THE RCS GROUP · 2018-04-24 · - BCom (Acc), CA (SA), CPA (lsr) Experience: Edwin has vast audit,...

|1| THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017 THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017 |2|

THE RCS GROUP C o n s o l i d a t e d A n n u a l F i n a n c i a l S t a t e m e n t s 2 0 1 7

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i n c l u d i n g S u p p l e m e n t a r y I n f o r m a t i o n( R e g i s t r a t i o n n u m b e r 2 0 0 0 / 0 1 78 8 4 / 0 6 )

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|5| THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017

CONTENTS

RCS overview 2

Group structure 3

CEO report 4

The board of directors 6

The board committees 19

Social and ethics report 24

Credit risk governance report 32

Technology and information governance report 33

Compliance governance report 37

Remuneration committee report 38

King IV principle outline 44

RCS Group consolidated annual financial statements 2017 49

SUPPLEMENTARY INFORMATION TO THE RCS GROUP CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 2017 |3||2| SUPPLEMENTARY INFORMATION TO THE RCS GROUP CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 2017

RCS OVERVIEW

BNP Paribas Personal Finance South Africa Limited, previously known as RCS Investment Holdings Limited, and its

subsidiaries (hereafter referred to as the “RCS Group”) operate in South Africa, Namibia and Botswana. The RCS Group

is a consumer finance business that offers its customers a range of financial services products under its own brand name

and in association with a number of leading retail commercial partners.

The RCS Group is an independent, JSE debt listed and highly regulated financial services company. The RCS Group

is owned by BNP Paribas Personal Finance Société Anonyme (France) (hereafter referred to as “BNPP PF”) and the

ultimate shareholder is BNP Paribas Société Anonyme (France) (hereafter referred to as “BNPP”).

The RCS Group’s core purpose is to enhance peoples’ lifestyles through innovative and accessible credit financial

solutions. The objective is to enable our customers to enjoy the convenience and comfort offered by these credit

financial solutions.

The RCS Group services over 1.15m active clients. The RCS Group offers a range of card, loan and insurance products,

including the following:

• The RCS Card and various partner branded cards provide convenient retail credit facilities to customers.

• RCS Loans provides customers with cash loan and retail loan offerings.

• RCS Insurance includes Customer Protection Insurance and Accidental Death Cover.

The RCS Group is the service provider of choice for white label, credit programs. It finances, operates, manages and

promotes successful credit programmes for its retail partners. In addition, it offers IT, Call Centre, risk management as

well as financial credit marketing and brand building solutions.

The RCS Group continues to demonstrate growth and innovation in the credit market, offering accessible credit solutions

to our customers. For our retail partners we provide more than just a technical solution and product. We customise

products that integrate people, processes and technology, creating value for our partners and their customers.

GROUP STRUCTURE

100%

RCS Botswana (Proprietary)

Limited

RCS Collections Proprietary

Limited

RCS Home Loans Proprietary

Limited

100%

BNP Paribas Personal Finance

South Africa Limited

BNP Paribas Personal Finance

S.A. (France)

BNP Paribas S.A. (France)

100%

RCS Cards Proprietary

Limited

RCS Investment

Holdings Namibia (Proprietary)

Limited

CEO REPORT CEO REPORT (continued)

2017 marked an exciting year for the RCS Group (the “Group”) which included many highlights as we entered the first year

in our 2020 strategic transformation plan. I am pleased to share that we delivered another year of strong financial results.

These results, coupled with the transformational changes in our business, will assist us in building a more resilient and

sustainable business for the future. The past year saw the Group mobilise around strategic projects aimed at diversifying

our business model while driving a culture of innovation and digital transformation that focused on delivering an improved

customer experience. We are now also fully integrated into BNPP PF, leveraging and benefiting from being a part of a

successful and progressive international institution focused on being the bank for a changing world.

RESULTS AND PERFORMANCENotwithstanding the challenging retail and economic environment, we are pleased to report that the Group performed

well this financial year, in achieving our financial targets and consistently meeting our shareholder’s expectations since

the acquisition in 2014. Profit grew by 7.2% supported by healthy growth in outstandings of 20% to R 7.792 billion. We

are particularly proud of the growth in our loans division, showing an impressive increase in new approvals of 56.9%

for the year. Our cards division delivered an equally outstanding performance of 35.9% in new approvals for the year.

This growth was underpinned by well-supported fund-raising events in 2017 where we successfully raised more funding

through our Domestic Medium Term Notes programme. The R10 billion BNPP guaranteed programme carries a long-

term zaAAA rating from Standard & Poor’s Global Ratings and has attracted keen interest from the investor market, with

an over-subscription in our debt auctions.

BUILDING FOR THE FUTURE Our 2020 plan, which aligns our strategy with that of BNPP PF, seeks to transform our business for the future. This year

we made tangible progress towards achieving our stated objectives by 2020, laying solid foundations to build on and

develop in the years ahead. Some of our notable achievements include the expansion of major partnerships to grow our

retail network, launching new credit products and creating two new business lines.

Digital transformation was a big focus in the past year. The use of technology to deliver tangible value and an

improved experience for our customers and partners are key focus areas. We also embarked on embedding a culture

of innovation in our organisation focused on delivering growth and profitability in the long run. 2017 also marked the

first year of our sponsorship of Startupbootcamp Africa, an initiative aimed at supporting and developing innovations

from African startups.

INVESTING IN OUR COMMUNITYIn the year in review, the Group adopted a new approach to Corporate Social Responsibility (CSR) that aligns with the

ambitions of BNPP PF. This approach includes various initiatives from an economic, civic, social and environmental

perspective. Together, these areas will form the pillars of our CSR strategy in the future. Our economic pillar focuses

on engaging with customers ethically and responsibly, creating products that benefit customers economically. Our

civic pillar positions us to play an active role in society that makes a meaningful difference. Our social pillar aims at

driving employee engagement and career development. Lastly, the focus of our environmental pillar is to care for the

environment and to take action on critical issues such as climate change. These pillars give us a clear plan to focus our

efforts, directing and deepening the investment that we have always been committed to making in our community and

the broader environment in which we operate.

CHALLENGES AND RISKSThe most notable challenge we faced in the past year was the prevalence of a depressed economic environment resulting

in muted retail trading conditions and performances. In spite of the positive sentiment and momentum in our business,

the economy remained sluggish with certain consumer segments under pressure.

The coming financial year is the first year where we will report according to the IFRS9 financial reporting standard. The

IFRS9 standard introduces a new method with regards to the measurement and reporting of credit losses. We are well

prepared for this change having anticipated its introduction for some time.

PROSPECTSWe are hopeful that the renewed positive momentum and atmosphere in South Africa will present fresh opportunities

for the Group as the economy aims to make a much-needed recovery. We will continue to expand on the positive

energy and sentiment in our business during 2018, building on the foundations that we have laid and proceeding

with continued focus towards our 2020 objectives.

We will expand our partnerships, drive our digital transformation and build our new business lines in the year ahead.

2018 will also see an intense focus on customer centricity as we strive to improve how our customers experience

the brand.

APPRECIATIONI would like to thank our supportive shareholder, as well as the Group Board for their continued support and guidance.

Also, I would like to thank our funders for their support and confidence in our business. Our retail partners play an

integral part in our success, I thank all of them for their commitment to our partnerships. A sincere appreciation goes

to our customers for trusting the Group to finance their purchases, their projects and their dreams.

Lastly, a special thanks to the Group executive team and every member of our staff for their relentless passion and

commitment to our business. The achievements of the past year would not have been possible without your desire

to succeed.


THE BOARD OF DIRECTORS THE BOARD OF DIRECTORS (continued)

OVERVIEW AND COMPOSITION OF THE BOARD OF DIRECTORSThe composition of the board of directors (hereafter referred to as “the Board”), is regulated by BNPP PF, the sole

shareholder of the RCS Group, in terms of the RCS Group’s memorandum of incorporation and is deemed to be

adequate and appropriate.

The Board recognises and embraces the benefits of having a diverse board, appreciates that diversity at board

level is an essential component for sustaining a competitive advantage. The Board is committed to ensuring a

diverse and inclusive culture at board level, where directors believe that their views are heard, their concerns are

attended to and they serve in an environment where bias, discrimination and harassment are not tolerated. These

principles are included in the board charter.

The Board is committed to transformation while balancing this with the requirements of a foreign shareholder in

that they are guided by BNPP PF with respect to board representation. Edwin (“Eddy”) Oblowitz (60)

Appointed: 2015

Independent, Non-executive Director

Qualifications:

- BCom (Acc), CA (SA), CPA (lsr)

Experience:

Edwin has vast audit, finance and business advisory

experience having spent over twenty years in

professional practice, most notably as a senior partner

of the Cape Town, Durban and Port Elizabeth offices

of Arthur Andersen. Edwin is currently the Executive

Chairman of Stonehage Fleming South Africa, which

provides multifamily office, wealth management and

advisory services to both local and international clients.

Edwin presently holds the position of Chairman of the Board Audit and Risk, and Social and Ethics Committees with

the RCS Group. Edwin also holds the position of Non-executive Director at various listed and unlisted companies

outside of the RCS Group.

He holds the following positions at companies outside of the RCS Group: Director and Chairman of the Audit,

Member Risk and Compliance Committees of Stonehage Fleming Family and Partners. He serves as an Independent

Non-executive Director, a member of the Audit Committee and Chairman of the Risk and Remuneration Committees

of The Foschini Group Ltd as well as Trencor Ltd where he undertakes the role of Non-executive Director and

Chairman of the Audit and Risk Committee.


INDEPENDENT NON-EXECUTIVE DIRECTOR

THE BOARD OF DIRECTORS (continued)THE BOARD OF DIRECTORS (continued)


Edwin Oblowitz (continued)

Roles and responsibilities of the lead Independent Non-executive Director

Edwin has been appointed the lead Independent Director by and from the non-executive board members. His

responsibilities include the following:

• Briefing the CEO/Chairman of the Board on issues and concerns relevant to the RCS Group;

• Enabling access to information to assist the Board in monitoring the RCS Group’s performance and the

performance of management;

• Aiding in the distribution of information to directors;

• Providing support and advice to the CEO/Chairman of the Board;

• Representing the Board on various sub-committees;

• Advising the Board on ad hoc strategic matters;

• Providing expert independent advice to the Board; and

• Ensuring the Board is kept abreast of country, industry and market best practice governance standards.

NON-EXECUTIVE DIRECTORS

Benoit Cavelier (54)

Appointed: 2014

Non-executive Director

Qualifications:

Bachelor’s Degree, Law Degree, Finance Speciality

Qualification (Tours Business School), Chartered

Accountant

Experience:

Benoit is the Head of the SUN* region and member of

the Executive Committee of BNPP. Benoit has over thirty

years’ experience in finance and consumer lending.

* BNPP PF is made up of several regions, one of them being the SUN region.

The SUN region includes all BNP Personal Finance Companies in Africa, United

Kingdom and Northern Europe

Benoit presently holds the position of Chairman of the Remuneration, Asset and Liability, and Credit Risk

Committees and is a member of the Social and Ethics Committee of the RCS Group. He holds the following positions

at companies outside of the RCS Group: member of the Supervisory Board of Von Essen Bank and the Chairman of

the Board for Alpha Credit.

Independence

The RCS Group is a wholly owned subsidiary of the multinational banking and financial services group, BNPP,

a company listed on the Paris Stock Exchange. The Chairman is a senior executive of the shareholder and is

appointed by the shareholder. Given this, the Board is satisfied that he is independent.

Alain Van Groenendael (56)

Appointed: 2014


Qualifications:

BA Degree in Business and Finance (ICHEC Brussels

Management School), Commercial Engineer (College)

Experience:

Alain joined BNPP in 2008 as Deputy Chief Executive

Officer (“CEO”): Head of International Marketing and

Sales. Alain has been Chairman of BNPP since 2015.

He has over thirty years’ experience in international

retail banking.

Alain is presently a member of the Board Audit and Risk, Social and Ethics, Asset and Liability and Credit Risk

Committees of the RCS Group. He serves as a director of the following companies outside of the RCS Group: UCI SA;

Union De Creditos; TEB Cetelem and Cetelem Bank LLC. He also serves as Chairman of the Board of Opel Bank and is a

member of the Supervisory Board of Bank BGZ BNP Paribas.


Schalk van der Merwe (53)

Appointed: 2006


Qualifications:

BCom (Hons Economics), BCom (Hons Transport

Economics)

Experience:

Schalk joined the RCS Group as an Executive Director

in 2006 and served as CEO of the RCS Group from

2009 until 2016. Prior to joining the RCS Group, Schalk

worked in the management consulting industry running

his own practice as well as working for Arthur Andersen.

He also gained significant retail consumer finance

experience as an Executive at The Foschini Group Ltd

and as an Executive Director of Woolworths Financial

Services.

Schalk presently holds the position of Non-executive Director with the RCS Group. He holds the position of Director

outside the RCS Group for Home Loans Direct Proprietary Limited and the position of Non-executive Director of Retail

Capital Proprietary Limited.

NON-EXECUTIVE DIRECTORS (CONTINUED) NON-EXECUTIVE DIRECTORS (CONTINUED)

THE BOARD OF DIRECTORS (continued) THE BOARD OF DIRECTORS (continued)

Isabelle Perret-Noto (45)

Appointed: 2015


Qualifications:

MSc Economics Finance and Management (H.E.C.

Ecole des Hautes Etudes Commerciales), LLM 1 and 2

Business Law (with specialisation in International Law),

Bar Professional Exam (Court of Appeal Paris)

Experience:

Isabelle is the Head of Legal for BNPP IFS perimeter

(International Financial Services: BNPP PF, Cardif,

International Retail Banking, Wealth Management,

Asset Management, Real Estate and Switzerland

Territory). She is a member of the executive committee

of the BNPP Global Legal Function.

Isabelle has twenty years’ experience working at

international law firms and then at BNPP PF legal

department as legal manager, Head of BNPP PF Legal

function and Head of Legal and compliance for PF

Group.

Isabelle presently holds the position of Non-executive Director with the RCS Group and is a member of the Board Audit

and Risk Committee. She holds the following positions at companies outside of the RCS Group: Director at Findomestic

Banca and member of the Supervisory Board of UCB Ingatlanhitel ZRT. Isabelle resigned as a member of the supervisory

board of UCB Ingatlanhitel ZRT on 20 April 2018.


Vikas Khandelwal (48)

Appointed: 2016


Qualifications:

Business Administration and Management, General

Experience:

Vikas is the CEO of the BNP Paribas Corporate and

Institutional Banking Branch in South Africa and the

Head of Territory for BNP Paribas South Africa.

Vikas presently holds the position of Non-executive Director with the RCS Group. He holds the following positions at

companies outside of the RCS Group: Director of the French SA Chamber of Commerce and Industry and Board member

of the Banking Association of South Africa.

NON-EXECUTIVE DIRECTORS (CONTINUED)


NON-EXECUTIVE DIRECTORS (CONTINUED)

EXECUTIVE DIRECTORS

Regan Adams (46)

Appointed: 2011

Executive Director

Qualifications:

BSc (Elec Engineering), BCom (Hons Fin Analysis),

BCom (Portfolio Management)

Experience:

Regan was appointed as CEO of the RCS Group in

2016. Having been an executive director since 2004,

Regan has had extensive experience in a number of

senior roles within the RCS Group, most notably as

Chief Operating Officer and Chief Commercial Officer.

Before joining the group in 2004, Regan was a senior

manager at Capital One. He started his career at PPC in

engineering management.

Regan does not currently hold another professional position other than Director of the RCS Group.

Notice period

It is our policy that the CEO has an employment contract with the RCS Group which may be terminated with three

calendar months notice. Included in this agreement are clauses pertaining to restraint of trade and non-solicitation.

Succession plan

Succession planning is done at the BNPP PF level with regards to the position of CEO at the RCS Group. This is further

strengthened by a formal talent programme, Leaders for Tomorrow.

Leaders for Tomorrow is BNPP’s integrated Talent Strategy. A structured programme that focuses on identifying

and developing leadership talent, preparing the next generation of leaders and broadening diversity among senior

leadership. The ultimate goal of this group-wide programme is to prepare the succession of employees who are

able to progress to executive committee positions. Both executive directors are part of the Leaders for Tomorrow

talent programme.


EXECUTIVE DIRECTORS (CONTINUED)

Chris de Wit (38)

Appointed: 2016

Executive Director

Qualifications:

BCom (Acc), BCom (Hons Acc), CA (SA)

Experience:

Chris joined the RCS Group in 2008 and progressed

his career through finance to his appointment as Chief

Financial Officer in 2016. In addition to finance, Chris

is also accountable for the commercial activities of

the RCS Group and is currently Deputy CEO of the RCS

Group. Prior to joining the RCS Group, Chris served as

a Financial Manager within retail.

Chris does not currently hold another professional position other than Director of the RCS Group.


THE BOARD OF DIRECTORS (continued)

Meetings and quorum

The Board meets three times a year and a quorum comprises a majority of directors of the RCS Group provided that at

least one shareholder designated director is present at the meeting.

Evaluation of the performance of the governing body

The Board is assessed annually via an internally conducted process that deals with the performance and effectiveness

of the Board and its various committees. Each board member is given a confidential questionnaire to complete

regarding the effectiveness of the Board and the Board sub-committees. The assessment includes an evaluation of

whether the diversity of the Board is appropriate, the number of meetings held, whether there is sufficient support

for the Board, whether the decision-making process is appropriate, whether the Board is kept abreast of updates in

the RCS Group and whether the Board was afforded access to management and exposure to operations.

The results of the questionnaires are reviewed by the Company Secretary who summarises the results and identifies

any improvement areas that the Board needs to consider. This is then communicated to the Board at the upcoming

board meetings, and a plan to address these areas is agreed upon and is implemented. The Board then assesses the

progress made in each of the areas.

The Board was comfortable with the results of the assessment for the year ended 31 December 2017 for both the

Board and the Board sub-committees. The Board is satisfied that it continues to function well and that the directors

have fulfilled their responsibilities in accordance with the charter.

Delegation of authority

The Board delegated specific responsibilities to the Board sub-committees and management, each with its own

charter that defines its responsibilities. The committees aim to review their charters annually and undertake an

annual performance evaluation.

The Board confirms that the committees have functioned in accordance with their written terms of reference as

contained in their terms of reference during the financial period.

The roles and responsibilities of each committee is disclosed on pages 19-23.

Company Secretary

As the Company Secretary, Mr Guy Harker is accountable to the Board, and all directors have access to his advice and

services. He maintains a neutral relationship with the Board and is not a director of the RCS Group. The Company

Secretary is independent and reports to the Board on matters related to the position of the company secretary.

The Company Secretary performs all duties as listed in section 88 of the Companies Act of South Africa, however,

other duties may be assigned as defined by the Board.


Company Secretary (continued)

The Board assesses, as part of the annual board evaluation process, whether the Company Secretary has fulfilled his

required obligations and duties. The assessment questionnaire gives the Board the opportunity to not only evaluate the

Company Secretary but to raise any concerns they may have.

The Board is confident that the Company Secretary is suitably qualified, competent and an experienced individual who

can provide the Board with the necessary support to fulfil its purpose and to carry out its duties as prescribed by the

Companies Act of South Africa, King IV and the JSE Debt Listing Requirements.

THE BOARD OF DIRECTORS (continued)

SUPPLEMENTARY INFORMATION TO THE RCS GROUP CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 2017 |19||18| THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017

OVERVIEWThe RCS Group has the following Board sub-committees: Board Audit and Risk; Social and Ethics; Credit Risk; Asset and

Liability and Remuneration Committees. The composition of each committee is reviewed annually. The following committees,

comprising directors, executives and senior management, deal with specific risks facing the RCS Group, in a structured

manner, and in accordance with board-approved terms of reference. The committee members are satisfied that they have

fulfilled their responsibilities in accordance with the committees’ terms of reference for the year ended 31 December 2017.

Board and committee attendance

The attendance of directors at board meetings as well as members and invitees of committees at committee meetings for the

reporting period was as follows:

THE BOARD COMMITTEES

BoardBoard Audit

and Risk Committee

Remuneration Committee

Asset and Liability

Committee

Social and Ethics Committee

Credit Risk Committee

Member Invitee Member Invitee Member Invitee Member Invitee Member Invitee

Number of Meetings 3 3 3 1 1 3 3 3 3 3 3

Edwin Oblowitz 3/3 3/3 - - - - - 3/3 - - -

Benoit Cavelier 3/3 - 2/3 1/1 - 3/3 - 2/3 - 3/3 -

Alain Van Groenendael 3/3 3/3 - - - 0/3 - 3/3 - 0/3 -

Schalk van der Merwe 3/3 - 3/3 - - - 3/3 - 3/3 - 3/3

Isabelle Perret-Noto 3/3 3/3 - - - - - - - - -

Vikas Khandelwal 3/3 - 1/3 - - - 3/3 - 2/3 - 3/3

Regan Adams* 3/3 - 3/3 1/1 - 3/3 - 3/3 - 3/3 -

Chris de Wit 3/3 - 3/3 - 1/1 3/3 - - 3/3 3/3 -

Guy Harker (Company Secretary) 3/3 3/3 - - - 3/3 - 3/3 - 3/3 -

Celine Sertori** - - - 1/1 - - - - - - -

RCS Group representatives*** - - 3/3 - - - 3/3 - 3/3 - 3/3

Shareholder representatives*** - - 3/3 - 1/1 - 3/3 - 3/3 - 3/3

External Auditors - - 3/3 - - - - - - - -

Internal Auditors - - 3/3 - - - - - - - -

*Regan Adams is no longer a member of the Remuneration Committee, in line with the principles of King IV.** Celine Sertori is the Executive: Human Resources for the RCS Group***The representatives attending committee meetings are specialists in their relevant fields.

THE BOARD COMMITTEES (continued)

SOCIAL AND ETHICS COMMITTEE Responsibility and function

The RCS Group’s philosophy is underpinned by the realisation that there is a need to turn wealth into sustainable economic

growth and development. Through its business endeavours, the RCS Group seeks to act as a catalyst for development and

to make a lasting and important social, economic and environmental contribution to the regions in which the RCS Group

operates.

The purpose of the Social and Ethics Committee is to:

• Amongst other things, monitor the RCS Group’s social and economic development and fulfil the functions required in terms

of the Companies Act of South Africa.

• Monitor and report on the manner and extent to which the RCS Group protects, enhances and invests in the economy, society

and the environment in which the RCS Group operates in order to ensure that its business practices are sustainable; and

• Review and consider local economic development opportunities to enable historically-disadvantaged South Africans to

develop economically and socially.

Key areas of focus

• Consumer education.

• Further focus on CSR activities in collaboration with BNP Paribas Corporate and Institutional Bank in South Africa.

• Creation of a new employment equity plan.

• Monitor the impact of the changes to BBBEE.

• Ethics governance.

• Staff wellness.

• Group sustainability.

• CSR strategy.

CREDIT RISK COMMITTEE Responsibility and function

The main responsibilities of the Credit Risk Committee are as follows:

• Oversee the RCS Group’s Risk Control Framework;

• Oversee the RCS Group’s Risk Appetite Framework which include the risk appetite statement, risk limits and tolerances;

• Oversee the critical credit risk metrics and the RCS Group’s bad debt performance trends;

• Oversee the RCS Group’s Risk Policy including formal approval of modifications and tracking the impact of policy and

scorecard changes;

• Discuss and challenge credit proposals to make sure they are in accordance with the RCS Group’s risk appetite;

• Provide feedback on new products and initiatives affecting the credit risk;

• Discuss and analyse the macro-economic impacts affecting the RCS Group’s credit risk

• Oversee the collections and recoveries performance;

THE BOARD COMMITTEES (continued)


BOARD AUDIT AND RISK COMMITTEEResponsibility and function

The main objectives of the Board Audit and Risk Committee is to assist the Board in respect of the following:

• Commenting on the integrity of the RCS Group’s financial statements and accounting practices and overseeing the

effectiveness of the internal financial control function;

• Reviewing on an annual basis the expertise, resources and experience of the finance function;

• Overseeing the internal audit function;

• Monitoring, reviewing and providing assurance regarding the effectiveness of the RCS Group’s overall internal

and enterprise risk management systems pursuant to the shareholder’s requirements. This includes overseeing

the effectiveness and quality of the internal control framework, the consistency of measurement systems and risk

control. For this purpose, the Committee collects all the elements necessary for such assessment from the following

independent control functions: Internal Audit, Enterprise Operational Risk, Risk Management Permanent Control,

Legal and Compliance;

• Overseeing the effectiveness and quality of the Financial Security Framework according to the shareholder’s

requirements;

• Reviewing and ensuring that the RCS Group’s significant areas of risk are assessed and adequately addressed,

including but not limited to:

- Financial reporting risks;

- Internal financial controls;

- Fraud risk; and

- Information technology risks;

• Assisting the Board in carrying out its information technology governance responsibilities;

• Recommending the appointment of the external auditor and overseeing the external audit process; and

• Maintaining open lines of communication between the Board and the RCS Group’s risk management, internal and

external auditors and compliance officers.

Key areas of focus

• Manage cyber security risks.

• Conduct annual evaluations of the internal auditors.

• Focus on the tone at the top, culture, ethics, and hotline monitoring.

• Engage in the identification of potential issues.

• Understand plans to address new accounting and regulatory reporting requirements.

• Increase the focus on risk oversight and assessment.

• Periodically reassess the list of top risks, determining who in management and which board committee is responsible

for each.


REMUNERATION COMMITTEE Responsibility and function

The Committee has an independent role and governs and approves:

• All remuneration matters in respect of staff, executives and directors;

• Remuneration increases for non-executive directors from time to time;

• Annual cycle base level salary increases in respect of all employees; and

• The aggregate short-term incentive bonus pool and long-term incentive bonus pool.

The Committee further ensures that:

• The RCS Group remunerates executive directors and non-executive directors fairly and responsibly;

• The disclosure of directors’ remuneration is accurate, complete and transparent; and

• The RCS Group’s overall remuneration philosophy promotes the achievement of the RCS Group’s strategic objectives,

encourages individual performance and rewards sustainable value creation.

The Committee further performs all the functions necessary to fulfil its role as stated above, including but not limited to the

following:

• Reviews the RCS Group’s remuneration philosophy and policies for directors and staff;

• Ensures that the remuneration strategy reflects the interests of stakeholders, is comparable to the general remuneration

environment in the industry, and complies with relevant principles of good corporate governance;

• Considers whether the objectives of the remuneration policy have been achieved;

• Ensures that the ratio of fixed and variable pay, in cash and benefits, is aligned with the RCS Group’s strategic objectives;

• Reviews the effectiveness of recorded performance measures that govern the vesting of incentives;

• Ensures that all benefits, including retirement benefits and other financial arrangements, are justified and correctly valued;

• Selects an appropriate peer group when comparing remuneration levels;

• Advises on the remuneration of independent non-executive directors; and

• Oversees the preparation of the remuneration report, to ensure that it:-

- Provides a clear explanation of how the remuneration policy has been implemented;

- Provides sufficient forward-looking information to the Board regarding the fees of non-executive directors; and

- Enables the Board to propose to shareholders, for their consideration and approval, a special resolution in terms of section

66(9) of the Companies Act of South Africa.

Key areas of focus

For key areas of focus please refer to the Remuneration Committee Report on page 38.

CREDIT RISK COMMITTEE (CONTINUED)Responsibility and function (continued)

• Analyse and track the cost of risk and the portfolios bad debt provision;

• Oversee the efficiency of the RCS Group’s credit decision systems, its credit scorecards and the risk tools;

• Oversee impacts of regulatory changes on the credit risk of the RCS Group, and

• Report on the data quality and data governance framework.

Key areas of focus

• Track and follow up policy changes and impacts of regulatory changes.

• Leverage the new behavioural scorecards for the cross selling of products to existing customers.

• Ensure close tracking of the new loans scorecards implemented at the end of 2017.

• Operational insertion of the IFRS9 provisioning methodology.

• Evaluate progress of the data quality project.

• Surveillance of risk on growth areas like loans and specific new card logos.

ASSET AND LIABILITY COMMITTEE Responsibility and function

The main responsibilities of the Asset and Liability Committee are the following:

• Liquidity risk management, as guided by BNPP PF

- Structural liquidity

- Funding diversification (source and tenor)

- Investment requirements

- Liquidity coverage

• lnterest rate risk management;

• Foreign currency risk management;

• The RCS Group capital management;

• Oversight of Domestic Medium Term Notes programme;

• Monitoring of solvency and liquidity; and

• Funding plans.

Key areas of focus

• Maintain adequate capital levels.

• Monitor liquidity and funding requirements and related risk diversification.

• 2020 funding platform.

THE BOARD COMMITTEES (continued) THE BOARD COMMITTEES (continued)

SOCIAL AND ETHICS REPORT SOCIAL AND ETHICS REPORT (continued)

Our civic responsibilityPlaying an active role in society

• Promoting financial literacy• Combating social exclusion and promoting

human rights• Ensuring dialogue and collaboration with

our stakeholders

Our environmental responsibilityTaking action on climate change

• Supporting our customers during the transition to a low-carbon economy

• Reducing the environmental footprint of our internal operations

• Developing knowledge and sharing environmental best practices collaboration with our stakeholders

Our social responsibilityFacilitating employee development and commitment

• Promoting diversity and inclusion• Being a good place to work and managing

employment responsibility• Being a learning company that offers

dynamic career management

Our economic responsibilityEngaging with our customers ethically and responsibly

• Creating responsible products and services• Embracing business ethics• Supporting customers over the long-term

OVERVIEW Ethical leadership is the cornerstone of our business. At the RCS Group, we manage our business to the highest ethical

standards through a robust governance framework. This framework is effected through a unitary board that comprises

of independent and non-executive directors from diverse backgrounds, skill sets and experience. Furthermore, our

governance extends beyond the boardroom as all managers contribute towards maintaining good governance throughout

our business. Executives and managers are held accountable for implementing the strategy of the Board and ensuring

the effective operation of all areas of the business. This includes policy development and implementation and ongoing

reporting as well as mandatory training issued by BNPP PF for all its subsidiaries. This training includes topics such as

the code of conduct, ethical behaviour and compliance training. Consequently, the integrity of our operating model and

information produced for the Board is assured through combined efforts throughout the business.


CORPORATE SOCIAL RESPONSIBILITY (CSR) APPROACHOur CSR approach is key to ensuring ethical and responsible execution with regards to business activity and operations

within the RCS Group.

-

The above framework ensures that we inclusively monitor the diverse stakeholder needs, interests and expectations.

Social and Ethics Committee

Corporate Social Responsibility

Forum

Asset and Liability Committee (“ALCO”)

Treasury Forum

Board Sub-Committees

Remuneration Committee

Board Audit and Risk Committee

Credit Risk Committee

Management Forums

Exco Rem Committee

HR Governance Committee

Compliance Committee

Credit Risk Forum

Specialist Forums

Operating Board

General Management Forum

BNP Paribas Personal Finance South Africa (previously, RCS Investment Holdings) BoardRCS Local Subsidiaries Board

RCS Foreign Subsidiaries Board

SOCIAL AND ETHICS REPORT (continued) SOCIAL AND ETHICS REPORT (continued)

The start of the RCS Gugs Race. The Gugulethu Athletics Club is sponsored by RCS.

Runners from the Gugulethu Athletics Club compete in the RCS SOX, a 3-day trail running event, sponsored by the RCS Group.

Children participating in a Jag Foundation running event. The RCS Group supports the JAG Foundation, which uses sport and play as a catalyst for change in disadvantaged communities.

A RCS Group staff member hands over a cheque to a charity he nominated for the festive season campaign in 2017.

Runners from the Gugulethu Athletics Club tackle the third stage of the RCS SOX. The team was sponsored by the RCS Group.

Some of the children who participate in sports and activities run by the Jag Foundation, which is supported by the RCS Group.


Key areas of focus during the reporting period

Economic:

• Established a framework and policy around ‘Fragile Customers’ to ensure that we assisted our customers with events

that could degrade their financial situation; and

• Developed responsible products aimed at new entrants to the credit market, who may otherwise have been excluded

from participation due to traditional methods of granting credit.

Civic:

• Continued support of our longstanding partnerships with the JAG foundation, RCS Gugulethu Running Club, TSiBA and

Purple Cow;

• Contributed towards the education of 146 children of our staff for the 2017 academic year through the RCS Bursary

Programme;

• Ran a dedicated ‘Vacation Work’ programme for the children of staff and grade 11 JAG Foundation children; and

• Collaborated with the BNP Paribas Corporate Investment Bank in South Africa to create an umbrella approach to

making a further contribution to society.

Social:

• Continued our holistic wellness offerings, including the support of two clinics and Employee Assistance Programmes

for our staff;

• Provided robust benefits to our staff through the provision of medical aid, pension and risk benefits;

• Launched our first internal graduate programme, which provided staff with qualifications, the opportunity to gain work

experience in their fields of study, in addition to our traditional training calendar;

• Continued to progress well with regards to our Employment Equity Plan, which ends in 2018 (diagrams on page 39

refer); and

• Made notable progress with regards to the representation of disabled employees by providing awareness and

supportive campaigns for these members of staff.

Environmental:

• Reduced our overall carbon footprint within our internal operations through the digitalisation of standard customer

communication, recycling, enhanced energy efficiency through solar light sensors and light harvesting; and

• Managed the drought crisis in the Western Cape by reducing our consumption by 40% and educated employees around

saving water at home as well as in the workplace.

SOCIAL AND ETHICS REPORT (continued) SOCIAL AND ETHICS REPORT (continued)

Key areas of future focus

Economic:

• Focus on consumer education.

Civic:

• Continue support of the RCS Group Bursary Programme, an ongoing initiative that assists with education funding for

the children of RCS Group staff.

Social:

• Develop a new Employment Equity Plan to be implemented in 2019.

• Digitise our HR offerings and further support career development through our new tool, About Me. About Me is a

platform for our employees to detail their skills, experience and career ambitions and in turn, we are able to customise

prospects around an individual. We will use algorithms to ‘push’ job and learning and development opportunities

to individuals. About Me also host our employee’s online appraisals and personal development plans, allowing for

continuous feedback throughout the year.

• Launch a bespoke learning pathway for staff and the many new entrants to the labour market we employ. Often

these staff members have not had the opportunity to gain a formal tertiary education. This initiative will help these

employees to reach their full potential.

Environmental:

• Focus on supporting community environmental projects.

Code of Conduct

We believe that the success of our business depends on the behaviour of every employee. In addition to our responsibility

for complying with the required laws and policies, we recognise that decisions and actions are guided by a deep sense

of ethical responsibility. As such, we have a Code of Conduct, aligned to our shareholder, which define the rules that

guide our thinking, behaviour, actions and decisions to ensure that these match our core values.

In 2015 we introduced mandatory training on the Code of Conduct to staff, and it has also been included as part

of the orientation process for new joiners to ensure that it is ingrained in our culture. During 2017, we introduced

My Development, a BNPP eLearning tool, which will further reinforce training and awareness with regards to the Code

of Conduct and other essential ethics and compliance related matters.

GENDER SPLIT OF THE RCS GROUP STAFF

ETHNIC SPLIT OF THE RCS GROUP STAFF

African49%

Coloured43%

Indian2%

White6%

Women

Men

24%

76%


THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017 |30|T H E R C S G R O U P C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 2 0 1 7 | 0 0 |

SOCIAL AND ETHICS REPORT (continued)

Code of Conduct (continued)

The Code of Conduct covers:

• The mission and values of the RCS Group in its economic responsibility is to finance the economy in an ethical manner, helping

our clients to achieve their plans and projects. Furthermore, the RCS Group is closely involved in the local communities in

which it conducts business and recognises that it has additional social, civic and environmental responsibilities.

• The rules of conduct revolve around these seven themes:

- Customers interests;

- Financial security;

- Market integrity;

- Professional ethics;

- Respect for colleagues;

- The RCS Group protection; and

- Involvement with broader society.

• The Code of Conduct in practice, is outlined as follows:

Performance reviews are mandatory for all permanent employees. Managers appraise the contribution of each employee

with respect to their individual performance as well as their behaviours. For the 2018 financial year, we have digitised

this process by adopting a BNPP employee performance tool, About me. This new tool introduces an additional rating

with respect to the Code of Conduct and Rules and Regulations and Risk Assessment and Management objectives.

We value the views and input from our employees to ensure that our behaviour and culture supports our core values.

During 2017, we conducted a 180-degree feedback survey on our leadership team, which will form the foundation for

our Leadership Development initiatives in 2018. During 2017, we also participated in our first BNPP People Survey

Eighty percent of invited participants completed the survey, which ran from 3-23 May 2017. The RCS Group scored 86%

for sustainable engagement in its maiden survey, which was 9% higher than the BNPP PF average. This survey is an

essential tool for driving change and assisting us in understanding which measures need reinforcing for us to achieve

our strategic objectives.

A large part of the survey focuses on our employees’ views on how our leaders and management are displaying our core

values and the RCS Group’s progress in respect of our corporate social responsibility.

Is it legal?

Is it consistent with the RCS Group

Code of Conduct and policies?

Is it based on a thorough

understanding of the risks involved?

Am I confident that I will not erode

trust with customers, shareholders and society at large?

Would I be comfortable explaining

this decision to a third party?

If the answer to any of these questions is no, stop and speak up.

If you have any concerns or doubts, seek guidance from an appropriate authority: your line manager, senior manager, legal or compliance.

|30| SUPPLEMENTARY INFORMATION TO THE RCS GROUP CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 2017

OVERVIEW A number of committees are in place to govern, monitor, measure and mitigate risk, which operates under the RCS Group’s

approved delegated limits, policies and procedures. A high-level risk, Board sub-committee, the Credit Risk Committee,

convenes four times a year, comprising of executive and non-executive directors which feeds into the overall company

board committee. In addition to this, a working Credit Risk Forum convenes monthly which is comprised of all the company

executives. An internal control committee (ICC) convenes three times a year and is the key committee concerning the

management of operational risk and the permanent control set up in the company.

The Chief Risk Officer (CRO) is mandated by the board to manage the risk and reports directly to the independent group risk

function of BNPP. The CRO sets out the credit risk framework appetite and tolerance levels for the company on an annual

basis which is formally approved by the risk sub-board committee and the RCS Group risk function.

The RCS Group credit risk policy is independently validated and complies with the overarching RCS Group Risk Policy. The

mitigation of risks is assured with a number of policies and procedures which are implemented and regularly controlled.

A full operational risk and control framework has been implemented in line with BNPP PF methodology including the

inclusion of specific risks relating to the local environment. A comprehensive first line of defence has been implemented

in all key areas of the business, with the ORC team (operational risk and control) and internal audit forming the second

line of defence. The third line of defence is assured by the central BNP Paribas Group function IG (Inspection Generale).


Credit risk appetite levels are tracked monthly with detailed key performance indicators with triggers in place. Alerts are

immediately triggered if risk thresholds are breached which must result in the immediate implementation of mitigation

plans. An annual review of the major enterprise risks is performed, and these together with the mitigation plans are

formally approved by the audit and control sub-board committee. Credit risk appetite thresholds are reviewed annually

with formal board approval assured.

ACTIONS TAKEN TO MONITOR THE EFFECTIVENESS OF RISK MANAGEMENTClose scrutiny and oversight is applied to the effectiveness of the risk management framework that is in place, through

governing committees, independent management by risk and group entities together with a strong enterprise risk culture

developed throughout the business.


Continued maturity of the risk management framework ensuring continued alignment of decisions made with clear

reference to risk appetite limits

CREDIT RISK GOVERNANCE REPORT

OVERVIEW The Information Technology department’s primary objective is to manage IT-related risks, disaster recovery plans and any

significant IT initiatives while providing business resilience.

In order to achieve this the department provides support for existing platforms and delivers new technology to foster a robust

and sustainable environment for business growth while mitigating associated risks.

This is done in accordance with:

• BNPP Technology Policy;

• The RCS Group Software Development Policy;

• The RCS Group Information Security and User Access Management Policies; and

• The RCS Group Security Incident Response Plan (SIRP).

CONTINUAL MONITORING OF SECURITY OF INFORMATION• Event logs recording network activities, exceptions, faults and information security events, are produced, archived and

regularly reviewed;

• Logging facilities and log information is protected against tampering and unauthorised access;

• System administrator activities are logged, and the logs are protected and regularly reviewed; and

• The clocks of all relevant information processing systems within the RCS Group or security domain is synchronised to a

single-reference time source.

The above requirements are in line with the RCS Group Information Security Policy and principles of logging and monitoring

of information events.

PROACTIVE MONITORING OF INTELLIGENCE TO IDENTIFY AND RESPOND TO INCIDENTS, INCLUDING CYBER-ATTACKS SIRP motivates for security and business teams to integrate their efforts from the perspective of process, remediation

guidelines, contact information, escalation, awareness and communication in times of crisis.

DISPOSAL OF OBSOLETE TECHNOLOGY AND INFORMATION ENVIRONMENTAL IMPACT AND INFORMATION SECURITY• Electronic equipment is disposed of by an approved e-waste organisation; and

• Hard drives are removed and holes are drilled through the drive to render it unusable.


TECHNOLOGY AND INFORMATION GOVERNANCE REPORT

ETHICAL AND RESPONSIBLE USE OF TECHNOLOGY AND INFORMATIONThe RCS Group Acceptable Use Policy outlines the acceptable use of computer equipment. Inappropriate use exposes the RCS

Group to risks including virus attacks and the compromise of network systems and services. The purpose of the Acceptable

Use Policy is not to impose restrictions that contradicts the RCS Group’s established culture of openness, trust and integrity,

but to protect employees, partners and the organisation from security matters relating to information and the adverse actions

by individuals, either knowingly or unknowingly. It is the responsibility of every computer user to follow these guidelines and

to use equipment and software accordingly.

LEVERAGING INFORMATION TO SUSTAIN AND ENHANCE THE ORGANISATION’S INTELLECTUAL CAPITALThe overall goals for information sustainability are as follows, but are not limited to:

• Establishing controls for protecting the RCS Group’s information and information systems against theft, abuse and

other forms of harm and loss;

• Motivating administrators and employees to take responsibility for and ownership of their knowledge about information

security, in order to minimise the risk of security incidents;

• Ensuring that the RCS Group is capable of continuing their services even if major incidents occur;

• Ensuring the protection of personal data (privacy);

• Ensuring the availability and reliability of the network infrastructure and the services supplied and operated by the

RCS Group;

• Conforming to principles and methods from industry standards for information management: SANS, NIST, COBIT,

OWASP, TOGAF;

• Ensuring that vendors and strategic partners comply with the RCS Group’s information security needs and requirements; and

• Ensuring flexibility and an adequate level of security for accessing information systems remotely.

The above is in line with the RCS Group Information Security and Business Continuity Policies.

INFORMATION ARCHITECTURE THAT SUPPORTS CONFIDENTIALITY, INTEGRITY AND AVAILABILITY OF INFORMATIONThe RCS Group’s information security strategy is to safeguard the confidentiality, integrity and availability of information

systems to ensure that legislative, operational and contractual requirements are fulfilled that aligns with the RCS Group’s

business mandate.

Confidentiality:

• To ensure that information is not accessible or disclosed to unauthorised individuals, entities, or processes.

Integrity:

• To ensure the safeguarding of the accuracy and completeness of information assets.

Availability:

• To ensure accessibility and use upon demand of information by an authorised entity.

MANAGEMENT OF TECHNOLOGYThe Information Technology department aims to deliver a technology architecture that enables the achievement of operational

and strategic objectives in line with the RCS Group’s core purpose while effectively and efficiently mitigating associated risks.

COMPLIANCE WITH RELEVANT LAWS• All relevant legislative, regulatory, contractual requirements and the RCS Group’s approach to meet these requirements is

explicitly identified, documented and kept up to date where relevant;

• Appropriate procedures are implemented to ensure compliance with legislative, regulatory and contractual requirements

related to intellectual property rights and use of proprietary software products;

• Records are protected from loss, destruction, falsification, unauthorised access and unauthorised release, in accordance

with legislative, regulatory, contractual and business requirements; and

• Privacy and protection of personally identifiable information is ensured as required in relevant legislation and regulation

where applicable.


TECHNOLOGY AND INFORMATION GOVERNANCE REPORT (continued)

TECHNOLOGY AND INFORMATION GOVERNANCE REPORT (continued)


OVERVIEWThe RCS Group has a dedicated compliance department. The Compliance department has an independent and management

reporting line to the BNPP PF compliance function and another reporting link to the Chief Executive Officer. The Compliance

Committee is a sub-committee of the Board Audit and Risk Committee, which reports directly to the board of directors of the

RCS Group.


The RCS Group is committed to cultivating a ‘best in class’ compliance culture, with specific focus on legislative and regulatory

requirements, as well as ensuring effective and timeous compliance with pertinent new regulations, such as the Amended

Credit Life Regulations, Financial Sector Regulatory Act including the Treating Customers Fairly Outcomes and Protection of

Personal Information Act.

ACTIONS TAKEN TO MONITOR THE EFFECTIVENESS OF COMPLIANCE MANAGEMENTThe RCS Group has implemented a Compliance Control Framework in terms of which, samples are taken and control

testing is performed. In the event that any weaknesses in the Control Framework are identified, an action plan with

corrective measures will be implemented. Monitoring of such action plans is reported to management through the

established governance structures.


We continue to entrench our ‘best in class’ compliance culture, and focus on implementing the relevant legislative and

regulatory changes.

MATERIAL OR REPEATED REGULATORY PENALTIESThe RCS Group incurred no penalties, nor have any sanctions or fines been levied against the RCS Group, or any members of

its governing body, in the year ended 31 December 2017.

MONITORING AND COMPLIANCE INSPECTIONS BY ENVIRONMENTAL REGULATORSThe RCS Group has established a Corporate Social Responsibility Committee, with one of the key focus areas being the

monitoring of environmental matters. The RCS Group was not subject to any inspections by environmental regulators in the

year ended 31 December 2017.

COMPLIANCE GOVERNANCE REPORT

T H E R C S G R O U P C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S 2 0 1 7 | 0 0 | SUPPLEMENTARY INFORMATION TO THE RCS GROUP CONSOLIDATED ANNUAL FINANCIAL STATEMENTS 2017 |37|

Remuneration consultants

The RCS Group uses external remuneration consultants who conduct a number of benchmarking exercises during the year, in

order to measure job grades accurately and assist in establishing the correct market benchmarks.

The Remuneration Committee has assessed the external consultant and considers the external consultant to be independent

and objective.

Remuneration policy

The Remuneration Committee has reviewed the Policy and consider it to be appropriate and to meet its stated objectives.

OVERVIEW OF THE REMUNERATION POLICYObjectives

The objectives of the Policy are to provide a guiding framework for remuneration that:

• Supports the RCS Group’s business strategy;

• Attracts high calibre, competent people who are aligned with the RCS Group’s values;

• Motivates key talent to support the long-term business strategy;

• Retains key employees;

• Encourages optimal performance;

• Promotes positive outcomes; and

• Promotes an ethical culture and responsible corporate citizenship.

The RCS Group’s remuneration structures are designed to promote the King IV’s “Fair and Responsible” remuneration

principle. The RCS Group has adopted the suggestions contained in the Institute of Directors Southern Africa’s position paper

on Fair and Responsible Remuneration.

Elements and design principles of remuneration

The main component of remuneration is the guaranteed remuneration package. All variable compensation components are

based on performance and the achievement of individual, team and company targets. Remuneration consists of a guaranteed

package, short-term incentives, long-term incentives, sales incentives and the All Stars recognition program, and is available

to employees dependent of position.

OVERVIEW OF THE REMUNERATION COMMITTEE REPORTThe remuneration report sets out the RCS Group’s Remuneration Policy (the ‘Policy’) and its implementation during the

financial year.

The RCS Group’s remuneration philosophy is guided by the group’s remuneration principles:

• Alignment with business strategy – remuneration must be performance-driven and contribute to the achievement of the RCS

Group’s business objectives;

• Supporting the people strategy – remuneration must support the critical human resources objectives of attracting, motivating

and retaining a high potential workforce;

• Mix of rewards – remuneration will provide a holistic mix of rewards that achieve different objectives. The guaranteed

component of the mix is designed to take into account internal and external equity and to reward individuals fairly, based on

market information and their individual performance, while the variable component is designed to drive performance over

the short-term and long-term;

• Consistency – remuneration must drive a level of consistent design across the RCS Group, and strive to achieve a reasonable

level of internal equity for job categories. The principle of consistency should not impede on the need for differentiation

where appropriate but does indicate that unfair or discriminatory remuneration practices are not accepted;

• Competitiveness – practices must ensure that remuneration levels are competitive and relative to the market, in order to

ensure that the organisation attracts and motivates talent and skills;

• Flexibility – the RCS Group acknowledges the need for a degree of customisation across operating businesses within the

overarching policy framework. Specific design parameters will be acknowledged as flexible parameters to ensure approaches

which are tailored appropriately for different business units;

• Cost control – the RCS Group’s remuneration policy assists in controlling costs within the organisation by ensuring that

employees’ packages are compared to appropriate benchmarks as well as limiting the organisation’s exposure to costs which

are beyond its control; and

• Governance – the RCS Group acknowledges the importance of corporate governance and commits to adopting the principles

of good governance in the fulfilment of reward activities and provides a framework which is clearly articulated and available

to all employees.


The RCS Group’s key area of focus in the year under review has been to align remuneration practices with market benchmarks,

introduce incentive structures that encourage and reward performance in a transparent manner, and to align the RCS Group’s

remune-ration practices with the requirements of the sole shareholder, BNPP. The RCS Group’s remuneration policy has

remained materially unchanged in the year under review.


The RCS Group will continue to focus on flexibility in remuneration and mix of rewards in the forthcoming year to align with

global trends in remuneration practices.


REMUNERATION COMMITTEE REPORT

REMUNERATION COMMITTEE REPORT (continued)

All Stars recognition program

The RCS Group recognises the importance of rewarding employees for behaviours that deliver on the RCS Group’s vision

and values as well as consistent performance output. Under the All Stars recognition programme three types of rewards

are granted:

• Spotlight awards recognise and reward immediate actions of employees who are contributing to the organisations overall

goals and values;

• BeamTeam awards recognise teams that show extraordinary behaviour and the RCS Group’s targets in terms of quality,

productivity and adherence; and

• Topstar awards recognise top performance annually on an individual and team basis.

Sales incentive program

The sales incentive scheme is offered to sales and telemarketing employees based on attainment of sales targets.

Sales incentives are reviewed regularly by management in order to incentivise behaviour that is consistent with the

RCS Group’s values.

Collection commission scheme

The collection commission scheme is offered to early stage collection staff on attainment of collection targets.

The collection commission scheme considers quality control review scores and is reviewed regularly by management in

order to incentivise behaviour that is consistent with the RCS Group’s values.

Payments on termination of employment, sign-on, retention and restraint of trade payments

The RCS Group does not make payments on termination of employment or for restraint of trade. The RCS Group’s policies

allow for sign-on and retention bonuses to be paid under certain circumstances. Sign-on and retention bonuses are subject

to approval of the RCS Group’s Remuneration Committee.

OVERVIEW OF THE REMUNERATION POLICY (CONTINUED) Guaranteed package

All employees receive a guaranteed package that forms the core element of remuneration reflecting the employee’s role and

position within the RCS Group and is payable for doing the expected day-to-day job. The guaranteed package forms the basis

of a company’s ability to attract and retain the required skills and is intended to reward competence, experience, qualification

level, as well as the level of involvement in assigned tasks.

In addition, the employees have access to the following benefits:

• Leave;

• Retirement funding;

• Healthcare;

• Disability cover;

• Serious illness cover;

• Death cover;

• Financial wellness programme;

• Employee assistance programme; and

• Education assistance programme.

Long-term incentives

The cash settled, long-term incentive programme is open to senior management and executive employees. The long-term

incentive scheme is designed for employees to grow the business and to support the long-term retention of these employees.

The long-term incentive is based on the growth in the profit after tax for all allocations prior to 1 January 2017 and on profit

after tax adjusted to the targeted capital structure of the business for all allocations made after 1 January 2017.

Long-term incentives allocated to executives include a CPI* inflation hurdle rate where payouts of long-term incentives are

deferred if the profit after tax does not exceed CPI inflation.

Short-term incentive

The cash-settled, short-term incentive is a discretionary programme, open to all employees in the RCS Group. The short-

term incentive scheme is designed to improve business performance and to allow employees to share in the success of

the business.

This plan is linked to the RCS Group’s profitability targets and is applied as a factor of the employees’ guaranteed

remuneration. Short-term incentives are generally paid in April, based on the profitability in the financial year.

* CPI stands for Consumer Price Index and is a comprehensive measure used for estimation of price changes in a basket of goods and services representative of consumption

expenditure in an economy.




Non-executive directors’ remuneration

Total non-executive directors’ remuneration for the year ended 31 December 2017:

IMPLEMENTATION REPORT

Executive remuneration

Total remuneration of executive management for the year ended 31 December 2017:


Remuneration Provident fund contributions

Total

R'000 R'000 R'000

Executive directors for services, as employees, to subsidiary companies

RF Adams 5 079 340 5 419

CP De Wit 2 856 215 3 071

Total remuneration of executive management for the year ended 31 December 2016:


Total

R'000 R'000 R'000

Executive directors for services, as employees, to subsidiary companies:

RF Adams 3 434 268 3 702

CP De Wit 540 84 624

SW van der Merwe 5 257 240 5 497

JJ Snyman 2 747 150 2 897

OPM Renard 3 861 - 3 861


Total

R'000 R'000 R'000

Non-executive directors for services, as directors, to subsidiary companies:

SW van der Merwe 21 553* 220 21 773

E Oblowitz (Independent) 431 - 431

Total non-executive directors' remuneration for the year ended 31 December 2016:


Total

R'000 R'000 R'000

Non-executive directors for services, as directors, to subsidiary companies:

SW van der Merwe 1 121 176 1 297

E Oblowitz (Independent) 369 - 369

* This includes an amount of R19.98 million paid in terms of the long-term incentive programme accrued to SW van der Merwe when he was an executive director.

Payments made on termination of office and deviations from the remuneration policy

No payments on termination of office and no deviations from the remuneration policy have been made during the current or

prior financial year.



KING IV PRINCIPLE OUTLINE KING IV PRINCIPLE OUTLINE (continued)

The table below provides a summary and guidance to the RCS Group’s (the “Group”) application of the King IV principles,

with references to where these are addressed in the Supplementary Information to the Group Consolidated Annual

Financial Statements 2017.

KING IV Principle Company Explanation

PRINCIPLE 1 : The governing body should lead ethically and effectively.

The Board of the RCS Group (“the Board”) is fully committed to attaining and sustaining the highest standards of corporate governance. The Board is dedicated to continuously fostering a corporate culture that emphasises good corporate governance. For more information regarding the ethical leadership of the Board refer to pages 24, 28 and 30.

PRINCIPLE 2 : The governing body should govern the ethics of the organisation in a way that supports the establishment of an ethical culture.

The Board with steer from BNPP determines and sets the tone of the Group, including the principles of ethical business practice. For more information regarding the Group’s ethical practices refer to pages 24, 28 and 30 in the Social and Ethics Report.

PRINCIPLE 3: The governing body should ensure that the organisation is and is seen to be a responsible corporate citizen.

A Social and Ethics Committee exists, which reports to the Board. The committee reflects the Group’s commitment to ethical corporate citizenship and the management of stakeholder relationships. For more information regarding the Group’s corporate social responsibility initiatives refer to pages 24-30 in the Social and Ethics Report.

PRINCIPLE 4: The governing body should appreciate that the organisation’s core purpose, its risks and opportunities, strategy, business model, performance and sustainable development are all inseparable elements of the value creation process.

A strategy session is held annually where the Board is present. Risk management is monitored by the Board Audit and Risk Committee (“BARC”)and the Credit Risk Committee. The Operational Risk Management process ensures that all risks in each area of the business are covered and monitored.

The short, medium and long-term strategy for the Group has been delegated to management and is approved by the Board. The Board ensures the strategy is in line with the Group’s sustainable development plan and the core values of the business. The Board and management are held accountable to monitor the progress of the business and planned initiatives to ensure the strategy is achieved.

KING IV Principle Company Explanation

PRINCIPLE 5: The governing body should ensure that reports issued by the organisation enable stakeholders to make informed assessments of the organisation’s performance and its short, medium and long-term prospects

The BARC ensures that the Consolidated Annual Financial Statements including the supplementary information, as well as any other information used for external reporting, include financial information of the highest quality and integrity.

In the execution of its duties, the BARC recommends the appointment of the external auditors and is responsible for establishing the terms of engagement as well as monitoring the services provided by the external auditors for both audit and non-audit services. The BARC also assesses the effectiveness of the external auditor’s progress against, and fulfilment of the agreed audit plan, including any variation from the plan, and provides oversight to the external audit process.

PRINCIPLE 6: The governing body should serve as the focal point and custodian of the corporate governance in the organisation

The Terms of Reference has been approved and adopted by the Board and the Board sub-committees. Although certain functions are delegated to committees, these committees do not have the power to approve but rather to recommend to the Board. Unless expressly granted the authority to approve by the Board or by law. For more information regarding the roles and responsibilities of the Board, refer to pages 16 and 19 in the Board Committees section of the supplementary information.

PRINCIPLE 7: The governing body should comprise the appropriate balance of knowledge, skills, experience, diversity and independence for it to discharge its governance role and responsibilities objectively and effectively

The composition of the board is regulated by the shareholder in terms of the Company’s Memorandum of Incorporation and is deemed to be adequate and appropriate. The Board Charter will emphasise the responsibility of the Board and ensure that applicable principles are implemented and a high level of compliance is maintained. For more information regarding the board of directors refer to pages 6-15 of the supplementary information.

PRINCIPLE 8: Committees of the governing body

Terms of Reference in respect of each Board sub-committee have been approved and adopted. The Terms of reference for each committee outline the roles and responsibilities and are deemed adequate and appropriate. The Terms of Reference for each committee assessed annually. For more information regarding the Board sub-committees refer to pages 19-23 and 53-54.


KING IV PRINCIPLE OUTLINE (continued) KING IV PRINCIPLE OUTLINE

KING4 Principle Company Explanation

PRINCIPLE 9: The governing body should ensure that the evaluation of its own performance and that of its committees, its chair and its individual members, support continued improvement in its performance and effectiveness.

On an annual basis, formal assessments are conducted on the effectiveness of the Board and the Board sub-committees. Each board member is given a confidential questionnaire to complete regarding the effectiveness of the Board and the Board sub-committees. The results of the questionnaires is reviewed by the Company Secretary who identifies any improvement areas that the Board needs to consider and communicates this to them in the upcoming board meetings. For more information regarding the performance evaluations of the Board, refer to page 16.

PRINCIPLE 10: The governing body should ensure that the appointment of, and delegation to, management contribute to role clarity and effective exercise of authority and responsibilities.

For more information on the delegation of responsibilities to management and corporate governance services to the Company Secretary please refer to page 16-17. The CEO succession plan and notice period has been disclosed on page 14.

PRINCIPLE 11: The governing body should govern risk in a way that supports the organisation in setting and achieving its strategic objectives.

The Board assumes the responsibility for the governance of risk. The BARC and the Credit Risk Committee will assist the Board by providing an objective and independent review on the Group’s finance, accounting, control mechanisms and risk governance framework. For more information regarding risk governance refer to page 32.

PRINCIPLE 12: The governing body should govern technology and information in a way that supports the organisation setting and achieving its strategic objectives.

The Board understands the importance, relevance and inherent risks in IT governance and is responsible for such risks. The BARC fulfils an oversight role regarding IT risks and governance. The broader IT portfolio is included in the Board’s agenda. IT is aligned and forms an integral part of the performance objectives of the Group. The focus is created through the ICT Security and Risk Office, who is responsible for information security, ICT Risk management and ICT audits. For more information regarding technology and information governance, refer to pages 33-35.

KING4 Principle Company Explanation

PRINCIPLE 13: The governing body should govern compliance with applicable laws and adopted, non-binding rules, codes and standards in a way that it supports the organisation being ethical and a good corporate citizen.

The directors fully understand the appropriate applicable laws, rules and regulations and how compliance risk affects the reputation of the Group. Compliance is an identified risk and is addressed as an agenda item at each Board meeting, thereby positioning the Board to adapt to changes in the regulatory environment. For more information on compliance governance refer to page 37. For more information on the corporate social responsibility initiatives and the Group’s ethical practices refer to pages 24-30.

PRINCIPLE 14: The governing body should ensure that the organisation remunerates fairly, responsibly and transparently so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long-term.

The Remuneration policy has been approved by the Board. Refer to the Remuneration Committee Report on pages 38-43.

PRINCIPLE 15: The governing body should ensure that assurance services and functions enable an effective control environment, and that these support the integrity of information for the internal decision making and of the organisation’s external reports.

The BARC ensures the combined assurance model being assurance coverage obtained from management, internal assurance providers and external assurance providers is applied to provide a coordinated approach with regard to risk management and reports to the Board. For more information refer to the Board Audit and Risk Committee Report on pages 53-54.

PRINCIPLE 16: In the execution of its governance role and responsibilities, the governing body should adopt a stakeholder-inclusive approach that balances the needs, interests and expectations of material stakeholders in the best interests of the organisation over time.

The Terms of Reference for the Social and Ethics Committee set out the roles and responsibilities of the committee for managing stakeholder relationships. These roles and responsibilities are deemed adequate and appropriate. For more information regarding stakeholder governance refer to the Social and Ethics Report on pages 24-30.



Directors’ responsibility statement and company secretary statement 50

Directors’ report 51

Board audit and risk committee report 53

Independent auditor’s report 55

Consolidated statement of financial position 61

Consolidated statement of profit and loss 62

Consolidated statement of other comprehensive income 63

Consolidated statement of changes in equity 64

Consolidated statement of cash flows 65

Accounting policies 67

New standards and interpretations 78

Notes to the consolidated financial statements 82

These financial statements have been prepared under the supervision of the Executive: Finance: M Hoffmann Chartered Accountant (SA). These financial statements represent the financial information of the RCS Group and have been audited in compliance with section 30 of the Companies Act of South Africa.

CONTENTS

THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017

THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017 |51||50| THE RCS GROUP CONSOLIDATED FINANCIAL STATEMENTS 2017

DIRECTORS’ RESPONSIBILITY STATEMENT

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

Personal Finance South Africa Limited, its subsidiaries and its associates (hereafter referred to as the “RCS Group”), comprising

the consolidated statement of financial position as at 31 December 2017, and the consolidated profit and loss, statement of

other comprehensive income, consolidated changes in equity and cash flows for the year then ended, and the notes to the

consolidated financial statements, which include a summary of significant accounting policies and other explanatory notes,

in accordance with International Financial Reporting Standards (“IFRS”) and the requirements of the Companies Act of South

Africa. In addition, the directors are responsible for preparing the directors’ report.

The directors are responsible for such internal control as the directors determine necessary to enable the preparation of

consolidated financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining

adequate accounting records and an effective system of risk management.

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

believe that the businesses will not be a going concern in the year ahead.

The auditor is responsible for reporting on whether the consolidated financial statements are fairly presented in accordance

with the applicable IFRS and the Companies Act.

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

directors on 20 March 2018 and were signed by:

CP De Wit

Chief Financial Officer

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

ended 31 December 2017, the company has filed all required returns and notices in terms of the Companies Act, 2008 and that

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

GS Harker

Company Secretary

20 March 2018

DIRECTORS’ REPORT

The directors have pleasure in presenting their report for the year ended 31 December 2017:

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

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

The Cards business unit offers various utility card products through participating merchant outlets, while the Loan

business unit offers individuals unsecured loans and insurance products (for more detail on these segments refer to

note 3 of the consolidated financial statements).

2. SUBSIDIARY COMPANIESThe RCS Group constitutes BNP Paribas Personal Finance South Africa Limited (registration number: 2000/017884/06)

and its subsidiaries, RCS Botswana Proprietary Limited, RCS Cards Proprietary Limited, RCS Collections Proprietary

Limited, RCS Home Loans Proprietary Limited and RCS Investment Holdings Namibia Proprietary Limited (for more

detail on these subsidiaries refer to note 25 of the consolidated financial statements).

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

financial statements.

3. GENERAL REVIEW OF OPERATIONSThe results for the year ended 31 December 2017 are described in the accompanying consolidated financial statements.

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

service provider with the Financial Services Board (FSB registration number 44481).

5. CORPORATE GOVERNANCEThe board of directors endorse the Code of Corporate Practices and Conduct as required by King IV. For the financial

year ended 31 December 2017, the directors are satisfied that the RCS Group applies King IV. The board of directors

comprises only one independent non-executive director, and the chairman of the board of directors is a non-executive

director, the board of directors is, however, satisfied that the independence principle contained in King IV is applied

given the following factors:

• BNP Paribas Personal Finance South Africa Limited is a wholly owned subsidiary of the multi-national banking and

financial services group, BNP Paribas Société Anonyme, a company listed on the Paris Stock Exchange;

• The majority non-executive directors are senior executives of the shareholder appointed by it;

• The independent non-executive director also serves as the Audit and Risk Committee chairman and Chairman of the

Social and Ethics Committee; and

• BNP Paribas Personal Finance South Africa Limited has limited executive directors.


6. EVENTS AFTER THE REPORTING PERIODA distribution to the shareholder amounting to R200 million was declared after the date of the reporting period but

before the financial statements were authorised for issue (31 December 2016: R450 million).

The directors are not aware of any other matters or circumstances arising between the end of the financial year and the

date of approval of these financial statements that may materially affect the amounts and disclosure contained in the


DIRECTORS’ REPORT (continued)

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

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

9. BUSINESS/REGISTERED ADDRESSBusiness address Postal address

RCS Building PO Box 6523

Golf Park Parow East

Raapenberg Road Cape Town

Mowbray 7501

7700

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

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

11. AUDITORSThe independent auditing firm Deloitte & Touche was provided unrestricted access to all financial records and related data,

including minutes of all meetings of shareholders, the board of directors and committees of the board, and has audited the

financial statements. The directors believe that all representations made to the independent auditors during their audit were

valid and appropriate. Deloitte & Touche’s audit report is presented on pages 55-59.

Executive directors

RF Adams (Chief Executive Officer) South African

CP De Wit (Chief Financial Officer) South African

Non-executive directors

ACPM van Groenendael Belgian

BPS Cavelier French

I Perret-Noto French

VSK Khandelwal Indian

SW van der Merwe South African

E Oblowitz (Independent) South African

The RCS Board Audit and Risk Committee is an independent statutory committee appointed by the board of directors in terms

of the Companies Act of South Africa (“the Act”). The committee comprises of one independent non-executive director, who is

also the chairman of the Board Audit and Risk Committee, and two non-executive directors. The board audit committee met

three times during the year ended 31 December 2017. In addition, the chairman of the board audit committee held various

meetings with representatives from the internal and external auditors during the year under review.

The committee’s responsibilities include statutory duties in terms of the Act. The committee also applies the applicable

principles of the King IV Report on Corporate Governance for South Africa. The committee’s terms of reference are determined

by a board-approved charter. The committee conducted its affairs in compliance with, and discharged its responsibilities in

terms of, its charter for the year ended 31 December 2017.

The committee performed, inter alia, the following duties during the year under review:

• Satisfied itself that the external auditor is independent of the company, as set out in section 94(9) of the Act;

• Assessed the policy and controls that addresses the provision of non-audit services by the external auditor, and the nature

and extent of such services rendered during the financial year under review;

• Determine the tenure of the external audit firm and, in the event of the firm having been involved in a merger or acquisition,

including the tenure of the predecessor firm;

• Obtained confirmation regarding the rotation of the designated external audit partner and assessed the appropriateness of

the appointment of Michael van Wyk as the designated external audit partner;

• Evaluated significant changes in the management of the organisation during the external audit firm’s tenure which may

mitigate the attendant risk of familiarity between the external auditor and management;

• In consultation with executive management, agreed to the terms, audit plan and budgeted fees for the 31 December 2017

financial year;

• Approved the nature and extent of non-audit services that the external auditor may provide;

• Satisfied itself, based on the information and explanations supplied by management and obtained through discussions with

the independent external auditor and internal auditors, that the system of internal financial controls is effective and forms a

basis for the preparation of reliable financial statements;

• Reviewed the accounting policies and the consolidated audited financial statements for the year ended 31 December 2017

and, based on the information provided to the committee, considers that the RCS Group complies, in all material respects,

with the requirements of the Act and IFRS;

• Reviewed the audit report of the external auditor that includes the key audit matters;

• Assessed significant matters in relation to the annual financial statements, ensured that these were adequately and

appropriately addressed;

• Assessed that the company’s internal audit function in terms of independence, resources and authority to enable it to

effectively discharge its duties;

• Approved the internal audit plan as well as any amendments thereto;

• Met with the external and internal auditors, separately and together, without management being present;

BOARD AUDIT AND RISK COMMITTEE REPORT


• Evaluated the quality of the external audit, with reference to audit quality indicators such as those that may be included in

inspection reports issued by external audit regulator;

• Satisfied itself that the RCS Group financial director and the finance function has appropriate expertise, experience and

competence;

• Considered as part of the approval of the audited annual financial statements any accounting treatments, significant unusual

transactions, or accounting estimates and judgements that could be contentious; and

• Reviewed management’s assessment of going concern and sustainability and made a recommendation to the board that the

going concern concept is appropriate and that it be adopted by the RCS Group.

E Oblowitz

Board Audit and Risk Committee Chairman

20 March 2018

BOARD AUDIT AND RISK COMMITTEE REPORT(continued)

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTSTo the shareholder of BNP Paribas Personal Finance South Africa Limited:

OPINIONWe have audited the consolidated financial statements of BNP Paribas Personal Finance South Africa Limited (the “Group”) set

out on pages 61–114, which comprise the statement of financial position as at 31 December 2017, and the income statement

and statement of other comprehensive income, the statement of changes in equity and the statement of cash flows for the year

then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position

of the Group as at 31 December 2017, and its consolidated financial performance and consolidated cash flows for the year

then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of

South Africa.

BASIS FOR OPINIONWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those

standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated and Separate Financial

Statements section of our report. We are independent of the Group in accordance with the Independent Regulatory Board for

Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable

to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance

with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa.

The IRBA Code is consistent with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional

Accountants (Parts A and B). We believe that the audit evidence we have obtained is sufficient and appropriate to provide a

basis for our opinion.

INDEPENDENT AUDITOR’S REPORT


KEY AUDIT MATTERSKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the

consolidated financial statements of the current period. This matter was addressed in the context of our audit of the

consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion

on this matter. The key audit matter applies to the consolidated financial statements and there is no key audit matter for the

separate financial statements.

INDEPENDENT AUDITOR’S REPORT (continued)

Key Audit Matter How the matter was addressed in the audit

Impairment of card and loan receivables

Card and loan receivables, after providing for impairment,

accounts for more than 87% of the assets of the Group.

These receivables are unsecured and generally provided

to customers with higher levels of default compared to the

more traditional and often secured loans provided by the

banking industry. Due to the complexity of the impairment

calculation and the subjectivity of the assumptions used, it

is considered a key audit matter.

As disclosed in notes 1.4, 5 and 29, the Group use specialists

to assist with inherently subjective impairment assessments

of these receivables through complex modelling (using

the Markov model) of expected future cash receipts from

customers, also considering evidence not yet evident in the

mathematical models, to inform their judgement of the final

impairment amount recorded.

In evaluating the impairment of the card and loan

receivables we reviewed the calculation model prepared by

the directors and performed various procedures, including

the following:

• Obtained an understanding of the various assumptions

used, the impairment modelling, and data management

processes, systems and methodologies.

• Testing the required credit and collections data the

impairment model relies on.

• Using credit and modelling specialists to develop our own

impairment model.

• Our specialists independently calculated the key

assumptions of roll rates, probability of default and loss

given default based on IAS 39: Financial Instruments:

Recognition and Measurement, standard market practices

through benchmarking and current year changes in the

underlying credit and collections data which would

impact assumptions used in the prior year.

• Assessing the Group’s adjustments to model outcomes for

reasonability by evaluating it against the requirements

of IAS 39, historical trend data and independent macro-

economic data published, as appropriate.

• Considering the adequacy of impairment disclosure in the


The model and assumptions used, including the impairment

disclosures, is appropriate.


OTHER INFORMATIONThe directors are responsible for the other information. The other information comprises the Directors’ Report, the Board

Audit and Risk Committee’s Report and the Company Secretary’s Statement as required by the Companies Act of South

Africa, which we obtained prior to the date of this report. The other information does not include the consolidated financial

statements and our auditor’s report thereon.

Our opinion on the consolidated financial statements do not cover the other information and we do not express an audit

opinion or any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and,

in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or

our knowledge obtained in the audit, or otherwise appears to be materially misstated.

If, based on the work we have performed on the other information obtained prior to the date of this auditor’s report, we

conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing

to report in this regard.

RESPONSIBILITIES OF THE DIRECTORS FOR THE CONSOLIDATED FINANCIAL STATEMENTS The directors are responsible for the preparation and fair presentation of the consolidated financial statements in accordance

with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such

internal control as the directors determine is necessary to enable the preparation of consolidated financial statements that are

free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue

as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting

unless the directors either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE CONSOLIDATED FINANCIAL STATEMENTSOur objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are

free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will

always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material

if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on

the basis of these consolidated financial statements.



As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism

throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error,

design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate

to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for

one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override

of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in

the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related

disclosures made by the directors.

• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and based on the audit

evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on

the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw

attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are

inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s

report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures,

and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves

fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within

the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision

and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with the Board Audit and Risk Committee regarding, among other matters, the planned scope and

timing of the audit and significant audit findings, including any significant deficiencies in internal control that we

identify during our audit.

We also provide the Board Audit and Risk Committee with a statement that we have complied with relevant ethical requirements

regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought

to bear on our independence, and where applicable, related safeguards.


From the matters communicated with the Board Audit and Risk Committee, we determine those matters that were of most

significance in the audit of the consolidated financial statements of the current period and are therefore the key audit

matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the

matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report

because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such

communication.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTSIn terms of the IRBA Rule published in Government Gazette Number 39475 dated 4 December 2015, we report that Deloitte &

Touche has been the auditor of BNP Paribas Personal Finance South Africa Limited for 2 years.

Deloitte & Touche

Registered Auditor

Per: Michael van Wyk

Partner

20 March 2018


31 December 31 December 2017 2016

Notes

R’000

R’000

ASSETS

Cash and cash equivalents 4 527 674 553 623

Card and loan receivables 5 7 534 475 6 277 260

Other receivables 6 31 070 25 651

Financial asset at fair value through profit and loss 7 116 422 96 535

Taxation 116 420 69 699

Deferred taxation 8 109 270 177 424

Property and equipment 9 52 643 62 412

Intangible assets 10 47 062 25 206

Goodwill 11 56 855 56 855

Total assets 8 591 891 7 344 665

EQUITY

Stated capital 13 1 936 636 2 386 636

Accumulated profit 553 304 149 812

Foreign currency translation reserve 14 2 888 4 031

Total equity 2 492 828 2 540 479

LIABILITIES

Trade and other payables 15 419 069 479 019

Funding 16 5 679 994 4 325 167

Total liabilities 6 099 063 4 804 186

Total equity and liabilities 8 591 891 7 344 665

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

for the year ended 31 December 2017


31 December 31 December

2017

2016

Notes ’000 R’000

Interest earned 18 1 537 967 1 471 362

Interest expense (407 954) (361 369)

Net interest income 1 130 013 1 109 993

Other income 19 886 252 789 506

Transaction fee expense (109 703) (88 350)

Net trading income 1 906 562 1 811 149

Operating costs (862 822) (765 538)

Cost of risk 20 (521 635) (524 902)

Profit before taxation 21 522 105 520 709

Taxation 22 (118 613) (144 456)

Profit for the year 403 492 376 253

CONSOLIDATED STATEMENT OF PROFIT AND LOSS



Note R’000

R’000

Profit for the year 403 492 376 253

Other comprehensive loss, net of taxation

Foreign currency translation differences 14 (1 143) (5 267)

Other comprehensive loss for the year (1 143) (5 267)

Total comprehensive income for the year 402 349 370 986

CONSOLIDATED STATEMENT OF OTHER COMPREHENSIVE INCOME



CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR

Stated Foreign Retained Total equity

capital currency income / attributable to translation (accumulated parent reserve loss) R’000 R’000 R’000 R’000

Balance at 1 January 2016 2 636 636 9 298 (226 441) 2 419 493

Total comprehensive income/ (loss) for the year (250 000) (5 267) 376 253 120 986

Profit for the year - - 376 253 376 253

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

Other comprehensive loss - (5 267) - (5 267)

Balance at 31 December 2016 2 386 636 4 031 149 812 2 540 479

Balance at 1 January 2017 2 386 636 4 031 149 812 2 540 479

Total comprehensive income/(loss)

for the year (450 000) (1 143) 403 492 (47 651)

Profit for the year - - 403 492 403 492

Distribution of capital (450 000) - - (450 000)

Other comprehensive loss - (1 143) - (1 143)

Balance at 31 December 2017 1 936 636 2 888 553 304 2 492 828


CONSOLIDATED STATEMENT OF CASH FLOWS



Notes R’000 R’000

CASH FLOWS FROM OPERATING ACTIVITIES

Cash (utilised in)/generated from operations 23 (786 431) 247 464

Taxation paid 24 (97 180) (213 015)

Net cash (outflow)/inflow from operating activities (883 611) 34 449

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property and equipment (10 935) (16 645)

Acquisition of intangible assets (35 257) (14 030)

Investment in financial asset (1 000) -

Proceeds from disposal of property and equipment 27 5 164

Net cash outflow from investing activities (47 165) (25 511)

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from funding 7 889 653 5 197 867

Repayment of funding (6 534 826) (4 955 100)

Distribution of capital (450 000) (250 000)

Net cash inflow/(outflow) from financing activities 904 827 (7 233)

Net (decrease)/increase in cash and cash equivalents (25 949) 1 705

Cash and cash equivalents at beginning of the year 553 623 551 918

Cash and cash equivalents at end of the year 4 527 674 553 623


ACCOUNTING POLICIES

1. PRESENTATION OF FINANCIAL STATEMENTSThe holding company, BNP Paribas Personal Finance South Africa Limited, is a company domiciled in South Africa. The

consolidated financial statements as at, and for the year ended, 31 December 2017 comprise the company and its subsidiaries

(together referred to as the “RCS Group”). The company has foreign subsidiaries operating in Namibia and Botswana.

The consolidated financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”)

and the requirements of the Companies Act of South Africa. The accounting policies have been consistently applied with those

adopted in the prior financial period.

1.1 BASIS OF PREPARATION

The consolidated financial statements have been prepared on the basis that the RCS Group is a going concern and on the

historical cost basis or the fair value basis, where expressly indicated as such.

The consolidated financial statements were authorised for issue by the board of directors on 20 March 2018.

1.2 FUNCTIONAL AND PRESENTATION CURRENCY

These consolidated financial statements are presented in South African Rands which is BNP Paribas Personal Finance South

Africa Limited’s functional and presentation currency. All amounts have been rounded to the nearest thousand, unless

otherwise indicated.

1.3 BASIS OF CONSOLIDATION

Subsidiaries

The financial statements of subsidiaries are prepared for a consistent reporting period using consistent accounting policies.

Consolidation

The consolidated financial statements incorporated the financial statements of the Company and entities controlled by the

Company and its subsidiaries.

The RCS Group controls an entity when the RCS Group is exposed to, or has rights to, variable returns from its involvement with

the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from

the date on which control is transferred to the RCS Group. They are consolidated until the date that control ceases.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line

with the RCS Group’s accounting policies.

All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of

the RCS Group are eliminated in full on consolidation.



ACCOUNTING POLICIES (continued)

1.3 BASIS OF CONSOLIDATION (CONTINUED)

The RCS Group measures goodwill at the acquisition date as:

• the fair value of the consideration transferred; plus

• the recognised amount of any non-controlling interest in the acquiree; plus

• if the business combination is achieved in stages, the fair value of the pre-existing equity interest in the acquiree; less

• the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed.

When the excess is negative, a gain on bargain purchase is recognised immediately in the statement of comprehensive income.

The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts

generally are recognised in profit or loss.

Transaction costs, other than those associated with the issue of debt or equity securities, that the RCS Group incurs in

connection with a business combination are expensed as incurred.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is

classified as equity, it is not remeasured. Otherwise, subsequent changes in the fair value of the contingent consideration are

recognised in profit or loss.

Loss of control

On the loss of control, the RCS Group derecognises the assets and liabilities of the subsidiary, any non-controlling interest and

the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in

the statement of comprehensive income.

Jointly controlled operations

A jointly controlled operation is a joint arrangement carried on by each operator using its own assets in pursuit of the joint

operations. The consolidated financial statements include the assets that the RCS Group controls and the liabilities that it

incurs in the course of pursuing the joint operation, and the expenses that the RCS Group incurs and its share of the income

that it earns from the joint operation.

1.4 USE OF ESTIMATES AND JUDGEMENTS

The preparation of consolidated financial statements in conformity with IFRS, requires management or directors to make

judgements, estimates and assumptions that may affect the application of policies and reported amounts of assets and

liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various

other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the

judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may

differ from these estimates.



The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the

revision and future periods if the revision affects both current and future periods.

Estimates and judgements made in applying the RCS Group’s accounting policies, that potentially have a significant effect

on the amounts recognised in the consolidated financial statements relate to the following:

(a) Card and loan receivables are disclosed net of any accumulated impairment losses and future recoveries. The calculation

of the impairment amount is performed using the internationally recognised Markov model. The Markov model uses

delinquency roll rates on customer balances to determine the inherent bad debt in a receivables book. In addition, in terms

of adopting a conservative approach, management considers evidence not yet evident in the mathematical models, such

as the macro-economic environment and portfolio maturity, to inform their judgement of the required levels of impairment

and whether to add a further layer over and above the statistical model output. The directors believe that the card and loan

receivables balances are being measured fairly. Refer to notes 5 and 29 for further explanation.

(b) The RCS Group reviews goodwill for impairment at least annually or when events or changes in economic circumstances

indicate that impairment may have taken place. Impairment reviews are performed by projecting future cash flows, based

upon budgets and plans and making appropriate assumptions about rates of growth and discounting these using a rate

that takes into account prevailing market interest rates and the risks inherent in the business. If the present value of the

projected cash flows is less than the carrying value of the underlying net assets and goodwill, an impairment charge is

recognised in the statement of comprehensive income. This calculation requires the exercise of significant judgment by

management. If the estimates prove to be incorrect or performance does not meet expectations, which affects the amount

and timing of future cash flows, goodwill may become impaired in future periods. Goodwill is disclosed in note 11.

1.5 SEGMENTAL REPORTING

An operating segment is a component of the RCS Group that engages in business activities from which it may earn revenues and

incur expenses, including revenues and expenses that relate to transactions with any of the RCS Group’s other components. Operating

segments’ operating results are reviewed regularly by the board, identified as the chief operating decision-maker, to make decisions

about resources to be allocated to the segment and assess its performance and for which internal financial information is available.

The operating segments have been split into two main segments, Cards and Loans. To determine what qualifies for these

segments the nature of the product offered and the risk profile of the product is considered.

Segment results that are reported to the board include items directly attributable to a segment as well as those that can be

allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire equipment

and intangible assets. Amounts reported in the RCS Group segmental analysis are measured in accordance with International

Financial Reporting Standards. Inter-segment pricing is determined on an arm’s length basis.




1.6 FINANCIAL INSTRUMENTS

A financial instrument is recognised when the RCS Group becomes a party to the contractual provisions of the instrument.

Financial assets are derecognised if the RCS Group’s contractual rights to the cash flows from the financial assets expire or if the

RCS Group transfers the financial asset to another party without retaining control or substantially all risks and rewards of the

asset. Regular way purchases and sales of financial assets are accounted for at trade date, being the date that the RCS Group

commits itself to purchase or sell the asset. Financial liabilities are derecognised if the RCS Group’s obligations specified in the

contract expire or are discharged or cancelled.

Non-derivative financial instruments

Non-derivative financial instruments recognised on the statement of financial position include cash and cash equivalents, card,

loan and other receivables, funding and trade and other payables

Initial measurement

Financial instruments are initially recognised at fair value. For those instruments not measured at fair value through profit or

loss, directly attributable transaction costs are included on initial measurement.

Subsequent to initial recognition, these instruments are measured as set out below:

Cash and cash equivalents

Cash and cash equivalents comprises cash on hand and amounts held on deposit at financial institutions.

Card and loan receivables

Card and loan receivables are classified as loans and other receivables and are measured at amortised cost using the effective

interest method, less accumulated impairment losses. An impairment allowance is made for card and loan receivables which

are estimated to be impaired at the reporting date. This impairment allowance is estimated as discussed in note 1.4.

Other receivables

Other receivables are carried at amortised cost using the effective interest rate method less accumulated impairment losses.

Financial assets measured at fair value through profit and loss

The reinsurance contract issued in cell captive arrangements are classified as financial assets and are designated for

measurement at the fair value with the movement in the fair value being recognised in profit and loss. This is a change from the

prior year where these contracts were accounted for in terms of IFRS 4. In accordance with IAS 8, paragraph 42, no restatement

to comparative amounts have been made as the change is not material.



Financial liabilities measured at amortised cost

Non-derivative financial liabilities including interest-bearing funding and trade and other payables are recognised at amortised

cost comprising original debt less principal repayments and amortisation.

Offset

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position when the

RCS Group has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis, or to

realise the asset and settle the liability simultaneously.

1.7 PROPERTY AND EQUIPMENT

Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the

functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property and equipment have different useful lives, they are accounted for as separate items (major

components) of property and equipment.

Gains and losses on disposal of an item of property and equipment are recognised net within “operating costs” in the income

statement.

Subsequent costs

The cost of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable

that the future economic benefits embodied within the part will flow to the RCS Group and its cost can be measured reliably.

The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are

recognised in the statement of comprehensive income as incurred.

Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of

property and equipment.

The estimated depreciation rates for the current and comparative periods are as follows:

- Computer hardware 33%

- Furniture and fittings 16% – 20%

- Leasehold property 10%

- Motor vehicles 20%




1.7 PROPERTY AND EQUIPMENT (CONTINUED)

Depreciation (continued)

Depreciation methods, useful lives and residual values are reviewed at each reporting date.

Depreciation of an item of property and equipment commences when the item is available for use.

1.8 GOODWILL

Goodwill is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not

amortised, but tested annually for impairment and when there is an indication of impairment.

1.9 INTANGIBLE ASSETS

Intangible assets that are acquired by the RCS Group, which have finite useful lives, are measured at cost less accumulated

amortisation and accumulated impairment losses.

Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to

which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognised in the

statement of comprehensive income as incurred.

Expenditure on research activities is recognised as an expense in the period in which it is incurred. An internally-generated

intangible asset arising from development (or from the development phase of an internal project) is recognised if, and only if, all

of the following have been demonstrated:

• the intention to complete the intangible asset and use or sell it;

• the ability to use or sell the intangible asset;

• how the intangible asset will generate probable future economic benefits;

• the availability of adequate technical, financial and other resources to complete the development and to use or sell the

intangible asset;

• the ability to measure reliably the expenditure attributable to the intangible asset during its development; and

• the technical feasibility of completing the intangible asset.

The amount initially recognised for internally-generated intangible assets is the sum of the expenditure incurred from the date

when the intangible asset first meets the recognition criteria listed above. Where no internally-generated intangible asset can

be recognised, development expenditure is recognised in the statement of comprehensive income in the period in which it

is incurred. Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated

amortisation and accumulated impairment losses, on the same basis as intangible assets acquired separately.



Client lists

Client lists acquired by the RCS Group are stated at historical cost less accumulated amortisation and impairment losses.

Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of the client lists. The

annual rate for the amortisation is 20%.

Computer software

Computer software acquired by the RCS Group is stated at historical cost less accumulated amortisation and impairment

losses. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible

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

The above amortisation rates are consistent with the comparative period. Amortisation methods, useful lives and residual values

are reassessed at each reporting date.

1.10 IMPAIRMENT

Non-derivative financial assets

A financial asset not classified as at fair value through profit or loss is assessed at each reporting date to determine

whether there is any objective evidence that it is impaired. A financial asset is considered to be impaired if objective

evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset,

that can be reliably measured.

An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its

carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. Those found not

to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified.

Assets that are not individually significant are collectively assessed for impairment by grouping assets with similar credit

risk characteristics.

All impairment losses are recognised in the profit or loss within the impairment of assets line.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was

recognised. For financial assets measured at amortised cost the reversal is recognised in the statement of comprehensive

income.

Non-financial assets

The carrying values of the RCS Group’s non-financial assets, other than deferred tax assets, are reviewed at each reporting date

to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount

is estimated.





1.10 IMPAIRMENT (CONTINUED)

Non-financial assets (continued)

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable

amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent

from other assets and groups. Impairment losses are recognised in the statement of comprehensive income. Impairment

losses recognised in respect of cash-generating units are allocated first to goodwill and then to reduce the carrying amount

of the other assets in the unit (group of units) on a pro-rata basis. The recoverable amount of an asset or cash-generating unit

is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows

are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value

of money and the risks specific to the asset.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised in prior

periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment

loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss

is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been

determined, net of depreciation or amortisation, if no impairment loss had been recognised.

1.11 STATED CAPITAL AND RESERVES

Stated capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are

recognised as a deduction from equity, net of any taxation effects.

Foreign currency translation reserve

Gains and losses arising on translation of the assets, liabilities, income and expenses of foreign operations are recognised

directly in equity as a foreign currency translation reserve.

1.12 DIVIDENDS

Dividends and the related withholdings tax are accounted for in the period when the dividend is declared. Dividends

declared on equity instruments after the reporting date, and the related withholding taxation thereon, are accordingly not

recognised as liabilities at the reporting date.

1.13 INTEREST EARNED

Revenue comprises interest income. Interest is recognised on a time-proportion basis taking account of the principal

outstanding and the effective interest rate over the period to maturity, when it is probable that such income will accrue

to the RCS Group.



1.14 INTEREST EXPENSE

Interest expense comprises interest which has been incurred on borrowings. All borrowing costs are recognised in profit or loss.

1.15 OTHER INCOME

Club income

Club income is recognised when the magazine is purchased by the customer.

Collection income

Collection income is recognised when charged to the customers account once a collection intervention has taken place on the

outstanding balance.

Net insurance premiums

Insurance premiums are recognised, net of claims, in the statement of comprehensive income when due.

Merchant commission income

Merchant commission income is recognised when the related transaction on which the commission is earned has been concluded.

Service and initiation fee income

Service fee income is recognised when due. Initiation fee income is deferred on a straight line basis.

Dividend received from unlisted investments

The dividend relates to the dividend declared by the insurance cell captive and is recognised when declared.

1.16 OPERATING LEASE

Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as operating leases.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.

1.17 TAXATION

Income taxation expense comprises current and deferred taxation.

Income taxation expense is recognised in the statement of comprehensive income except to the extent that it relates to

a transaction that is recognised directly in other comprehensive income or in equity, in which case it is recognised in other

comprehensive income or equity as appropriate.

Current taxation is the expected taxation payable/receivable, calculated on the basis of taxable income for the period, using the

taxation rates enacted or substantively enacted at the reporting date, and any adjustment of taxation payable/receivable for

previous periods.



1.17 TAXATION (CONTINUED)

Deferred taxation is recognised in respect of temporary differences between the taxation base of an asset or liability and its

carrying amount. Deferred taxation is not recognised for the following temporary differences: the initial recognition of goodwill;

the initial recognition of assets and liabilities in a transaction that is not a business combination and that affects neither

accounting nor taxable profit; and temporary differences relating to investments in subsidiaries to the extent that they

probably will not reverse in the foreseeable future. Deferred taxation is measured at the taxation rates that are expected

to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively

enacted by the reporting date.

Deferred taxation assets are recognised for all deductible temporary differences and assessed losses to the extent that it is

probable that taxable profit will be available against which such deductible temporary differences and assessed losses can be

utilised. Deferred taxation assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable

that the related taxation benefit will be realised.

Deferred taxation assets and liabilities are off-set if there is a legally enforceable right to off-set current taxation liabilities and

assets, and they relate to income taxes levied by the same taxation authority on the same taxable entity, or on different tax

entities, but they intend to settle current taxation liabilities and assets on a net basis, or their taxation assets and liabilities will

be realised simultaneously.

1.18 EMPLOYEE BENEFITS

Short-term employee benefits

The cost of all short-term employee benefits are recognised in the statement of comprehensive income during the period in

which the employee renders the related service.

The accruals for employee entitlements to wages, salaries, annual and sick leave represent the amount which the RCS Group has

a present obligation to pay as a result of employees’ services provided to the reporting date. The short-term benefits have been

calculated at undiscounted amounts based on current wage and salary rates.

Defined contribution plans

The holding company and its subsidiaries contribute to the following defined contribution plans:

Post-employment benefits

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity

and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution

pension, provident and retirement funds are recognised as an employee benefit expense in the statement of comprehensive

income as the related service is provided. Prepaid contributions are recognised as an asset to the extent that cash refund or a

reduction in future payments is available.


Medical aid schemes

The RCS Group contributes to medical aid schemes for the benefit of permanent employees and their dependants.

The contributions to the schemes are recognised in the consolidated statement of comprehensive income as the related

service is provided.

1.19 FOREIGN CURRENCIES

Foreign currency transactions

Transactions in currencies other than the entity’s functional currency are translated at the rates of exchange ruling on the

transaction date.

Monetary assets and liabilities denominated in such currencies are translated at the rates ruling at the reporting date.

Non-monetary assets and liabilities denominated in such currencies are translated using the exchange rate at the date of the

transaction.

Foreign currency gains and losses arising on translation are recognised in profit or loss.

Foreign operations

As at the reporting date, the assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on

acquisition, are translated into the presentation currency of the RCS Group at the rate of exchange ruling at the reporting date

and the income and expenses are translated at the average rate for the year.

Gains and losses arising on translation of the assets, liabilities, income and expenses of foreign operations are recognised in

other comprehensive income, and presented in the foreign currency translation reserve in equity.

for the year ended 31 December 2017 for the year ended 31 December 2017


2. NEW STANDARDS AND INTERPRETATIONS2.1 ADOPTION OF NEW AND REVISED IFRS

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

Accounting Standards Board (“the IASB”) and the IFRS interpretations committee (“IFRIC”) of the IASB that are relevant

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

Interpretations has not resulted in any adjustments to the amounts previously reported in the consolidated financial

statements for the year ended 31 December 2015.

2.2 STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE

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

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

IFRS 9 Financial Instruments

In July 2014, the IASB issued the complete version of IFRS 9, which brings together the classification and measurement,

impairment and hedge accounting phases of the IASB’s project to replace IAS 39 Financial Instruments: Recognition and

Measurement (IAS 39). This applies to annual reporting period beginning on or after 1 January 2018 with retrospective

application.

The new classification and measurement and impairment requirements will be applied by adjusting our consolidated

statement of financial position on 1 January 2018, the date of initial application, with no restatement of comparative period

financial information. Based on current estimates, the adoption of IFRS 9 is expected to result in a reduction to retained

earnings as at 1 January 2018. The impact is primarily attributable to increases in the allowance for credit losses under the

new impairment requirements.

Classification and measurement

IFRS 9 introduces a principles-based approach to the classification of financial assets. Debt instruments, including

hybrid contracts, are measured at fair value through profit or loss (“FVTPL”), fair value through other comprehensive

income (‘FVOCI”) or amortised cost based on the nature of the cash flows of the assets and an entity’s business model.

These categories replace the existing IAS 39 classifications of FVTPL, available-for-sale, loans and receivables, and held-

to-maturity. Equity instruments are measured at FVTPL, unless they are not held for trading purposes, in which case an

irrevocable election can be made on initial recognition to measure them at FVOCI with no subsequent reclassification to

profit or loss.

For financial liabilities, most of the pre-existing requirements for classification and measurement previously included

in IAS 39 were carried forward unchanged into IFRS 9. The requirements related to the fair value option for financial

liabilities, which were adopted in 2014, were changed to address the treatment of own credit risk.

No significant changes are expected in the classification of financial assets when compared to our classification under IAS 39.

NEW STANDARDS AND INTERPRETATIONS


Impairment

IFRS 9 introduces a new single expected credit loss (ECL) impairment model for all financial assets and certain

off-balance sheet loan commitments. The ECL model will result in an allowance for credit losses being recorded

on financial assets regardless of whether there has been an actual loss event. This differs significantly from the

incurred loss model under IAS 39 and is expected to result in earlier recognition of credit losses.

Expected credit loss impairment model

Under IFRS 9, credit loss allowances will be measured on each reporting date according to a three-stage expected credit

loss impairment model:

• Stage 1 – From initial recognition of a financial asset until the date on which the asset has experienced a significant

increase in credit risk relative to its initial recognition, a loss allowance is recognized equal to the credit losses expected

to result from defaults occurring over the next 12 months.

• Stage 2 – Following a significant increase in credit risk relative to the initial recognition of the financial asset, a loss

allowance is recognised equal to the credit losses expected over the remaining lifetime of the asset.

• Stage 3 – When a financial asset is considered to be credit-impaired, a loss allowance equal to full lifetime expected

credit losses will be recognised.

The stage classification methodology have been developed with the assistance of the ultimate shareholder and in

consultation with external professional expert input.

The determination of a significant increase in credit risk takes into account many different factors and will vary by product

and risk segment. The main factors considered in making this determination are relative changes in the probability-weighted

probability of default since origination. IFRS 9 contains a rebuttable presumption that instruments which are 30 days past

due have experienced a significant increase in credit risk. We do not intend to rebut this presumption. The assessments for

significant increases in credit risk since initial recognition and credit-impairment are performed independently as at each

reporting period. Assets can move in both directions through the stages of the impairment model.

The impact of movements between Stage 1 (12 month expected credit losses) and Stage 2 (lifetime expected credit losses), will

be recorded in profit or loss. Because of the impact of moving between 12-month and lifetime expected credit losses and the

application of forward looking information, provisions are expected to be more volatile under IFRS 9 than IAS 39.

Forward-looking information

The measurement of expected credit losses for each stage and the assessment of significant increases in credit risk must

consider information about past events and current conditions as well as reasonable and supportable forecasts of future events

and economic conditions. The estimation and application of forward-looking information will require significant judgment.

NEW STANDARDS AND INTERPRETATIONS (continued)



2.2 STANDARDS AND INTERPRETATIONS NOT YET EFFECTIVE (CONTINUED)

Impairment (continued)

Our estimation of expected credit losses in Stage 1 and Stage 2 will be a discounted probability-weighted estimate that considers

a minimum of three future macroeconomic scenarios. Upside and downside scenarios will be set relative to our base case

scenario based on reasonably possible alternative macroeconomic conditions. Scenario design, including the identification of

additional downside scenarios will occur on at least an annual basis and more frequently if conditions warrant.

Scenarios will be probability-weighted according to our best estimate of their relative likelihood based on historical frequency

and current trends and conditions. We continue to monitor and refine certain elements of our impairment process in advance

of 31 December 2018 reporting.

Governance

The IFRS9 methodology has been developed with the assistance of the ultimate shareholder and in consultation with external

professional expert input. A committee of senior representatives from Finance and Risk Management of the ultimate shareholder

is responsible for reviewing key inputs and assumptions. Periodic reporting on the progress of the adoption and results of the

parallel run were provided to the committee throughout 2017 in preparation for adoption.

As part of the implementation of IFRS 9, we have designed new controls and governance procedures in several areas that

contribute to the calculation of expected credit losses. These include controls over credit risk data and systems, expected credit

loss models and calculation engine.

IFRS 15 Revenue from Contracts with Customers

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

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

customers and two approaches to recognising revenue: at a point in time or over time. The model features a contract-based

five-step analysis of transactions to determine whether, how much and when revenue is recognised. The standard is effective

for annual periods beginning on or after 1 January 2018.

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

IFRS 16 Leases

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

contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). IFRS 16 replaces the previous leases Standard, IAS 17 Leases,

and related Interpretations. IFRS 16 has one model for lessees which will result in almost all leases being included on the

Statement of Financial Position.

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

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

application of IFRS 16.


NEW STANDARDS AND INTERPRETATIONS (continued)


3. OPERATING SEGMENTS (CONTINUED)

31 December 2017 Cards Loans Other Total R’000 R’000 R’000 R’000

Interest earned 1 142 269 395 698 - 1 537 967

Interest expense (331 132) (81 590) 4 768 (407 954)

Net interest income 811 137 314 108 4 768 1 130 013

Inter-segmental income - - 28 136 28 136

Other income 745 260 140 352 640 886 252

Profit before taxation 387 542 129 118 5 445 522 105

Depreciation and

amortisation 26 472 7 606 - 34 078

Capital expenditure 28 951 11 315 - 40 266

Segment assets 6 813 948 1 702 520 75 423 8 591 891

Segment liabilities (4 832 358) (1 207 404) (59 301) (6 099 063)

South Africa Botswana Namibia Total R’000 R’000 R’000 R’000

Interest earned 1 508 561 18 970 10 436 1 537 967

Other income 871 507 6 694 8 051 886 252

Non-current assets 156 560 - - 156 560

Non-current assets exclude those relating to financial instruments, deferred tax assets, post-employment benefit assets and

assets arising from insurance contracts.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (continued)


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

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

technology and marketing strategies. For each strategic business unit, the RCS Group’s board reviews internal management

reports on a monthly basis. The following summary describes the operations in each of the RCS Group’s reportable segments:

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

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

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

individuals; and

• All other segments include BNP Paribas Personal Finance South Africa Limited, RCS Home Loans Proprietary Limited, RCS

Collections Proprietary Limited and once-off corporate costs.

- BNP Paribas Personal Finance South Africa Limited acts as the external funding vehicle for the RCS Group. Commercial paper

and bonds are issued via this entity (see note 16).

- RCS Home Loans Proprietary Limited’s operations include the servicing of current home loans.

- RCS Collections Proprietary Limited is a registered debt collector.

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

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

customer comprises 10% or more of revenue for the RCS Group.

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

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

profit before income tax, as included in the internal management reports that are reviewed by the RCS Group board. Segment

profit is used to measure performance as management believes that such information is the most relevant in evaluating the

results of certain segments relative to other entities that operate within these industries.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS




3. OPERATING SEGMENTS (CONTINUED)

31 December 2016 Cards Loans Other Total

R’000 R’000 R’000 R’000

Interest earned 1 175 716 295 646 - 1 471 362

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

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

Inter-segmental income - - 25 620 25 620

Other income 671 946 116 908 652 789 506

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

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

Capital expenditure 25 373 5 302 - 30 675

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

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

South Africa Botswana Namibia Total

R’000 R’000 R’000 R’000

Interest earned 1 444 154 17 817 9 391 1 471 362

Other income 777 480 4 960 7 066 789 506

Non-current assets 144 473 - - 144 473

Non-current assets exclude those relating to financial instruments, deferred tax assets, post-employment benefit assets and

assets arising from insurance contracts.

31 December 31 December 2017 2016 R’000 R’000

4. CASH AND CASH EQUIVALENTS

Bank balances 527 670 553 622

Cash on hand 4 1

527 674 553 623




R’000 R’000

5. CARD AND LOAN RECEIVABLES

Demand to one month 628 051 613 754

One to three months 1 112 922 1 037 414

Three months to one year 3 430 664 2 920 450

More than one year 3 072 409 2 388 950

Gross card and loan receivables 8 244 046 6 960 568

Less: allowance for impaired card and loan receivables (709 571) (683 308)

Net card and loan receivables 7 534 475 6 277 260

Analysis of card and loan receivables by type

Card and private label receivables 5 782 900 5 235 452

Personal loan receivables 1 751 575 1 041 808

7 534 475 6 277 260

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

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

from revolving to 36 months. The average effective interest rate for the year under review is 19.90% (31 December

2016: 20.76%).

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

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

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

27.10% (31 December 2016: 28.19%).




5. CARD AND LOAN RECEIVABLES (CONTINUED)

The RCS Group’s management of, and exposure to, market and credit risk is disclosed in note 29.

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

receivables at the reporting date was as follows:


R’000 R’000

Not past due 6 525 704 5 286 316

Past due demand to one month 662 056 614 865

Past due one to two months 176 398 189 064

Past due two to three months 90 043 90 697

Past due more than three months 80 274 96 318

7 534 475 6 277 260

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


2017 2016

R’000 R’000

Balance at beginning of year 683 308 604 695

Allowance for impairment raised 540 641 586 978

Impairment loss recognised (514 378) (508 365)

Balance at end of year 709 571 683 308

As percentage of gross card and loan receivable book 8,61% 9,82%

Customers that are not past due and have a good payment history with the RCS Group make up 86.61% of net card and

loan receivables (31 December 2016: 84.21%).



5. CARD AND LOAN RECEIVABLES (CONTINUED)

Geographical concentration of customers

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

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


2017 2016

Botswana 1,51% 1,64%

Eastern Cape 5,70% 5,54%

Free State 3,75% 3,99%

Gauteng 36,82% 35,22%

KwaZulu-Natal 13,89% 13,92%

Limpopo 3,68% 4,04%

Mpumalanga 11,20% 11,70%

Namibia 1,48% 1,69%

North West 2,57% 2,68%

Northern Cape 2,13% 2,30%

Western Cape 17,27% 17,28%

100,00% 100,00%





2017 2016

R’000 R’000

6. OTHER RECEIVABLES

Other receivables 20 571 7 608

Prepayments 10 499 11 426

VAT - 6 617

31 070 25 651

7. FINANCIAL ASSET MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS

Unlisted investment

- Investment in cell captives 116 422 96 535

During the current financial year the RCS Group has changed the accounting treatment relating to the cell captive

arrangement accounted for as an in substance reinsurance contract in terms of IFRS 4. The arrangement is now accounted

for in terms of IAS 39 and designated as ‘at fair value through profit and loss’.

The risk structure per product is as follows:

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

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

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

Guardrisk Life (RCS Cards Proprietary Limited Cell no. 78)

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

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

Centriq Life Insurance Company Limited

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

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



7. FINANCIAL ASSET MEASURED AT FAIR VALUE THROUGH PROFIT AND LOSS (CONTINUED)

The financial asset consists of the following components:

Reconciliation of financial assets measured at fair value through profit and loss


2017 2016

R’000 R’000


Investment in cell captive 1 000 -

Increase based on shareholders funds of the cell captive - 110 150

Fair value adjustment through profit and loss 18 887 -

Dividend received from the insurer - (108 465)


The investment in the cell captive has a short-term nature, as such the carrying amount of the investment in cell captives

approximates the fair value of the investment in cell captives.

8. DEFERRED TAXATION

Deferred tax asset 109 270 177 424

Reconciliation of deferred tax asset:

At beginning of the year 177 424 172 629

Income statement expense:

- Provisions (27 018) (706)

- Assessed loss (174) 164

- Capital allowances (102) (102)

- Allowance for impaired card and loan receivables (38 043) 22 409

- Provision for recoveries (4 763) (16 487)

- Unrealised loss/(gain) 1 946 (452)

- Change in tax rate (the corporate tax rate in Namibia decreased from 33% to 32%,

effective 1 Jan 2016) - (31)






8. DEFERRED TAXATION (CONTINUED)

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

- Provisions 38 704 65 722

- Assessed loss - 174

- Capital allowances 809 911

- Allowance for impaired card and loan receivables 125 480 163 523

- Provision for recoveries (55 770) (51 007)

- Unrealised loss/(gain) 47 (1 899)

109 270 177 424

9. PROPERTY AND EQUIPMENT

31 December 2017 31 December 2016

Cost Accumulated Carrying Cost Accumulated Carrying depreciation value depreciation value

R’000 R’000 R’000 R’000 R’000 R’000

Computer hardware 54 245 (37 752) 16 493 45 463 (27 530) 17 933

Furniture and fittings 61 803 (35 971) 25 832 61 762 (28 443) 33 319

Leasehold property 9 243 (3 122) 6 121 9 243 (2 198) 7 045

Motor vehicles 11 051 (6 854) 4 197 10 543 (6 428) 4 115

136 342 (83 699) 52 643 127 011 (64 599) 62 412




9. PROPERTY AND EQUIPMENT (CONTINUED)

Reconciliation of carrying amounts:

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

31 December 2017 R’000 R’000 R’000 R’000 R’000

Computer hardware 17 933 8 911 - (10 351) 16 493

Furniture and fittings 33 319 41 - (7 528) 25 832

Leasehold property 7 045 - - (924) 6 121

Motor vehicles 4 115 1 983 (27) (1 874) 4 197

62 412 10 935 (27) (20 677) 52 643

31 December 2016

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

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

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

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

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

There are no restrictions on the title of the assets and none have been pledged as security.

10. INTANGIBLE ASSETS

31 December 2017 31 December 2016

Cost Accumulated Carrying Cost Accumulated Carrying depreciation value depreciation value

R’000 R’000 R’000 R’000 R’000 R’000

Computer software 111 514 (64 452) 47 062 76 257 (51 051) 25 206

111 514 (64 452) 47 062 76 257 (51 051) 25 206



10. INTANGIBLE ASSETS (CONTINUED)

Reconciliation of carrying amounts:

Carrying amount Additions/ Carrying amount

at beginning of year transfers Amortisation at end of year

31 December 2017 R’000 R’000 R’000 R’000

Computer software 25 206 35 257 (13 401) 47 062

25 206 35 257 (13 401) 47 062

31 December 2016

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

24 122 14 030 (12 946) 25 206


11. GOODWILL

Goodwill 56 855 56 855

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

Cash-generating unit

General Purpose Card Division 12 917 12 917

Personal Loan Division 36 481 36 481

MDD Private Label Card Division 7 457 7 457

56 855 56 855

Goodwill is tested annually for impairment and when there is an indication of impairment. The recoverable amount of

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

period, or the fair value less costs to sell. The cash flows have been discounted at a rate of 12% (31 December 2016:

12%). Significant assumptions applied when reviewing the goodwill impairment are that future profits were estimated

using historical information and approved budgets, anticipated growth in advances or turnover and expectations of future

interest rates. The growth rate assumed for the periods beyond five years period was 2% (December 2016: 2%).

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

the carrying amount and therefore no impairment is recognised.





2017 2016

R’000 R’000

12. RELATED PARTIES

Ultimate shareholder

BNP Paribas Société Anonyme 100% 100%

Related party transactions

Amounts owing to BNP Paribas Société Anonyme, South Africa Branch

Funding and interest owing 760 558 -

The funding lines are unsecured and bear interest at a variable rate linked to the relevant JIBAR for the term of the funding.

Transactions with BNP Paribas Société Anonyme

Commitment and guarantee fees payable (11 159) (10 992)

Commitment fees are payable at 0.6% of the unutilised portion of the standby liquidity facility. Guarantee fees are payable at

0.6% of the drawn guaranteed funding.

Transactions with BNP Paribas Société Anonyme, South Africa Branch

Interest expense (34 466) -

Transactions with BNP Paribas Personal Finance Société Anonyme

Management fees payable (8 971) -

Interest of directors in contracts

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

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

Loans to directors

No loans have been made to directors (31 December 2016: nil).

Directors’ and key management compensation

Director’s emoluments

Executive directors’ fees 9 045 16 581

Non-executive directors’ fees 22 160 1 666

31 205 18 247



12. RELATED PARTIES (CONTINUED)

Key management compensation

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

directly or indirectly, including any director of the RCS Group. Directors and executives of the RCS Group have been classified

as key management personnel. No key management personnel had a material interest in any contract of significance with

any Group company during the period under review.


Remuneration paid to key management personnel are as follows:

Short-term benefits 18 156 36 867

Post-retirement benefits 1 748 2 230

Total remuneration 19 904 39 097

13. STATED CAPITALAuthorised

80 000 (31 December 2016: 80 000) Ordinary Shares of no par value - -

Issued

40 000 (31 December 2016: 40 000) Ordinary Shares of no par value 1 936 636 2 386 636

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

A distribution of capital to the shareholder amounting to R200 million was declared (31 December 2016: R450 million).





14. FOREIGN CURRENCY TRANSLATION RESERVE

The foreign currency reserve comprises gains and losses arising on translation of the assets, liabilities, income and

expenses of the foreign operations in Botswana.


Foreign currency translation differences (1 143) (5 267)


15. TRADE AND OTHER PAYABLES

Trade and other payables 410 412 473 559

Leave pay accrual 6 277 5 460

VAT 2 380 -

419 069 479 019

16. FUNDING

By maturity

Demand to one month 299 200 465 000

One to three months 825 000 320 000

Three months to one year 1 345 000 620 000

More than a year 3 210 794 2 920 167

5 679 994 4 325 167

By nature

Domestic medium-term note programme (a) 2 470 000 2 175 000

Term funding (b) 3 209 994 2 150 167

5 679 994 4 325 167

(a) The domestic medium-term notes are denominated in Rands, have a nominal value of R2,47 million (31 December 2016:

R2,175 million), are unsecured and bear interest at variable interest rates linked to the 3 month JIBAR. Maturity as at the

reporting date is as follows: R500 million within one to three months, R570 million within three months to one year and



16. FUNDING (CONTINUED) R 1 400 million after more than one year (31 December 2016: R365 million demand to one month, R170 million within

one to three months, R620 million within three months to one year and R1 020 million after more than one year).

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

at the reporting date is R299.2 million within demand to one month, R325 million within one to three months, R775

million within three months to a year and R1 810,8 million after more than one year (31 December 2016: R100 million

demand to one month, R150 million within one to three months and R1 900,2 million after more than one year).

17. OPERATING LEASES, COMMITMENTS AND CONTINGENT LIABILITIES

Operating leases

The RCS Group occupies the following properties:

Liberty Grande

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

Mowbray Business Park

This is a property leased from Acucap Investments Proprietary Limited, effective 1 November 2014.

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


R’000 R’000

No later than 1 year 23 416 22 394

Between 1 and 5 years 127 766 67 902

Later than 5 years 18 080 57 523

169 262 147 819

Capital commitments

Authorised 40 266 47 320

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

Contingent liabilities

Performance guarantee provided to South African Post Office 4 000 4 000





18. INTEREST EARNED

Card receivables 1 142 269 1 175 716

Loan receivables 395 698 295 646

1 537 967 1 471 362

19. OTHER INCOME

Collection income 54 286 59 131

Cell captive dividend received 108 119 -

Fair value adjustment 18 887 -

Commissions 51 354 -

Net insurance premiums - 191 307

Merchant commission 49 205 59 727

Service and initiation fee income 598 012 471 085

Other income 6 389 8 256

886 252 789 506

During the current financial year the RCS Group has changed the accounting treatment relating to the cell captive

arrangement accounted for as an in-substance reinsurance contract in terms of IFRS 4. The arrangement is now accounted

for in terms of IAS 39 and designated as ‘at fair value through profit and loss’.




20. COST OF RISK

Movement in allowance for impaired card and loan receivables 24 308 78 613

Bad debts recovered (279 323) (241 438)

Bad debts write-off 793 702 749 803

Movement in provision for future recoveries (17 052) (62 076)

521 635 524 902

21. PROFIT BEFORE TAXATION

Included within profit before taxation are the following items:

Amortisation of intangible assets 13 401 12 946

Auditor’s remuneration - external 1 263 1 180

Outsourcing fees 21 409 16 632

Depreciation of property and equipment 20 677 17 560

Donations 2 201 1 818

Legal fees 1 084 821

Manpower costs:

- Salaries 289 885 276 080

- Directors’ emoluments 31 205 18 247

Premises costs 48 664 48 679





22. TAXATIONIncome taxation recognised in the income statement

South African current taxation:

- Current year 39 529 145 691

- Prior year overprovision 4 268 -

Non-South African current taxation:

- Current year 5 860 2 686

- Withholding taxation 802 874

50 459 149 251

Deferred taxation:

- Current year 68 154 (4 826)

- Change in tax rate (the corporate tax rate in Namibia decreased from

33% to 32%, effective 1 Jan 2016) - 31

68 154 (4 795)

118 613 144 456

Reconciliation of the taxation expense

Standard taxation rate 28,00% 28,00%

Non-South African taxation rate (0,07%) (0,05%)

Non-deductible expenditure 0,76% 0,15%

Non-taxable income: other (0,22%) -

Non-taxable income: fair value adjustment (1,01%) -

Non-taxable income: cell captive dividend (5,80%) (0,54%)

Prior year current taxation overprovision 0,91% -

Withholding taxation 0,15% 0,17%

Change in tax rate - 0,01%

Current year’s taxation charge as a percentage of profit before taxation 22,72% 27,74%




23. CASH (UTILISED IN)/GENERATED FROM OPERATIONS

Profit before taxation 522 105 520 709

Adjustments for:

- Amortisation of intangible assets 13 401 12 946

- Depreciation of property and equipment 20 677 17 560

- Foreign currency exchange differences (1 143) (5 267)

- Fair value adjustment though profit and loss (18 887) -

Changes in working capital:

- Increase in card and loan receivables (1 257 215) (315 312)

- Increase in other receivables (5 419) (14 026)

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

- (Decrease)/Increase in trade and other payables (59 950) 32 539

(786 431) 247 464

24. TAXATION PAID

Taxation receivable at beginning of year 69 699 5 935

Current taxation charge (50 459) (149 251)

Taxation receivable at end of year (116 420) (69 699)

(97 180) (213 015)

25. SUBSIDIARIES

Details of the RCS Group’s subsidiaries at 31 December 2017 are as follows:

Place of incorporation Portion of Principal

and operation ownership interest activity

Name of subsidiary and voting power

RCS Botswana Proprietary Limited Botswana 100% Retail credit

RCS Cards Proprietary Limited South Africa 100% Retail credit

RCS Collections Proprietary Limited South Africa 100% Collections

RCS Home Loans Proprietary Limited South Africa 100% Home loans

RCS Investment Holdings Namibia Proprietary Limited Namibia 100% Retail credit




26. INTEREST IN JOINT OPERATIONS

RCS Home Loans Proprietary Limited, a 100% held subsidiary of BNP Paribas Personal Finance South Africa Limited, has entered

into a joint operation partnership with SA Home Loans Proprietary Limited. The joint operation is not material to the RCS Group.

The joint operation offers home loans to qualifying customers, which is in line with the RCS Group’s business of providing credit

to customers. A summary of the results of the joint operation for the current and prior financial years are as follows:


2017 2016

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

R’000 R’000

Current assets 12 020 13 224

Current liabilities 11 686 13 493

Income/(loss) 1 362 (100)

Expenditure 2 512 2 772

Total comprehensive income 975 948

27. EMPLOYEE BENEFITS

Retirement funds

Alexander Forbes Retirement Annuity: Defined contribution plan

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

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

of the retirement annuity benefits. In addition, the employer contributes to death and disability benefits, reinsurance, and

administration and management costs.

Liberty Life Pension Fund: Defined contribution plan

Certain employees and the employer make equivalent contributions in respect of pension fund benefits to the Liberty

Life Pension Fund. In addition, the employers contribute to death and disability benefits, reinsurance, administration and

management costs.

Liberty Life Provident Fund: Defined contribution plan

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

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

Certain permanent employees of RCS Group, excluding those that are employed by RCS Botswana Proprietary Limited and

RCS Investment Holdings Namibia Proprietary Limited, may be members of the provident fund. The employer pays 14%

contributions in respect of provident fund benefits. In addition, the employer contributes to death and disability benefits,

reinsurance, and administration and management costs.




27. EMPLOYEE BENEFITS (CONTINUED)Retirement funds (continued)

Sanlam Retirement Annuity: Defined contribution plan

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

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

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

benefits, reinsurance, and administration and management costs.

Number of members Contributions

Summary per fund 31 December 31 December 31 December 31 December 2017 2016 2017 2016 R’000 R’000

Alexander Forbes Retirement Annuity 7 7 49 22

Sanlam Retirement Annuity 13 12 57 20

Liberty Life Provident Fund 1 190 1 182 24 410 23 734

Liberty Life Pension Fund 8 9 86 77

1218 1 210 24 602 23 853



27. EMPLOYEE BENEFITS (CONTINUED)

Medical aid schemes

BOMaid: Defined contribution plan

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

of their choice offered by BOMaid. Total membership currently stands at 1 (31 December 2016: 2) principal members.

The total payments amounted to R12 516 (31 December 2016: R15 414). The RCS Group has no obligation to fund medical

aid contributions for current or retired employees.

Discovery Health: Defined contribution plan

Certain permanent staff of RCS Cards Proprietary Limited and RCS Home Loans Proprietary Limited are required to become

members of the medical plans of their choice offered by Discovery Health. Total membership currently stands at 708 (31

December 2016: 586) principal members. The total payments amounted to R21 million (31 December 2016: R9 million).

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

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

of their choice offered by Discovery Health. Total membership currently stands at 105 (31 December 2016: 81) principal

members. The total payments amounted to R2.6 million (31 December 2016: R774 502). The RCS Group has no obligation

to fund medical aid contributions for current or retired employees.

28. EVENTS AFTER THE REPORTING PERIOD

A distribution to the shareholder amounting to R200 million was declared after the date of the reporting period but before

the financial statements were authorised for issue (31 December 2016: R450 million).

The directors are not aware of any other matters or circumstances arising between the end of the financial year and the

date of approval of these financial statements that may materially affect the amounts and disclosure contained in the





29. RISK MANAGEMENT

Overview

The RCS Group has exposure to risks from its use of financial instruments.

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

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

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

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

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

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

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

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

in which all employees understand their roles and obligations.

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

risk management framework. The board has established the Board Audit and Risk Committee (“BARC”), the Asset and

Liability Committee (“ALCO”), the RCS Internal Risk and Audit Forum, the Credit Risk Committee and the Social and

Ethics Committee. As a statutory board committee, the BARC is responsible for monitoring the internal and external audit

functions and regulatory compliance for the RCS Group. The ALCO Committee is responsible for developing and monitoring

all affairs pertaining to liquidity risk, interest rate risk, foreign currency risk and capital adequacy risk. The RCS Internal

Risk and Audit Forum is responsible for developing and monitoring the company’s risk management policies, as well as

the audit, accounting, internal control and financial reporting practices. The Credit Risk Committee is responsible for

developing and monitoring credit risk within the RCS Group. The Social and Ethics Committee is responsible for monitoring

the RCS Group’s social and economic development. These committees formally report to the board of directors on its

activities two to four times per annum. The risk management process established by the holding company continues and

feeds into the risk management process established by the RCS Group . The holding company’s risk management process

is in turn managed by the BARC.

The following sub-committees comprising directors, executives and senior management have been established to deal

with the following risks facing the company:

(a) Assets and Liability Committee – liquidity, interest rate, foreign currency, and capital adequacy risk

(b) RCS Internal Risk and Audit Forum – technology, operational and reputational risk

(c) Compliance Forum – legal and compliance risk

(d) Credit Risk Committee – credit risk

(e) Social and Ethics Committee



29. RISK MANAGEMENT (CONTINUED)

Credit risk

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

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

credit limits, continual review and monitoring of these limits. The risk on amounts owing from the RCS Group’s companies

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

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

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

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

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

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

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

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

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

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

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

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

measured fairly.

Credit risk exposure

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

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


2017 2016

R’000 R’000

Cash and cash equivalents 527 674 553 623

Card and loan receivables 7 534 475 6 277 260

Other receivables 20 571 7 608

Financial asset at fair value through profit or loss 116 422 96 535

8 199 142 6 935 026





Regulatory compliance

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

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

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

assurance processes, incident reporting and complaints registers that are maintained, followed up and timeously resolved.

Liquidity risk

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

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

Group’s reputation.

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

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

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

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

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

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

asset liability mismatch situations and to withstand a stressed cash flow scenario within compliance ranges and with remote

risk of default. In terms of its Memorandum of Incorporation, the RCS Group’s borrowing powers are unlimited.

The RCS Group has available unutilised bank facilities to the value of R1.17 billion (31 December 2016: R1.08 billion) and has

shareholder liquidity facilities of R1.5 billion (31 December 2016: R1.5 billion) at the end of the financial year.

Liability cash flows are presented on an undiscounted basis.




Liquidity risk (continued)

Contractual maturities

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

reporting date to the contractual maturity date, including interest:

Carrying Demand to One to Three months More than

amount one month three months to one year one year Total

R’000 R’000 R’000 R’000 R’000 R’000

31 December 2017

Liabilities

Non-derivative financial liabilities

Funding (5 679 994) (299 200) (825 000) (1 345 000) (3 210 794) (5 679 994)

Trade and other payables (410 412) (263 526) (101) (91 149) (55 636) (410 412)

(6 090 406) (562 726) (825 101) (1 436 149) (3 266 430) (6 090 406)

31 December 2016

Liabilities

Non-derivative financial liabilities

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

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

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

Market risk

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

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

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

Currency risk

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

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

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

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





Interest rate risk

The RCS Group is exposed to interest rate risk as it both borrows and lends funds. The RCS Group occasionally enters into

interest rate swap contracts for the purposes of cash flow hedging. These interest rate swaps require the RCS Group to pay

interest at various fixed rates applied to notional amounts and entitle the RCS Group to receive various variable rates applied to

the same notional amounts. The swaps are used to hedge the risk that the RCS Group is exposed to as a result of the fact that a

portion of the RCS Group’s receivables bear interest at fixed rates (refer to note 5 for detail) whilst its borrowings bear interest

at variable rates.

Profile

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

Interest rate Carrying value

31 December 31 December 31 December 31 December 2017 2016 2017 2016 % % R'000 R'000

Fixed rate instruments

Card and loan receivables 24.4 24.7 2 435 359 1 635 203

Financial assets 2 435 359 1 635 203

Variable rate instruments

Card receivables 18.9 20.8 5 099 116 4 642 057

Bank balances 6.8 - 8.8 6.9 - 8.2 527 674 553 623

Financial assets 5 626 790 5 195 680

Fixed rate instruments

Funding 7.8 - 8.2 - 750 000 -

Variable rate instruments

Funding 7.6 - 10.6 7.8 - 12.4 4 929 994 4 325 167

Financial liabilities 5 679 994 4 325 167

Fair value sensitivity analysis for fixed rate instruments

The RCS Group does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the

RCS Group does not designate derivatives (interest rate swaps) as hedging instruments under a fair value hedge accounting

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




Cash flow sensitivity analysis for variable rate instruments

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

equity and profit or loss by the amounts shown below. This analysis assumes that all other variables remain constant.

The sensitivity analysis reflects the impact of a rate change immediately following the reporting date for all assets and liabilities

accounted for at the reporting date. The analysis is performed on the same basis as for the comparative period.

Profit or (loss)

100 bp increase

R’000

31 December 2017

Variable rate financial assets 54 112

Variable rate financial liabilities (50 026)

Cash flow sensitivity net 4 086

31 December 2016

Variable rate financial assets 50 923

Variable rate financial liabilities (42 038)

Cash flow sensitivity net 8 885

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

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

Capital management

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

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

following main objectives:

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

risks;

(b) to provide a certain amount of cover or buffer should unexpected losses take place due to credit risks;

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

the debt in the business;

(d) as a tool that could be increased or decreased to ensure maintenance of an appropriate credit rating level in the

future; and

(e) to facilitate the necessary asset growth objectives in the business.





Capital management (continued)

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

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

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

division and against a particular class of assets:

(a) the historical losses that have taken place on the disposal of assets, bad debt write off and other operational losses;

(b) a view on factors going forward that could cause an asset or category of assets to be obsolete or have a reduction in value;

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

exposure levels from a line of business and the RCS Group perspective will be determined;

(d) review the strategic portfolio of businesses and ensure that capital is allocated to achieve required returns whilst maintaining

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

(e) the length of track record that the business has in terms of using and managing a particular asset class and portfolios within

that asset class; and

(f) review and benchmarking against local and international peers in the financial services, non-banking and banking sectors

where applicable.

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

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




Capital management (continued)

Fair values of financial instruments

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

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

Carrying Total interest value Fair value income/(expense) Impairment R'000 R'000 R'000 'R000

31 December 2017

Assets

Cash and cash equivalents 527 674 527 674 - -

Card and loan receivables 7 534 475 7 534 475 1 537 967 (514 378)

Other receivables 20 571 20 571 - -

8 082 720 8 082 720 1 537 967 (514 378)

Liabilities

Funding (5 679 994) (5 679 994) (407 954) -

Trade and other payables (410 412) (410 412) - -

(6 090 406) (6 090 406) (407 954) -

31 December 2016

Assets

Cash and cash equivalents 553 623 553 623 - -

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

Other receivables 7 608 7 608 - -

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

Liabilities

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

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

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




29. RISK MANAGEMENT (CONTINUED)Fair values of financial instruments (continued)

Fair value hierarchy

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

in making the measurements:

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

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

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

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

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

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

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

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

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

instruments.


THE RCS GROUP · 2018-04-24 · - BCom (Acc), CA (SA), CPA (lsr) Experience: Edwin has vast audit,...

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Transcript of THE RCS GROUP · 2018-04-24 · - BCom (Acc), CA (SA), CPA (lsr) Experience: Edwin has vast audit,...