 600
173 200
86 600
86 600
–
–
31 000
–
64 000
–
32 000
–
47 500
–
108 000
–
70 500
–
48 500
48 500
–
–
–
32 000
–
28 000
–
–
16 500
–
28 000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
376 500
387 800
324 500
503 100
362 600
351 300
321 600
484 700
362 600
498 600
276 000
2 981 000
713 800
282 500
227 500
44 500
–
4 249 300
264 000
264 000
264 000
264 000
264 000
264 000
264 000
244 000
–
–
63 000
–
21 000
139 000
21 000
63 000
–
–
46 500
–
–
46 500
–
78 000
57 000
78 000
–
–
46 500
–
–
–
15 000
20 000
–
–
–
–
–
14 625
16 250
6 500
16 250
14 625
11 375
14 625
16 000
335 625
295 250
478 000
280 250
299 625
507 375
299 625
401 000
2 092 000
307 000
171 000
181 500
35 000
110 250
2 896 750
Social
and Ethics
committee
R
Other
services
R
Total
R
* Fees paid to the director’s employer.
Offer date and price
2013
Share option held at the beginning
of the year
Exercised during the year
20/02/2003 – R16,19
26/02/2008 – R37,21
Lapsed during the year
20/02/2003 – R16,19
30/11/2005 – R72,50
07/02/2007 – R79,83
31/07/2007 – R63,63
26/02/2008 – R37,21
Share options held at period end
Share appreciation rights held
at the beginning of the year*
Lapsed during the year/reversed
due to unlikely vesting**
26/02/2010 – R43,03
24/02/2011 – R51,30
18/06/2012 – R42,98
Share appreciation rights
held at period end
ID
Sussman
JHN
van der
BJ
Merwe van Rooy
KR
Chauke
AG
Kirk
HP
ID
Greef Thompson
A
B
D
E
G
575 000
–
–
100 000
399 903
100 000
105 000
20 000
70 000
95 000
–
–
(375 000)
–
–
–
–
–
–
(37 500)
–
–
–
–
–
(37 500)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– (194 903)
– (30 000)
– (75 000)
– (100 000)
–
–
–
(50 000)
(50 000)
–
–
(25 000)
(30 000)
(12 500)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
200 000
–
–
62 500
–
–
–
20 000
70 000
95 000
–
–
505 000
–
160 000
175 000
500 000
200 000
200 000
130 000
130 000
175 000
50 000
–
–
–
–
–
–
–
(50 000)
–
–
(65 000) (200 000)
– (175 000)
– (125 000)
(65 000)
(50 000)
(85 000)
(65 000)
(50 000)
(85 000)
(40 000)
–
–
(35 000)
–
–
(50 000)
–
–
–
–
–
–
–
–
505 000
–
110 000
110 000
–
–
90 000
95 000
125 000
50 000
–
–
* No share appreciation rights granted during the period – 2013.
** As at 30 June 2013 the Remcom assessed SARs 1, 2 and 3 as unlikely to vest and have reversed the related expense back into profit and loss.
102 >> JD Group Integrated Report 2013
37.
Directors’ and prescribed officers’ remuneration continued
Offer date and price
2012
Share options held at the beginning
of the period
Lapsed during the period
24/05/2005 – R56,25
07/06/2005 – R54,00
31/07/2007 – R63,63
Exercised during the period –
Quantam/average price – 2012
26/02/2008 – R37,21
26/02/2009 – R27,00
26/02/2010 – R43,03
Share options held at period end
Share appreciation rights held at the
beginning of the year
Share appreciation rights granted
during the period – 2012
18/06/2012 – R42,98
Share appreciation rights held
at period end
ID JHN van
BJ
Sussman der Merwe van Rooy
KR
Chauke
AG Kirk
HP
ID
Greef Thompson
A
B
D
E
F
G
635 000
–
–
100 000
399 903
120 000
125 000
20 000
87 750
111 000
–
158 750
–
(60 000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(20 000)
–
–
(20 000)
–
–
–
–
–
(9 000)
–
–
(16 000)
–
–
–
–
(18 750)
(60 000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8 750)
–
–
–
–
–
–
–
(40 000)
–
(40 000)
–
–
–
575 000
–
–
100 000
399 903
100 000
105 000
20 000
70 000
95 000
–
–
–
265 000
–
100 000
115 000
375 000
115 000
115 000
80 000
60 000
100 000
–
–
–
240 000
–
60 000
60 000
125 000
85 000
85 000
50 000
70 000
75 000
50 000
–
50 000
505 000
–
160 000
175 000
500 000
200 000
200 000
130 000
130 000
175 000
50 000
–
50 000
irectors’ (and their associates’) direct and indirect interest in shares of the Company at the year end and at 26 August 2013, the date on
D
which the financial statements were approved:
ID Sussman
Dr D Konar
AB la Grange
JHN van der Merwe
2013
2012
1 125 000
10 000
16 000
54 000
750 000
10 000
16 000
–
1 205 000
776 000
There are no non-beneficial interests.
Mr KR Chauke (jointly with his associate) acquired 400 JD Group ordinary shares after the end of the financial year.
JD Group Integrated Report 2013 <<
103
FINANCIAL STATEMENTS
Company financial statements
for the year ended 30 June 2013
The Company operates as an investment holding company and facilitates Group borrowings. The statement of changes in equity has not been prepared
as the movement is evident from the Company’s statement of comprehensive income and Group statement of changes in equity.
Notes
Statement of comprehensive income
Dividends received from subsidiary company
Interest received
Interest paid
Impairment provision (raised)/released – loan to share incentive trust
Other operating expenses
Profit before taxation
Taxation – secondary taxation on companies
Taxation – deferred taxation
1
Profit attributable to shareholders
Statement of financial position
Assets
Bank balances
Other assets
Loan to share incentive trust
Loans to other subsidiary companies
Investment in subsidiary companies – shares at cost
2
3
4
Total assets
Equity and liabilities
Bank overdraft
Other liabilities
Deferred taxation
Interest-bearing liabilities
5
6
Opening balance
Profit attributable to shareholders
Distribution to shareholders*
Total equity
Total equity and liabilities
7
8
10 months ended
June 2012
Rm
343
434
(422)
(42)
(11)
300
30
(30)
10
–
302
–
(3)
310
22
–
305
288
80
1
99
9 746
2 249
4
1
198
3 218
2 249
12 175
5 670
173
3
17
7 287
–
5
20
929
7 480
Total liabilities
Stated capital
Non-distributable and other reserves
Retained earnings
12 months ended
June 2013
Rm
954
4 693
51
(49)
4 245
51
420
420
305
(774)
352
288
(220)
4 695
4 716
12 175
5 670
Note: The statement of financial position is presented in order of liquidity, as permitted in terms of IAS 1. The prior year comparatives are adjusted to reflect the change.
*Shareholders for dividend has been reclassified to retained earnings.
104 >> JD Group Integrated Report 2013
Notes
Cash flow statement
Cash flows from operating activities
12 months ended
June 2013
Rm
10 months ended
June 2012
Rm
(432)
60
330
434
(422)
–
300
30
(28)
(22)
342
(774)
280
(220)
Cash flow from investing activities
(6 023)
(1 063)
Amount paid to Steinhoff relating to the acquisition of Unitrans Auto
Increase in loans advanced to JDG Trading Proprietary Limited
(Decrease)/increase in amounts owed by subsidiaries post-acquisition
Increase/(decrease) in amounts owed by the share incentive trust
–
(5 976)
(104)
57
(52)
(1 126)
142
(27)
Cash flow from financing activities
6 358
1 001
Borrowings raised
Borrowings repaid
Borrowing transferred from JDG Trading Proprietary Limited
Convertible bonds raised
Unclaimed dividends
4 304
(1 302)
3 356
–
–
–
–
–
1 000
1
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of period
(97)
4
(2)
6
Net bank overdraft at the end of the year
(93)
4
Cash generated from operations
Interest received
Interest paid
Taxation paid
Cash available from operating activities
Dividend paid
9
10
JD Group Integrated Report 2013 <<
105
FINANCIAL STATEMENTS
Notes to the Company financial statements continued
for the year ended 30 June 2013
12 months ended
June 2013
Rm
1.
Profit before taxation
is stated after taking into account the following items:
Impairment provision raised/(released)
10 months ended
June 2012
Rm
(42)
10
Due to market conditions, the underlying fair value of the shares held by the
share incentive trust is less than the carrying value.
2.
Loan to share incentive trust
Loan to JD Group Employee Share Incentive Scheme
Impairment provision
2013
Rm
2012
Rm
276
(177)
333
(135)
99
198
4 422
1 927
89
462
1 124
1 722
290
1 926
–
–
1 002
–
9 746
3 218
The loan is unsecured, interest-free and is repayable as and when funds
are available. The loan is secured by the market value of the shares held by
the trust.
JD Group Limited has subordinated its claims against the trust in favour of
other creditors until the assets of the trust, fairly valued exceed its liabilities.
3.
Loans to subsidiary companies
JDG Trading Proprietary Limited
Unitrans Automotive Proprietary Limited
Steinhoff Doors and Building Materials Proprietary Limited
JD Group Property Holdings Proprietary Limited
Senior loan to JDG Trading Proprietary Limited
Debt bond loan to JDG Trading Proprietary Limited
The loan to JDG Trading Proprietary Limited carries interest at the Group’s weighted average cost of capital and has no fixed repayment terms.
The loan to Unitrans Automotive Proprietary Limited is unsecured, bears interest between 0% and 6,5% and has no fixed terms of repayment
and has been subordinated to an amount of R1 360 million.
The loan to SteinBuild Proprietary Limited does not carry interest and has no fixed repayment terms.
The loan to JD Property Holdings Proprietary Limited carries interest at the Group’s weighted average cost of capital and has no fixed
repayment terms.
The senior loan to JDG Trading Proprietary Limited carries interest at the Group’s weighted average cost of capital and has no fixed
repayment terms.
The debt bond loan to JDG Trading Proprietary Limited carries interest at a fixed rate of 7,50% and is repayable as disclosed in note 22.
4.
Investment in subsidiary companies
JDG Trading Proprietary Limited
Steinhoff Doors and Building Materials Proprietary Limited
Unitrans Automotive Proprietary Limited
JD Group Property Holdings Proprietary Limited
The directors consider the cost to approximate fair value.
Details of direct and indirect interests in subsidiaries are set out on page 110.
106 >> JD Group Integrated Report 2013
1 091
–
1 158
–
1 091
–
1 158
–
2 249
2 249
2013
Rm
5.
6.
2012
Rm
Deferred taxation
Amounts provided for at the beginning of the year
Charge to the statement of comprehensive income
20
(3)
–
20
Amounts provided for at the end of the year
17
20
The deferred tax comprises the following temporary difference:
Equity component of convertible bonds
17
20
3 145
–
3 075
943
50
74
–
929
–
–
7 287
929
Balance at the beginning of the year
Movement during the year
4 245
448
4245
–
Balance at the end of the year
4 693
4 245
51
51
Interest-bearing liabilities
Secured financing
Bank capital markets borrowings
Unsecured financing
Domestic medium-term note programme
Convertible bond
Promissory notes
Accrued interest
During the year JDG Trading Proprietary Limited ceded its interest-bearing
liabilities to JD Group Limited. The maturity dates, interest rates and details of
surety provided are disclosed in note 22 to the Group financial statements.
The Company and related subsidiaries have issued guarantees and sureties to
the providers of finance for repayment to the amount of R3 195 million
(2012: R3 357 million).
7.
Stated capital
Authorised
500 000 000 (2012: 250 000 000) ordinary shares of no par value
Issued
229 338 322 (2012: 219 830 000) ordinary shares of no par value
On 1 March 2013, the Company issued 9 508 322 shares to Steinhoff as
consideration for 19 dealership premises to the value of R447 million acquired
in JD Property Holding Proprietary Limited. The transaction was effected through
a loan with JDG Trading Proprietary Limited.
8.
Other reserves
Convertible bond equity reserve (net of deferred tax)
JD Group Integrated Report 2013 <<
107
FINANCIAL STATEMENTS
Notes to the Company financial statements continued
for the year ended 30 June 2013
12 months ended
June 2013
Rm
9.
10.
Cash generated by operations
Profit before taxation
Interest received
Interest paid
Impairment raised/(released)
Increase in working capital
Taxation paid
Amount (payable)/receivable at beginning of period
Per statement of comprehensive income
Amount (receivable)/payable at end of period
108 >> JD Group Integrated Report 2013
10 months ended
June 2012
Rm
302
(434)
422
42
(2)
310
(30)
30
(10)
330
300
–
–
–
–
22
–
–
22
Analysis of shareholders
Number of
shareholders
% of
total
Geographical location of shareholders
South Africa
United States of America
United Kingdom
Rest of Europe
Rest of world
Size of holding
1 – 1 000 shares
1 001 – 10 000 shares
10 001 – 100 000 shares
100 001 – 1 000 000 shares
1 000 001 shares and above
Number of
shares
% of
total
205 229 568
20 294 693
2 297 468
760 786
755 807
89,5
8,9
1,0
0,3
0,3
229 338 322
100,0
2 327
632
257
106
23
69,57
18,89
7,68
3,17
0,69
697 144
1 943 481
9 622 833
32 356 139
184 718 725
0,3
0,9
4,2
14,1
80,5
3 345
100
229 338 322
100,0
127 164 655
44 030 714
38 685 276
6 860 193
3 814 548
3 656 663
3 176 802
1 283 725
791 248
350 432
295 191
155 102
112 700
82 519
61 300
46 796
20 684
55,45
19,20
16,87
2,99
1,66
1,59
1,39
0,56
0,35
0,15
0,13
0,07
0,05
0,04
0,03
0,02
0,01
230 588 548
100,56*
Category of shareholders
Listed company
Pension funds
Unit trusts/mutual funds
Other managed funds
Private investor
Employees
Insurance companies
Custodians
Exchange traded fund
University
Sovereign wealth
Corporate holding
Foreign government
Investment trust
Charity
American depositary receipts
Local authority
*Please note the total of shareholder categories exceeded the issued share capital at the time of the analysis
and is believed to be as a result of stock lending transactions.
Non-public shareholders
(included above)
Directors
Share incentive scheme
To the best of the Company’s knowledge:
Beneficial shareholders with a holding of 3% or more
Steinhoff International Holdings Limited
Government Employees Pension Fund (PIC)
Fund managers with a holding of 3% or more
Regarding Capital Management Proprietary
Limited
Public Investment Corporation
Investec Asset Management
Boston Company Asset Management LLC
Sanlam Investment Management
4
1
0,12
0,03
1 205 000
3 656 663
0,5
1,6
5
0,15
4 861 663
2,1
% held
127 164 655
19 640 103
56,4
6,2
146 804 758
62,6
16 209 616
7,1
12 927 788
12 544 846
9 744 191
8 950 081
5,6
5,5
4,3
3,9
60 376 522
26,4
JD Group Integrated Report 2013 <<
109
FINANCIAL STATEMENTS
Subsidiaries
Percentage interest held
Country of
incorporation
2013
%
2012
%
Direct subsidiaries
JDG Trading Proprietary Limited*
Unitrans Automotive Proprietary Limited**
Steinhoff Doors and Building Materials Proprietary Limited***
JD Group Property Holdings Proprietary Limitedø
JD Consumer Finance Proprietary Limited$
South Africa
South Africa
South Africa
South Africa
South Africa
100
100
100
100
100
100
100
100
100
–
Indirect subsidiaries
Courts Megastore Proprietary Limited*
Connection Group Holdings Proprietary Limited*
JD Group International Proprietary Limited‡
JDG Investment Holding Company Proprietary Limited‡
JDG Micro Insurance Limited@
JDG Micro Life Limited@
Profurn Limited‡
Protea Furnishers S.A. Proprietary Limited*
Supreme Furnishers Proprietary Limited‡
Blake & Associates Holdings Proprietary Limited!
Maravedi Group Proprietary Limited&
Aazad Electrical Construction Proprietary Limited*
Hi Fi & Electric Warehouse Proprietary Limited*
JD Group (Botswana) Proprietary Limited*
Supreme Furnishers (Botswana) Proprietary Limited*
JD Financial Services Proprietary Limited&
Supreme Furnishers (Namibia) Proprietary Limited*
JD Group (Swaziland) Proprietary Limited*
Hi Fi & Electric Zambia Proprietary Limited*
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
South Africa
Botswana
Botswana
Botswana
Botswana
Namibia
Namibia
Swaziland
Zambia
100
100
100
100
100
100
100
100
100
70
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
70
100
100
100
100
100
100
100
100
100
Notes
1. All the above are unlisted companies.
2. A list of dormant, name protection and property owning companies is available for inspection by shareholders at the registered office of the Company.
3. Activities of subsidiaries
* Retailers of household furniture, appliances and home entertainment products
** Retailer in automotive vehicle including vehicle services and part sales and vehicle rental services
*** Retailer in building materials
ø Property owning company
‡ Investment holding company
@ Insurance companies
! Contact centre services company
&Dormant
$ Providing consumer finance, debt management and collection services
# Reflected in local currency
110 >> JD Group Integrated Report 2013
Direct interest of holding company
Stated capital
Shares
Indebtedness
2013
Currency#
2012
Currency#
2013
Rm
2012
Rm
2013
Rm
2012
Rm
655 660
100
100
120
100
655 660
100
100
120
–
1 091
1 158
–
–
1 091
1 158
–
–
7 268
1 927
89
462
1 292
1 926
–
–
1 000
1 753 041
11
100
20 000 070
25 000 070
543 565
30 000
224
1 001
1 000
100
100
28 053 970
10
100
1
2
7 990
1 000
1 753 041
11
100
20 000 070
25 000 070
543 565
30 000
224
1 001
1 200
100
100
100
10
100
1
2
7 990
2 249
2 249
9 746
3 218
JD Group Integrated Report 2013 <<
111
Remuneration report
Employee benefits
JD Group’s overarching remuneration philosophy principles
In accordance with principles 2.25 and 2.27 of King III in South Africa, JD Group has formulated and maintained a holistic remuneration philosophy
and remuneration policy with little to no changes made compared to the previous period. In the design of the policy, the Group has taken into account
applicable best practice and applied that within the framework of the statutory legislation. The Group rewards its employees and executives fairly,
responsibly and consistently according to their roles and an individual’s performance as well as his/her contribution.
The principles that underpin the remuneration philosophy and approach are:
• Remuneration supports the delivery of long-term strategic goals through the delivery of excellence
• Remuneration supports JD Group’s Employee Value Proposition (EVP) in respect of attraction and retention
• Remuneration is linked to results-based and value-based contributions
• Remuneration is benchmarked and market-related
• Remuneration supports the delivery of high performance.
The JD Group’s remuneration philosophy is designed to attract, motivate and retain talented employees. For executives, the focus is placed on
retaining both key individuals as well as critical skills, as stability in these roles enhances business sustainability and growth of expertise. The Group
also aims to align the objectives of management with those of shareholders, who expect sustainable long-term growth in earnings and total
shareholder return (TSR). This notion was further entrenched with the introduction (from the 2014 financial year onwards) of a minimum shareholding
in the Group by top management individuals, in order to qualify for participation in the long-term share-based incentive scheme (refer below).
The approach therefore includes both long-term and short-term incentives that encourage immediate delivery, while also building towards the future.
Salaries, incentives and salary increases are benchmarked both internally and externally by an independent consulting firm within relevant industries
to ensure parity and equity. From a Group perspective, incentives based on divisional, departmental and personal performance also exist to
incentivise employees below executive level.
The alignment between the Group’s performance improvement philosophy and the approach to remuneration is designed to promote the delivery of
business needs and the creation of value to deliver long-term shareholder value. This strategic integration is a fundamental enabler of the
commitment to the Group’s value of high performance and its vision to be world class.
The Remuneration committee
The main objective of the Remuneration committee (Remcom) is to balance the interests of shareholders, directors and employees in setting
remuneration that is fair, reasonable and acceptable to all role-players. Linking pay and performance is a high focus area for Remcom members to
ensure that there is no disconnect.
Remcom meets at least twice a year and has a fundamental role of assisting the Board in fulfilling its responsibilities in establishing formal and
transparent strategies, policies, practices and procedures relevant for remuneration and talent management.
Remcom is made up of non-executive directors, of whom the majority are independent. Remcom members have no personal interests in the
outcomes of their decisions and they are suitably qualified and enabled to exercise competent and independent judgement on remuneration policies
and practices.
Remcom’s terms of reference include the following key responsibilities:
• Review the Policy for senior executives’ and executive directors’ remuneration
• Provide input to non-executive directors’ emoluments
• Determine specific remuneration packages for executives and executive directors of the Group
• Approve the design of short- and long-term incentive schemes
• Ensure that the remuneration for executives is based on performance and value creation
• Recommend to the Board the fee to be paid to each non-executive director for services rendered on the Board and its committees
• Review and monitor progress in people management
• Annually prepare a report for incorporation into the Group’s Integrated report (this report).
Remcom is supported by the Group’s well-established Human Resources function at head office. The latter is responsible for the implementation and
management of remuneration strategies, policies and practices across Group operations.
The members of the committee during the year were Günter Steffens (Chairman), Vusi Khanyile (independent Chairman of the Board), Dr Len Konar
(Social and Ethics committee Chairman), Martin Shaw (Chairman of the Group Audit committee) and Markus Jooste (the CEO of Steinhoff). More detail
of Remcom’s role, operations and membership is set out in the Corporate governance review which is available online at www.jdg.co.za.
The Remuneration Policy
The Remuneration Policy is applicable to all JD Group employees, including the directors of the Board. The purpose of this policy is to provide the
philosophy and methodology in all matters of remuneration and reward, while guiding the application of remuneration principles and procedures to
ensure that there is adequate return on investment on the Group’s remuneration spend, i.e. all funds are utilised optimally for the benefit of
employees and shareholders.
The Remuneration Policy follows the recommendations of King III and is based on the following principles and activities:
• All remuneration and reward practices are aligned and designed to enable the Group’s strategic business objectives
• All decisions are applied consistently
• All salaries are reviewed annually and increases, if any, are based on the outcome of a formal appraisal of performance
• All individuals’ performances are reviewed semi-annually in line with the Group’s performance improvement strategy. An increase is not
guaranteed. A triangulated approach, i.e. through consideration of market conditions, business performance as well as individual performance, is
applied to determine whether an increase is justified. All benchmarking and grading are set at levels that are competitive and relevant within the
market and the specific business operating division
112 >> JD Group Integrated Report 2013
• All employees’ personal remuneration must be treated as confidential and be respected
• All remuneration and reward practices must be evaluated within a risk framework.
Performance management, succession planning and talent retention
The recruitment and retention of top talent is a crucial element of the Group’s people strategy. Succession planning is at the heart of this strategy.
It creates and generates future management sustainability and mitigates the risk or lack of capacity and capability to deliver on the promised
business goals. Employees take part in regular performance and career development reviews and have individualised development plans that are
aligned to the Group’s skills needs, the succession plan and the training and development strategy of the Group.
Since a “one-size-fits-all” approach to retention in the current South African business environment is regarded as ineffective and unsuitable,
Remcom has approved a two-pronged retention strategy for the Group in 2012. The strategy has a direct link to the Group’s remuneration philosophy
and approach. The primary retention strategy is an “aggressive” strategy with the goal of retaining high-potential, high-performing employees by
remunerating them at the upper percentile, while the secondary retention strategy is more moderate in nature, with the aim of retaining growthpotential, competent employees by remunerating them at the median.
Permanent employee benefits
Full-time employees reap the benefit of a healthy employment relationship. In addition to a basic salary, other benefits include retirement fund, risk
and medical aid benefits, which are subsidised at differing levels, dependent upon an employee’s position and selection of benefit type.
Retirement funds and medical aid
Nearly all employees are members of a retirement fund in which the Group participates. A summary of the key retirement funds are provided below:
1. The Alexander Forbes Retirement Fund (AFRF) is an umbrella fund in which employees of JDG Trading and Connection Group Holdings Proprietary
Limited have membership as a condition of employment. It comprises the following two sub-funds:
• The Alexander Forbes Retirement Fund (Pension and Provident Sections): JDG Trading Proprietary Limited
• The Alexander Forbes Retirement Fund (Provident Section): Connection Group Holdings Proprietary Limited.
A lexander Forbes Financial Services Proprietary Limited is the appointed administrator of the AFRF. This fund is managed by a professional Board
of trustees. In terms of the rules of the fund, each participating employer is required to establish a Management committee comprising both
employer-appointed and member-elected representatives. For JDG Trading there are four employer-appointed and four employee-elected
representatives. The employer-appointed representatives are Johan Coetsee (Chairman), George Annadale, Yondela Ndema and Richard Chauke.
For Connection Group, there are three employer-appointed and three employee-elected representatives. The employer representatives are
Marco van Niekerk, Stefan Marnewick and Natalie Smith. The Management committee, among other activities, monitors and reviews the selected
investment strategy, assists in the distribution of death benefits payable and monitors continued participation in the fund.
2. The SA Commercial Catering and Allied Workers Union National Provident Fund (SNPF) is an umbrella fund in which a number of employers
participate in terms of a collective bargaining agreement with SACCAWU. Old Mutual Life Assurance Company (South Africa) Limited (Employee
Benefits Industry Funds Unit Division) is the appointed administrator of this fund.
3. The Steinhoff Group Umbrella Provident Fund (SGUPF) is an employer-sponsored umbrella fund in which employees of the SteinBuild and Unitrans
Auto (including Hertz) companies have membership as a condition of employment. Robson Savage is the appointed administrator of the SGUPF.
This fund is managed by a Board of trustees with an independent chairman, Lionel Lindsay. In terms of the rules of the fund, the Board of trustees
consists of both employer-appointed and member-elected representatives. The employer-appointed representatives are Karen Ralph, Neil Rubelli
and Schalk van der Merwe and the member-elected representatives are Uta Higgs, Juandré Els and Susan Marshall. The Board of trustees, among
other activities, monitors and reviews the selected investment strategy, assists in the distribution of death benefits payable and monitors continued
participation in the fund.
Employees of the Group in Botswana and in Namibia belong to various umbrella funds in these countries.
The Group’s full-time employees are also afforded the opportunity to belong to one of three leading medical aid service providers which offer a wide
range of progressive and affordable medical and hospital plans.
Minimum wages and basic salaries
The Group participates in and is party to the Sectoral Determination that governs minimum wages and conditions of employment in the Wholesale
and Retail Sector. The Group fully complies with the wages and terms and conditions prescribed by this regulation and currently remunerates its
employees at the “Area A” minimum wages within South Africa where the regulation is applicable. This does not preclude the Group from applying
the rules regarding the other category areas in the future. Almost half of the Group’s employees are covered by collective bargaining agreements
between the Group, organised labour and bargaining unit employees. (Refer to the Sustainability review available at www.jdg.co.za for a detailed
discussion of organised labour matters.)
Executive remuneration
The remuneration strategy for executives is based on the principles of retaining key individuals and critical skills in order to drive performance and
to achieve the Group’s strategic targets. The alignment of performance and stakeholders’ interests is driven through a combination of guaranteed
pay together with short- and long-term incentives. A significant portion of executives’ and senior management’s total potential remuneration is
performance related in order to drive the correct behaviour and to optimise business performance over the long term. (See also the Reward mix
explanation on page 115.)
JD Group Integrated Report 2013 <<
113
Remuneration report continued
Elements of executive remuneration
The elements of executive remuneration include:
Total guaranteed pay (TGP)
This includes salary plus benefits such as medical aid, retirement contributions and allowances.
TGP is subject to an annual review and is aimed between the median and upper quartile when benchmarked against other similar-sized South African
companies. Furthermore it is adjusted according to the individual’s performance, responsibility, consequence of error and consistent contribution to
the sustainability of the Group.
Short-term incentives (STI)
The JD Group has followed the global trend of using STIs in a manner that attracts and retains talent. The focus on incentive pay gives the Group
flexibility, while providing benefits to individuals for the achievement of business targets and meeting or exceeding budgeted performance. The
practicality of this approach lies in the application of rigorous governance discipline through Remcom and a Group-wide commitment to designing
targets and rewards that are appropriately structured to protect against unwarranted pay-outs while still rewarding excellence. The executives’ STI is
determined using headline earnings per share as a base, linked to each individual’s cost-to-company (CTC) salary and it is a “self-funding” scheme
by virtue of the additional profit that is generated by the outperformance.
Measurement
The Group advocates the measurement of personal, team and divisional results to ensure “a line of sight”’ between business performance goals and
total shareholder return and an associated reward.
Payment of annual short-term incentives is earned subject to a thorough evaluation of portfolios of evidence supporting achievement of targets. In the
event that agreed-upon business performance targets are not achieved, the incentive is not paid out. This has been the case with the Art of Service
bonus for employees in the Group. They have foregone the aforementioned bonus due to non-achievement of the business and customer satisfaction
targets set prior to the review period (see also Grants of Share Appreciation Rights below as an example where the Group’s executives have foregone
share-based incentives due to non-performance during the review period).
Capped
Short-term incentives are generally capped at a maximum payment equivalent to one times annual CTC. The methodology applied by Remcom for the
determination of the executives’ (Board and Executive committee) STI for 2013 is set out in the table below.
Target HEPS
Benefit and comments
Less than budget
Qualify for no bonus payable, however, Remcom may approve a discretionary bonus having due regard to external
circumstances that may have influenced performance.
Budget
Qualify for a cash bonus equal to 50% of annual CTC salary.
Budget plus 5%
Qualify for a cash bonus equal to 75% of annual CTC salary.
Budget plus 10%
Qualify for a cash bonus equal to 100% of annual CTC salary.
In arriving at the budget, both Remcom and the Board apply rigorous processes to determine the budget and to ensure that the budget meets the
objective of maximising shareholder value.
Long-term incentives (LTI)
The Group’s approach to LTI share schemes is designed to align the objectives of executives to those of the shareholders, i.e. ensuring sustainable
long-term value and earnings growth. Shares are considered an essential element of reward and represent a material part of an executive’s
remuneration package. This reward structure ensures that individuals with core skills and competencies are attracted and retained. This approach
decreases exit risks and encourages tenure and loyalty. In the event that set performance targets are not achieved, the benefits do not realise. This
has been the case for the executive directors and executive management during the past two review periods since the headline earnings per share
and net asset value growth targets set at the time of allocation were not met. As a consequence, these rights have lapsed and no long-term
incentives were paid out during the year under review.
To further encourage participants of the LTI share incentive scheme to maintain and/or invest in the share capital of the Company to align their
interests with those of the Company’s shareholders, Remcom has resolved that the participation in any future grant and/or vesting of rights (and/or
delivery of shares of the Company) will be subject to the participant maintaining a minimum shareholding in the Company, which minimum stake will
be determined by Remcom.
LTI share schemes are used within the following guiding framework:
• There is shareholder consultation before implementation or changes to an existing plan
• There is acknowledgement of the impact of LTI share schemes on employee engagement
• The LTI share schemes are applied within the boundaries of regulation and sound business practices.
Share Purchase and Option Scheme
This scheme is in a run-off mode and no new shares/options may be allocated to participants. However, there are a number of participants still
holding share options or shares that will vest over time, up until June 2016. This is an old-format scheme and save for share-price growth, no other
performance conditions were linked to benefits realisation.
Share Appreciation Rights (SARs) Scheme and Share Rights (SRs) Scheme
To date the current SAR scheme has been ineffective in its objective of attracting, incentivising or retaining key executives with core skills or in
ensuring sustainable long-term value and earnings growth. As a consequence, and following consultation with the Group’s major shareholders, a
proposal will be made to all shareholders at the forthcoming annual general meeting for the adoption of a new-format SR scheme that will more
114 >> JD Group Integrated Report 2013
closely align executives’ interest with those of shareholders. The purpose of the scheme is to attract, retain, motivate and reward executives of the
Group who are able to influence the performance of the Group, on a basis which aligns the interests of such executives with those of the Group and
its shareholders.
In terms of the proposed new scheme, SRs are granted to participants in the scheme, each providing the participant a conditional and future right
upon vesting, to convert the SR into a JD Group ordinary share of no par value, subject to the fulfilment/achievement of certain pre-determined
performance criteria set by the Remcom. The shares will be allotted and issued or delivered to participants following the third anniversary of each
annual grant, provided that the performance criteria set by the Remcom have been achieved at the sole discretion of Remcom.
When setting the performance criteria, Remcom will take into account targets relating to growth in shareholder value, cash generation, returns and
other factors most appropriate to the growth and sustainability of each of the relevant employer companies in the Group, which criteria may differ
from employer company to employer company as circumstances dictate, and may also include specific individual targets over which each
participant has direct control, being the participant’s Key Performance Indicators as may be agreed from time to time between the participant and
his/her direct superior.
Should the Group or any participant fail to achieve the set performance criteria during any measurement period, the SRs granted to such participant
and linked to that measurement period, shall lapse and be of no further force or effect.
Details of the Group’s current schemes are set out in note 34 to the annual financial statements.
Reward mix
The 2013 reward mix for the executives in the Group is depicted in the graph below. The total guaranteed package of executives makes up the
majority of an individual’s earnings.
average actual remuneration mix paid to executive
directors during the year under review
68%
Total guaranteed package
32%
Short-term incentive
Executive directors’ service contracts
The executive directors’ service contracts generally specify a notice period not exceeding three months. There is no contract that exceeds
a 12-month notice period.
Non-executive directors’ fees and emoluments
Non-executive directors receive fees for the rendering of services to the Group, i.e. for serving on the Board and on the various Board committees.
They do not receive short-term incentives, nor do they participate in any of the Group’s share-based incentive schemes.
The fees for non-executive directors are approved by the Board with inputs from the Remcom, after they have been benchmarked in the retail and
non-retail market. The Board then recommends the fees to shareholders for approval at the annual general meeting. The proposed forward-looking
fees of the non-executive directors are included in the notice of the annual general meeting, while the remuneration paid to directors during the past
review period is set out in the table as included in note 37 of the annual financial statements.
JD Group Integrated Report 2013 <<
115
Social and Ethics committee report
OVERVIEW OF THE DUTIES CARRIED OUT BY THE JD GROUP SOCIAL and ETHICS COMMITTEE DURING THE 2013 FINANCIAL YEAR
1.
Introduction and background
JD Group Limited (the Company or JD Group) has constituted a Social and Ethics committee in accordance with the provisions of section 72 of
the Companies Act, 71 of 2008 and Regulation 43 of the Companies Regulations (jointly, the Act).
T he Social and Ethics committee (the S&EC) is a statutory committee, as well as a committee of the JD Group Board (the Board) in respect of
other duties assigned to it by the Board.
The S&EC has a specific obligation to report annually, at the Company’s annual general meeting (AGM), to shareholders.
The overall objective of the S&EC is to assist the Board in discharging its duties relating to, amongst others, compliance with the Employment
Equity Act and the Broad-Based Black Economic Empowerment Act, Occupational Health and Safety Act and the Compensation for Occupation
Injuries and Diseases Act, with a specific focus on those duties stated in Regulation 43(5), relating to, amongst others, social and economic
development, the prevention of fraud and corruption, the Company’s impact on the environment and its consumer relationships. In addition, it
must carry out the functions and duties as may be assigned to it by the Board and proactively draw matters within its mandate to the attention
of the Board as circumstances dictate from time to time.
2.Membership
There were no changes to the membership of the S&EC during the 2013 financial year.
In accordance with the provisions of the Act, the S&EC comprises at least three directors of the Company, of whom one is a non-executive
director and one an independent non-executive director. The directors who have been serving on the S&EC since its inception on 11 May 2012
are:
• Dr D Konar (a non-executive director)
• Ms N Bodasing (an independent non-executive director)
• Mr KR Chauke (an executive director).
Dr Konar has been elected the Chairman of the S&EC.
3.
Report on duties carried out
The above-mentioned directors, whose knowledge, skills and experience were found to be appropriate to fulfil the obligations of the S&EC
as set out in the Act, are pleased to present the committee’s report for the financial year ended 30 June 2013 to the Board for onward
recommendation to shareholders, which report is presented as an overview only, and should not be regarded as an exhaustive list of duties
carried out.
General overview, meetings and attendance
With reference to social and ethical aspects, the S&EC acts on behalf of all companies in the JD Group.
The S&EC has convened twice since inception and all of the items in its Work Plan have been covered.
The above-mentioned directors have been in attendance at all meetings of the S&EC.
Under the guidance of the S&EC, the Company has published on its website various key policies for wider stakeholder absorption, such as
amongst others, the Group’s HIV Policy, its Ethics Policy, the Access to Information Guide, etc.
Terms of reference and Work Plan
The S&EC’s operations are guided by a formal Terms of Reference (ToR) that is aligned with the requirements of the Company’s Memorandum
of Incorporation (MOI), the provisions of the Act, the recommendations of the third King Report on Governance for South Africa and the King
Code of Governance Principles (jointly King III), as well as the Listings Requirements of the JSE Limited (the “JSE LR”) and other relevant
and applicable legislation.
During the review period, the S&EC’s ToR and Annual Work Plan were reviewed and approved.
Since some of the work falling within the S&EC’s mandate is being performed by other forums in the Group, there is some overlap in functions
between the S&EC, the JD Group Audit committee, The JD Group Risk Management committee and the Group Executive committee (the Exco).
As a consequence, the S&EC’s Work Plan and those of the other forums are being refined on an ongoing basis to prevent duplication of effort
and to enhance efficiencies.
Anti-bribery/-corruption/-fraud
The S&EC has adopted all the principles of the Organisation for Economic Co-Operation and Development (OECD) relating to the fight against
bribery and corruption and the Company has confirmed its zero tolerance stance towards bribery and corruption. Whilst an Anti-Fraud Policy
already exists, management is in the process of also formulating a standalone Anti-Bribery/-Corruption Policy.
The S&EC has adopted the ten principles of the United Nations Global Compact (UNGC) in the areas of human rights, labour, the environment
and anti-corruption.
T he S&EC reviewed various fraud and corruption-prevention codes and procedures, of which the Fraud Prevention Policy, the Conflicts of
Interests Policy, the Gifts Policy, the Risk Policy, the Board Code of Ethics, the Securities Dealing Code, the Employee Code of Ethics and the
Contracts Management Policy are but a few. Furthermore, the committee ascertained that fraud prevention is reinforced by awareness
campaigns and by HR-assisted training and at induction sessions. In addition, the committee obtained confirmation that the Group follows
a consistent approach in actively pursuing and prosecuting perpetrators of fraudulent or other illegal activities. In addition, the S&EC had
insight into fraud-related statistics as are monitored by the JD Group Audit committee.
T o facilitate the fight against fraud and corruption, the S&EC ensured that the Group had adopted an independently monitored whistle-blowing
procedure (a Crime Call Hotline and a web interface), through which illegal acts may be reported anonymously on a 24/7 basis in all official
languages of the country.
116 >> JD Group Integrated Report 2013
T he S&EC had assured itself that the Group does not engage in or accept or condone any illegal acts of any nature in the conduct of its
business and has encouraged management to also promote this approach amongst the Group’s suppliers and other stakeholders.
Having regard to the fact that the JD Group Board is committed to the highest ethical standards of business conduct, and ensured the
implementation of various policies and measures to guide and prevent unauthorised conduct of officials, the S&EC is satisfied that a high
standard of ethics is maintained within the JD Group.
Social and economic development, community development, skills development, as well as sponsorship, donations and charity work
The S&EC has considered and endorsed various reports on the Company’s contribution to the development of the communities in which its
activities are predominantly conducted. It reviewed and endorsed the Group’s corporate social investment (CSI) and socio-economic
development (SED) approach, in terms of which CSI and SED are managed within the dimensions of enterprise development projects, direct
donations and deserving “sweat equity” community initiatives. In addition, it considered and sanctioned the Group’s direct donations policy
which is dedicated to providing financial assistance to alleviate poverty, combat crime and to enhance community development, education,
health, art and agriculture with a particular focus on disadvantaged children, orphans, victims of abuse and the youth. The S&EC also
considered the approach and status of the Group’s preferential procurement and directed that certain B-BBEE-rating qualification conditions
be incorporated into the Group’s Procurement Policy.
Amongst other activities, the Committee considered and endorsed:
• A number of enterprise development projects across the country, being agricultural projects revolving around the concept of the African
Garden Market that alleviate poverty, provide food, create employment and empower communities
• The work of the JD’s Bursary committee in assisting needy students and financially supporting young disadvantaged learners, employees
and their children in the learning environment
• The work of the Group’s Employment Equity and Training committee (EE&TC), in monitoring the Group’s initiatives around skills development
• The Group’s membership of the Wholesale and Retail Sector Education and Training Authority (the W&R Seta) and the Bank Sector Education
and Training Authority, through which the Group influences the development of tailored development programmes for the furniture and
appliance industry
• The Group’s success in obtaining accreditation of its training programmes and training material from the W&R Seta, in this way facilitating
skills development
• The various management development programmes undertaken in the Group
• The Skills Development committee’s structure and framework operating at divisional, chain and corporate department level in the Group.
The S&EC is satisfied that the Group’s 2013 budgets for CSI activities, for enterprise development initiatives and for other worthy causes
were spent sensibly in the best interests of the communities in which the Group’s products, services and activities are predominantly
conducted and that the Group’s skills development initiatives promoted continued employability of staff and assisted them in progressing
their careers, whilst donations and financial assistance given, benefited disadvantaged children and the youth and alleviated poverty and
enhanced education and health.
Labour, employment, equality, prevention of discrimination, the Broad-Based Black Economic Empowerment (B-BBEE) Act, the
Employment Equity (EE) Act and good corporate citizenship
The S&EC monitored the Group’s Transformation status and progress. The Group’s B-BBEE Scorecard has been considered at each meeting of
the S&EC and it is also discussed monthly at Exco and is presented to the Board on a quarterly basis.
T he S&EC endorsed the augmented Transformation Plan for the Group, containing a clear strategy that will enable JD to enhance its status
over the short term to a level 4 contributor and to prepare itself timeously for anticipated changes to the existing B-BBEE Act.
T he Group has adopted an Employment Equity (EE) Policy, of which the main aim is to ensure an equitable, diverse and transformed workforce.
In this regard, the S&EC has endorsed the Group’s strategy to facilitate and fast-track the accelerated employment and development of
suitable previously disadvantaged individuals (PDIs), notwithstanding the fact that at present, 81% of all positions in the Group are already
occupied by PDIs.
T he Group has compiled and filed its statutory EE reports to the Department of Labour and the S&EC has obtained confirmation that the
Group’s reporting on EE had been confirmed in the Government Gazette.
S everal visits have been made to JD’s stores by the Department of Labour’s Inspectors during the review period and the S&EC found
reassurance in the fact that all of the inspected stores had been found to be compliant with prescribed labour legislation.
Among others, the S&EC further obtained confirmation and ascertained that:
• The Group’s Working Conditions Policy and its employees’ Letters of Appointment are aligned with the provisions of the Basic Conditions of
Employment Act and that all HR-related policies and procedures are freely available to staff
• All new employees are subjected to an induction process, where HR practices, working conditions, fraud prevention and other important
Group policies, codes, procedures and practices are clarified/explained
• The Group complies with prescribed regulation for wages within South Africa
• The majority of the Group’s employees are covered by collective bargaining agreements between the Group, organised labour and
bargaining unit employees and that a sound and healthy relationship is being maintained with organised labour
• The Group’s employees proactively uphold fundamental human rights as set out in the Constitution
• The Group’s employees have freedom of expression, association and representation, evidenced by the fact that none of the Group’s
operations restrict employees’ rights to exercise freedom of association or collective bargaining
• No incidents of violations involving rights of indigenous people or discrimination of rights of people have taken place in the Group
• Integrity and ethical practices form the foundation of the way business is conducted in the Group
• None of the Group’s policies discriminate on the grounds of race, age, disability, gender or religion and the Group has not recorded any
incidents of discrimination
JD Group Integrated Report 2013 <<
117
Social and Ethics committee report continued
• The Group has not experienced any incidents of child labour, forced or compulsory labour
• Diversity training is provided on an ongoing basis
• Once the results from the independent consumer service quality/attitude surveys (from both internal and external customers) are known,
the S&EC will consider these with a view of advising on how to further enhance the Group’s Art of Service programme.
The S&EC is satisfied that the Group has complied with applicable employment-related legislation and that the Group has applied
appropriate and just labour and employment practices under decent working conditions and has upheld the rights of individuals as set out
in the Constitution and complied materially with its key transformation responsibilities and has adopted appropriate plans to facilitate
further transformation of its workforce.
Health and public safety, the Occupational Health and Safety Act (OHASA) and the Compensation for Occupation Injuries and
Diseases Act (COIDA)
The Group’s Health and Safety Policy is fully aligned with relevant health and safety legislation and Health and Safety committees exist across
the business to monitor and advise on the Group’s compliance with OHASA and the Compensation for Occupation Injuries and Diseases Act.
The aforementioned Policy was reviewed during the reporting period.
T he S&EC obtained confirmation that the required section 16(2) CEO assignments under OHASA had been made to responsible employees
in all environments across the Group, while an adequate number of fire-marshals and first-aiders have also been trained and appointed.
usiness Continuity Plans and Emergency Response procedures exist and have been tested during the review period under the guidance of an
B
independent service provider (i.e. AON). Progress in respect of the aforementioned was reported at monthly Exco meetings, quarterly to the
Board and to all meetings of the S&EC.
Through the actions of Physical Risk Managers and Regional Security Managers, regular physical risk and safety audits and security checks
were carried out at the Group’s warehouses and stores. The S&EC has ensured, in co-operation with the JD Group Risk Management
committee, that identified safety and security risks had been mitigated appropriately.
T he S&EC was made aware of the Group’s No Smoking Policy and JD’s Health and Wellness Educator Programme (Philakahle), as well as
the training and appointment of health educators under which the Group’s HIV/Aids programme is managed, amongst others.
The S&EC is satisfied that the Group has complied appropriately with its obligations under the Occupational Health and Safety Act and
the Compensation for Occupation Injuries and Diseases Act.
The environment
Under the guidance of the S&EC and notwithstanding the fact that the Group as a retailer only has a “medium” environmental impact:
• An Environmental Policy and Strategy was adopted, as well as a number of sustainability-related plans and guidelines that are all focused
on enhancing triple bottom-line aspects in support of the Group’s business strategy
• Steady progress has been made in building formal monitoring structures for measuring and verifying future sustainability efforts
• The Group has made a submission towards the South African Carbon Disclosure Project (CDP), wherein JD’s known carbon emissions, their
effect on the environment and the Group’s exposure to risk resulting from climate change, have been recorded
• The Group subscribes to the principles of the Green Building Council of South Africa and is applying ecologically friendly and relevant
concepts in the operation of its buildings on a day-to-day basis and in its building methodologies when new buildings in its own portfolio
are developed
• It constantly encourages its suppliers to develop ergonomically designed and safe work spaces for their employees.
The S&EC is satisfied that the Group has focused on enhancing triple bottom-line aspects in support of the Group’s business strategy and
has progressed in its efforts to monitor its environmental impact and to reduce its overall environmental footprint through interventions
that minimise its impact on the biodiversity environment.
Dr D Konar
Chairman
On behalf of the Social and Ethics committee
21 August 2013
118 >> JD Group Integrated Report 2013
Shareholders’ diary 2014
Announcement of interim results End-February
Interim dividend declaration End-February
Payment of interim dividend End-June
Financial year end 30 June
Announcement of annual results and publication of annual financial statements End-August
Final dividend declaration End-August
Publication of integrated report End-October
Payment of final dividend End-October
Annual general meeting
Mid-November
JD Group Integrated Report 2013 <<
119
Administration
JD Group Limited
(JD or the Group)
Registration number:1981/009108/06
JSE share code: JDG ISIN: ZAE000030771
JSE bond code: JDGCB ISIN: ZAE000168415
Executive directors
ID Sussman (Chief Executive Officer), JHN van der Merwe (Chief Financial Officer), KR Chauke, PM Griffiths and BJ van Rooy
Independent non-executive directors
VP Khanyile (Independent Chairman), N Bodasing, M Lock, MP Matlwa, MJ Shaw, JH Schindehütte, GZ Steffens
Non-executive directors
MJ Jooste, Dr D Konar, AB la Grange, DM van der Merwe
Company secretary
JMWR Pieterse
Registered office
11th Floor, JD House,
27 Stiemens Street, Braamfontein, Johannesburg, 2001
(PO Box 4208, Johannesburg, 2000)
Telephone +27 11 408 0408
Facsimile +27 11 408 0604
Email: investors@jdg.co.za
Transfer secretaries
Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
(PO Box 61051, Marshalltown, 2107)
Telephone +27 11 370 5000
Facsimile +27 11 688 5238
Email: proxy@computershare.co.za
ADR depository receipt transfer agent
The Bank of New York Mellon Corporation
BNY Mellon Shareowner Services
PO Box 358516
Pittsburgh, PA15252-8516
US toll-free telephone: +1 201 680 6825
Email: shrrelations@bnymellon.com
File number 82-4401
Sponsor
PSG Capital Proprietary Limited
First Floor, Building 8, Inanda Greens Business Park
54 Wierda Road West, Wierda Valley, Sandton, 2196
Telephone +27 11 784 1712
Facsimile +27 11 784 4755
Independent auditor
Deloitte & Touche, Deloitte Place, The Woodlands
Woodlands Drive, Woodmead
Sandton
Preparer
The annual financial statements were prepared by JHN van der Merwe CA(SA), the Chief Financial Officer
120 >> JD Group Integrated Report 2013
design by: Jcb.E
Typesetting and production by: GREYMATTER & FINCH # 7787