annual report 2009

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NOTES TO THE FINANCIAL STATEMENTS
for the years ended 31 March




31.

EARNINGS PER SHARE

    
       
    2009 2008
    Rm Rm
31.1 Basic and headline earnings per share    
  The calculation of basic and headline earnings per share at 31 March 2009 was based on profit for the year attributable to ordinary shareholders of Foschini Limited and headline earnings of R1 145,8 (2008: R1 128,4) million divided by the weighted average number of ordinary shares as follows:    
       
  Profit attributable to equity holders of Foschini Limited 1 145,8 1 128,4
  Headline earnings 1 145,8 1 128,4
  Weighted average number of ordinary shares in issue 204 774 314 206 282 464
  Earnings per ordinary share (cents) 559,5 547,0
  Headline earnings per ordinary share (cents) 559,5 547,0
       
31.2 Diluted earnings and headline earnings per share    
  The calculation of diluted earnings and headline earnings per share at 31 March 2009 was based on profit for the year attributable to ordinary shareholders of Foschini Limited and headline earnings of R1 145,8 (2008: R1 128,4) million divided by the fully diluted weighted average number of ordinary shares as follows:    
       
  Weighted average number of ordinary shares as above 204 774 314 206 282 464
  Number of shares that would have been issued for no consideration 2 401 781 3 451 496
  Weighted average number of ordinary shares used for dilution 207 176 095 209 733 960
  Diluted earnings per ordinary share (cents) 553,0 538,0
  Diluted headline earnings per ordinary share (cents) 553,0 538,0
       

32.

OPERATING LEASE OBLIGATION

    
  The group leases most of its trading premises under operating leases.    
       
  Leases on trading premises are contracted for periods of between five and ten years,    
  with renewal options for a further five years, wherever possible. The lease agreements    
  for certain stores provide for a minimum annual rental payment and additional    
  payments determined on the basis of turnover. Turnover rentals, where applicable,    
  average approximately 4,5% of turnover. Rental escalations vary, but average at a rate    
  of approximately 8% per annum.    
       
  At 31 March, future non-cancellable minimum lease rentals are as follows:    
       
  Less than 1 year 732,0 612,5
  More than 1 year and less than 5 years 1 748,8 1 559,4
  More than 5 years 123,5 49,4
       

33.

EMPLOYEE BENEFITS

    
33.1 Share incentive schemes    
  Certain employees of the group participate in its share incentive schemes.
       
 

The scheme rules of the 1997 scheme provide that delivery and payment for the shares take place in three equal tranches on the second, fourth and sixth anniversary of the date on which the options were exercised.

The scheme rules of the 2007 scheme provide that, upon fulfilment of certain performance conditions, the share appreciation rights (SARs) may upon request, be converted from the third anniversary of the grant date.

The fair value of options and SARs granted and exercised after 7 November 2002 was determined using a binomial option-pricing model. The assumptions used in determining the fair value are as follows:
       
    2009 2008
  Options granted and exercised during the financial year ending 31 March    
  Exercise price n/a R38,30 to R70,63
  Expected volatility n/a 26,7% to 31,1%
  Expected dividend yield n/a 3,4% to 7,2%
  Risk-free interest rate n/a 8,1% to 9,5%
  Share appreciation rights granted and exercised during the financial year ending 31 March    
  Exercise price R40,00 to R42,28 n/a
  Expected volatility 30,4% to 34,4% n/a
  Expected dividend yield 4,1% to 4,7% n/a
  Risk-free interest rate 9,5% to 10,4% n/a
       
  The group recognised total expenses of R25,7 (2008: R30,7) million related to these equity-settled share-based payment transactions during the year.
   
  Details of the share options and SARs outstanding at the end of the year are set out below.
   
    Number of share options
  Foschini 1997 Share Option Scheme    
  Options exercised, subject to future delivery, at 1 April 10 554 278 16 840 174
  Options exercised during the year, subject to future delivery – 325 000
  Put exercised by option holders (1 342 290) –
  Options forfeited during the year (266 339) (1 519 351)
  Options delivered during the year (2 791 146) (5 091 545)
  Options exercised, subject to future delivery, at 31 March 6 154 503 10 554 278
       
      Number of SARs
      2009 2008
  Foschini 2007 Share Incentive Scheme      
  SARs granted, subject to fulfilment of conditions, at 1 April   4 077 500 –
  SARs granted during the year, subject to fulfilment of conditions   5 494 000 4 077 500
  SARs forfeited during the year   (68 500) –
  SARs granted, subject to fulfilment of conditions, at 31 March   9 503 000 4 077 500
         
  Options in terms of the 1997 scheme will be delivered during the following financial years:    
         
  Year Average price    
  2010 21,03 1 670 039  
  2011 47,49 2 831 275  
  2012 49,31 200 001  
  2013 60,10 1 344 855  
  2014 58,47 108 333  
      6 154 503  
         
  Upon request, SARs in terms of the 2007 scheme may be converted from the following financial years:      
         
  Year Average price    
  2011 41,87 4 009 000  
  2012 41,36 5 494 000  
      9 503 000  
         
  These schemes are administered by The Foschini Share Incentive Trust which holds shares in Foschini Limited as follows:      
         
  Shares held at the beginning of the year   11 883 952 11 667 877
  Shares delivered during the year   (2 791 146) (5 091 545)
  Shares purchased during the year   – 5 307 620
  Shares held at the end of the year   9 092 806 11 883 952
         
33.2 Staff housing loans      
  Refer note 5.      
         
33.3 Retirement funds      
  Foschini Group Retirement Fund: Defined contribution plan
  The Foschini Group Retirement Fund, which is governed by the provisions of the Pension Funds Act No. 24 of 1956, is a defined contribution plan. It provides comprehensive retirement and associated benefits for members and their dependants.
   
  All permanent employees of wholly-owned subsidiaries of Foschini Limited, excluding those that are members of the Namflex or Sibaya Funds, are members of the retirement fund.
   
  An actuarial valuation of the fund was performed as at 31 December 2006, in which the valuator reported that the fund was in a sound financial position.
   
  The actuarial valuation as at 31 December 2009 is due to be performed during the 2011 financial year.
   
  Investment Solutions Pension Fund: Defined contribution plan
  All employees above an annually determined pensionable salary threshold pay 7,5% of their above-threshold earnings as contributions into this fund, which is an umbrella retirement funding arrangement.
   
  Investment Solutions Provident Fund: Defined contribution plan
  All employees above an annually determined pensionable salary threshold are required to be members of this fund. The employer contributes 1,5% of employee’s earnings to this fund.
   
  Liberty Life Provident Fund: Defined contribution plan
  Employees of RCS Investment Holdings (Proprietary) Ltd, a partially-owned subsidiary, are not members of The Foschini Group Retirement Fund, but receive comparable benefits from the Liberty Life Provident Fund. In addition, existing employees of the Massdiscounters credit business which was acquired during the year, remained as members of either the SACCAWU Provident Fund or the Liberty Life Pension Fund.
   
  Namflex Pension Fund: Defined contribution plan
  All permanent employees in Namibia under normal retirement age are required to be members of the Namflex Pension Fund. This fund is a money purchase arrangement whereby the members pay 7,5% of their pensionable salary as contributions towards retirement benefits.
   
  Sibaya Pension Fund: Defined contribution plan
  All permanent employees in Swaziland under normal retirement age are required to be members of the Sibaya Pension Fund, whereby members pay 7,5% of their pensionable salary as contributions to this fund.
   
  The employers and the members make equivalent contributions in respect of retirement benefits. In addition, the employers cover death and disability benefits, reinsurance, and administration and management costs.
   
    Number of members Contributions
        2009 2008
  Summary per fund: 2009 2008 Rm Rm
  The Foschini Group Retirement Fund 9 817 9 492 79,3 78,9
  Namflex Pension Fund 214 208 1,3 1,2
  Swaziland Pension Fund – 10 – –
  Sibaya Pension Fund 9 – – –
  Liberty Life Provident Fund 311 275 7,1 6,3
  Liberty Life Pension Fund 57 – 0,4 –
  SACCAWU Provident Fund 34 – 0,2 –
  Investment Solutions Pension Fund 136 124 3,7 3,4
  Investment Solutions Provident Fund 139 126 1,3 1,2
    10 717 10 235 93,3 91,0
           
33.4 Medical aid        
  The Foschini Group Medical Aid Scheme: Defined benefit plan
  The company and its wholly-owned subsidiaries operate a defined benefit medical aid scheme for the benefit of their permanent employees (excluding those employed in Namibia and Botswana). Membership of the scheme is voluntary, except for senior employees.
           
  Total membership currently stands at 1 975 principal members.
           
  These costs are charged against income as incurred and amounted to R19,2 (2008: R20,1) million, with employees contributing a further R19,2 million to the fund.
           
  In respect of the year ended 31 December 2008, the scheme earned contributions of R42,9 million and reflected a net surplus of Rnil million after the deduction of all expenses. The fund had net assets totalling R38,4 million.
   
  The budgeted projected surplus in respect of the year ending 31 December 2009 is R0,8 million.
   
  Bankmed Medical Aid Scheme: Defined benefit plan
  Permanent employees in Namibia are voluntary members of the Bankmed Medical Aid Scheme.
   
  These costs are charged against income as incurred and amounted to R0,5 (2008: R0,5) million, with employees contributing a further R0,5 million to the fund. There are currently 59 members of this fund.
   
  Ingwe Health Plan: Defined benefit plan
  An external medical aid scheme, Ingwe Health Plan, is also available to group employees and is subsidised by the group in the same way as the schemes mentioned above. The plans offered cater for lower income earners, and 247 employees are currently members. Costs charged to income total R1,4 million.
   
  Discovery Health: Defined benefit plan
  All permanent staff of RCS Investment Holdings (Proprietary) Limited, a partially-owned subsidiary, are required to become members of their choice of the medical plans offered by Discovery Health.
   
  These costs are charged against income as incurred and amounted to R3,0 million. Total membership currently stands at 338 principal members.
   
33.5 Post-retirement medical aid
  Qualifying retired employees are entitled to medical aid benefits, which have been fully provided for (refer note 19). The cost of providing post-retirement medical aid has been determined in accordance with IAS 19 and the charge against income for the year was Rnil (2008: Rnil) million.
   
  The principal assumptions at the last valuation date, being 31 March 2008 were as follows:
 
Net discount rate 2%
Withdrawal rates 0% – 24%
Normal retirement age 60 – 65 years
   
33.6 Other
  Group employees and pensioners are entitled to a discount on purchases made at stores within the group.
   

34.

DIRECTORS’ REMUNERATION
      Remun- Pension Travel Other 2009 2008
    Fees eration fund allowance benefits* Total Total
    R’000 R’000 R’000 R’000 R’000 R’000 R’000
  Non-executive              
  E Osrin 780,0 – – – – 780,0  
  D M Nurek 332,5,5 – – – – 332,5  
  F Abrahams 225,0 – – – – 225,0  
  S E Abrahams 280,0 – – – – 280,0  
  L F Bergman## 18,5 – – – – 18,5  
  W V Cuba 160,0 – – – – 160,0  
  N H Goodwin### 85,6 – – – – 85,6  
  M Lewis 160,0 – – – – 160,0  
  D M Polak** 160,0 – – – – 160,0  
  Total 2 201,6 – – – – 2 201,6  
  Executive              
  A D Murray# – 3 345,0 315,3 309,4 114,7 4 084,4  
  R Stein – 1 960,0 188,0 224,5 70,6 2 443,1  
  Total – 5 305,0 503,3 533,9 185,3 6 527,5  
  Total remuneration 2009 2 201,6 5 305,0 503,3 533,9 185,3 8 729,1  
  Non-executive              
  E Osrin 757,5 – – – –   757,5
  D M Nurek 296,9 – – – –   296,9
  F Abrahams 210,0 – – – –   210,0
  S E Abrahams 246,2 – – – –   246,2
  L F Bergman 152,5 – – – –   152,5
  W V Cuba 152,5 – – – –   152,5
  N H Goodwin 188,8 – – – –   188,8
  M Lewis 150,0 – – – –   150,0
  D M Polak** – – – – –   –
  Total 2 154,4 – – – –   2 154,4
  Executive              
  A D Murray# – 2 507,5 241,0 217,3 6 156,2   9 122,0
  R Stein – 1 649,3 176,8 217,3 4 076,5   6 119,9
  D M Polak** – 2 527,5 236,2 212,6 83,8   3 060,1
  Total – 6 684,3 654,0 647,2 10 316,5   18 302,0
  Total remuneration 2008 2 154,4 6 684,3 654,0 647,2 10 316,5   20 456,4
 
* Other benefits include medical aid and group life cover. In the 2008 year other benefits also include an amount of R6,0 million paid to A D Murray and R4,0 million to R Stein in respect of restraint agreements covering a four-year term.
** D M Polak retired as an executive director on 31 December 2007 and has served as a non-executive director from this date.
# A D Murray was appointed as an executive director on 2 April 2007 and as Group CEO on 1 January 2008.
## L F Bergman resigned with effect from 14 April 2008
### N H Goodwin retired with effect from 3 September 2008
   
  In accordance with the requirements of IFRS 2, the fair value of share options granted to employees is expensed in the income statement over the term of the option. An amount of R3,1 (2008: R3,7) million, R1,3 (2008: R1,9) million and Rnil (2008: R2,7) million was recognised in respect of options granted to Messrs A D Murray, R Stein and D M Polak respectively. These amounts are not included in the amounts reflected above.
   

35.

RELATED PARTY TRANSACTIONS
  Shareholders
  An analysis of the principal shareholders of the company is provided in the Shareholdings section of the annual report.
  For details of directors’ interests refer to note 13.5.
   
  Subsidiaries
  During the year, in the ordinary course of business, certain companies within the group entered into arm’s length transactions. These intra-group transactions have been eliminated on consolidation.
   
  Other related parties
  The Foschini Group Retirement Fund
  The Foschini Group Retirement Fund is administered by Foschini Retail Group (Proprietary) Limited, a subsidiary of Foschini Limited.
   
              2009 2008
              Rm Rm
  Administration fee earned from The Foschini Group Retirement Fund 1,7 1,6
  An executive director of Foschini Limited (Mr R Stein) is also a trustee of The Foschini    
  Group Retirement Fund.    
       
  Directors    
  Remuneration    
  Details relating to executive and non-executive directors’ remuneration are disclosed in note 34.    
       
  Interest of directors in contracts    
  No directors have any interests in contracts.    
       
  Executive directors are bound by service contracts.    
       
  Loans to directors    
  No loans have been made to directors.    
       
  Employees    
  Details relating to the share incentive schemes are disclosed in note 33.1.    
       
  Key management personnel    
  Key management personnel are those having authority and responsibility for planning, directing and controlling activities, directly or indirectly, including any director of that entity. Executive directors and associates of all subsidiary companies and Foschini Limited have been classified as key management personnel.    
                 
  No key management personnel had a material interest in any contract of significance with any group company during the year under review.    
                 
  Remuneration paid to key management personnel is as follows:    
  Remuneration 59,6 58,7
  Pension fund 6,1 6,5
  Travel allowance 7,2 8,5
  Other benefits 1,6 1,9
  Performance bonus 0,9 4,1
  Fair value of share options granted* 20,5 24,5
  Total remuneration 95,9 104,2
 
* The fair value of options granted is the annual expense determined in accordance with IFRS 2 Share-based payments.
   
                 
  Refer to note 34 for further disclosure regarding remuneration paid to executive directors of the company.    
                 

36.

CASH FLOW

    
36.1 Operating profit before working capital changes    
  Profit before tax 1 775,7 1 786,3
  Adjusted for:    
    Interest received (1 300,7) (1 056,4)
    Interest paid 249,8 120,1
    Dividends received (19,1) (17,2)
    Income from associate – (0,9)
  Non-cash items 240,0 242,3
  Operating profit before working capital changes 945,7 1 074,2
       
36.2 Working capital changes    
  (Increase) decrease in inventory (234,9) 2,9
  Increase in trade and other receivables (310,0) (141,3)
  Increase (decrease) in trade and other payables 510,7 (429,9)
  Increase in working capital (34,2) (568,3)
       
36.3 Reconciliation of taxation paid    
  Amount unpaid at the beginning of the year (64,9) (234,7)
  Current year provision (557,0) (565,3)
  Amount unpaid at the end of the year 70,6 64,9
    (551,3) (735,1)
       
36.4 Reconciliation of dividends paid    
  Dividends declared during the year (589,2) (592,6)
  Dividends paid by subsidiary to outside shareholders (0,6) (84,8)
    (589,8) (677,4)
       
36.5 Acquisition of Massdiscounters credit business    
  On 30 June 2008 RCS Cards (Pty) Ltd acquired the consumer credit business of MDD Financial Services, a division of Masstores (Proprietary) Limited for an amount of R7,5 million. The right, title and interest in the receivables’ book of MDD Financial Services were ceded to RCS Cards (Pty) Ltd for an amount of R167,5 million.    
       
  The cash flow effects of the acquisition are reflected below.    
  Purchase consideration 175,0 –
  Fair value of net assets 167,5  
  Goodwill 7,5  
  Purchase consideration 175,0 –
       

37.

RECLASSIFICATIONS
  In order to provide increased disclosure, certain reclassifications have been made. These changes have no impact on overall equity, net assets or profitability.
         
        2008
        Rm
  The effect on the comparative balance sheet is as follows:  
         
  Changes to current assets  
  Increase in trade receivables – retail 30,7
  Decrease in other receivables and prepayments (30,7)
  Increase in cash 106,1
        106,1
  Changes to non-current liabilities  
  Increase in minority interest loans 495,2
  Decrease in interest-bearing debt (601,3)
        (106,1)
  The increase in trade receivables is due to certain other receivables now being reclassified as trade.
   
  Cash balances previously set off against interest-bearing debt are now separately disclosed.
   
  The minority interest loans which were previously included in interest-bearing debt are now disclosed separately.
   

38.

ACCOUNTING STANDARDS AND INTERPRETATIONS TO BE ADOPTED IN FUTURE YEARS
  There are Standards and Interpretations in issue that are not yet effective. These include the following Standards and Interpretations that are applicable to the group and may have an impact on future financial statements:
   
  IAS 1 Presentation of financial statements
  This statement, which will be applicable to the group for the year ending 31 March 2010, requires changes to the titles of financial statements and the presentation of all non-owner changes in equity as a separate statement of comprehensive income. It is not expected to have a material impact on the group.
   
  IFRS 2 Share-based payment
  An amendment to the current IFRS 2 has been published which will be applicable to the group for the year ending 31 March 2010. The amendment was made to clarify the terms “vesting conditions” and “cancellations”. It is not expected to have a material impact on the group.
   
  IFRS 3 Business Combinations, IAS 27 Consolidated and Separate Financial Statements, IAS 28 Investments in Associates and IAS 31 Interests in Joint Ventures
  A revised IFRS 3 Business Combinations has been issued by the International Accounting Standards Board (IASB) with consequential amendments to IAS 27, IAS 28 and IAS 31. The amendments made relate mainly to the application of the acquisition method and will be applicable to the group for the year ending 31 March 2011.
   
  IFRS 7 Financial Instrument Disclosure
  This statement which will be applicable to the group for the year ending 31 March 2010, requires additional disclosure on the fair value measurement of financial instruments and the liquidity risk disclosures of financial liabilities.
   
  IFRS 8 Segmental reporting
  This statement, which will be applicable to the group for the year ending 31 March 2010, requires additional disclosures as it extends the scope of segmental reporting.

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