LEWIS ANNUAL REPORT 2010

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2010

			GROUP
			2010	2009
			Rm	Rm
11	INTEREST-BEARING BORROWINGS
	The group has the following long-term borrowings:
	Maturity date	Interest rate
	August 2011	3 month JIBAR plus 165 basis points	100.0	100.0
	October 2011	3 month JIBAR plus 300 basis points	50.0	–
	July 2012	3 month JIBAR plus 180 basis points	200.0	–
			350.0	100.0

12	DEFERRED TAXATION
	Balance at the beginning of the year (restated)		37.7	1.3
	Movement for the year attributable to:
	Income statement credit		23.8	43.8
	Deferred tax on fair value adjustment in equity		10.0	(7.4)
	BALANCE AT THE END OF THE YEAR		71.5	37.7


	This balance comprises:
	Capital allowances		35.2	20.9
	Debtors allowances		96.2	59.7
	Income and expense recognition		(1.4)	(1.7)
	Other provisions		(58.5)	(41.2)
	BALANCE AT THE END OF THE YEAR		71.5	37.7


	Disclosed as:
	DEFERRED TAX ASSET		(13.0)	–
	DEFERRED TAX LIABILITY		84.5	37.7
			71.5	37.7

13	RETIREMENT BENEFITS
	AMOUNTS RECOGNISED IN THE BALANCE SHEET
	Defined benefit retirement plan liability		8.0	11.2
	Post-retirement healthcare benefits		43.8	42.7
			51.8	53.9

	RETIREMENT PLANS
	The group operates a number of retirement funds, all of which are held separate from the group’s assets. There are three defined contribution funds, namely the Lewis Stores Provident Fund; the Lewis Stores Namibia Provident Fund for Namibian employees; and the SACCAWU Provident Fund for employees belonging to SACCAWU Trade Union. In addition, there are two defined benefit funds, namely the Lewis Stores Group Pension Fund which was closed to new members on 1 July 1997; and the Lewis Stores Retirement Fund for executive management. Both defined benefit plans are registered under the Pension Funds Act No. 24 of 1956.

			No. of	No. of
	The number of employees on these plans are as follows:		employees	employees
	Lewis Group Pension Fund		243	273
	Lewis Stores Retirement Pension Fund		32	32
	SACCAWU Provident Fund		767	640
	Lewis Stores Provident Fund		3 342	3 074
	Lewis Stores Namibia Provident Fund		135	124

	DEFINED BENEFIT PLANS
	The defined benefit funds are final salary defined benefit plans. These schemes are valued by an independent actuary on an annual basis in terms of IAS 19 using the projected unit credit method. The latest valuation was carried out as at 1 January 2010.

			2010	2009
			Rm	Rm
	AMOUNTS RECOGNISED IN THE BALANCE SHEET
	Present value of obligations		325.9	331.0
	Fair value of plan assets		(325.0)	(324.6)
			0.9	6.4
	Unrecognised actuarial gains		7.1	4.8
	Defined benefit retirement plan liability		8.0	11.2

	AMOUNTS RECOGNISED IN THE INCOME STATEMENT
	Current service cost		11.0	11.4
	Interest cost		27.1	28.8
	Expected return on plan assets		(29.8)	(35.1)
	Past service cost		4.0	–
	Net actuarial losses recognised in the year		1.4	2.5
	Total included in staff costs		13.7	7.6
	MOVEMENT IN RETIREMENT BENEFIT LIABILITY
	Present value at the beginning of the year		11.2	16.9
	Income statement charge		13.7	7.6
	Contributions paid during the year		(16.9)	(13.3)
	Present value at the end of the year		8.0	11.2

	PRESENT VALUE OF DEFINED BENEFIT OBLIGATIONS
	Beginning of year		331.0	345.8
	Current service cost		11.0	11.4
	Interest cost		27.1	28.8
	Employee contributions		1.6	1.7
	Benefit payments		(71.5)	(36.6)
	Actuarial loss/(gain)		26.7	(20.1)
	End of year		325.9	331.0
	FAIR VALUE OF DEFINED BENEFIT PLAN ASSETS
	Beginning of year		324.6	362.1
	Employee contributions		1.6	1.7
	Employer contributions		16.7	13.1
	Expected return		29.8	35.1
	Benefit payments		(71.5)	(36.6)
	Actuarial gain/(loss)		23.8	(50.8)
	End of year		325.0	324.6
	PRINCIPAL ACTUARIAL ASSUMPTIONS USED WERE AS FOLLOWS:
	Discount rate		9.00%	9.00%
	Expected return on plan assets		10.00%	10.00%
	Inflation rate		6.00%	6.00%
	Future salary increases		7.00%	7.00%
	Future pension increases		6.50%	6.50%

	Assumptions regarding future mortality experience are based on advice, published statistics and experience. The average life expectancy in years of a pensioner retiring at age 65 on valuation date is as follows:
	Male		13.6 years	13.7 years
	Female		15.6 years	15.7 years
	Actual return on plan assets		18.3%	(5.4%)
	The employer’s future contribution is set on an annual basis in consultation with the fund’s actuary. The expected return on plan assets (net of tax) is obtained by applying the expected long-term rate of return (net of tax) on plan assets to the fair value of plan assets.

			GROUP
			2010	2009
			%	%
	PLAN ASSETS
	The major categories of plan assets as a percentage of the fair value of the total
	plan assets are as follows:
	Cash		17.2	22.9
	Bonds		17.5	12.7
	Equity		46.6	49.1
	International equity		15.0	9.4
	Property		2.9	3.7
	Other		0.8	2.2
			100.0	100.0

		Experience adjustments’
		Obligation	gain/(loss)
			Plan	Plan
			assets	liabilities
	TRENDS	Rm	Rm	Rm
	2010	325.9	23.8	(26.7)
	2009	331.0	(50.8)	20.1
	2008	345.8	24.4	(22.3)
	2007	303.2	35.4	(22.8)
	2006	269.9	24.6	(18.8)
	2005	242.5	11.3	(24.0)

			2010	2009
			Rm	Rm


	DEFINED CONTRIBUTION PLANS
	For defined contribution plans, the group pays contributions to the funds on a contractual basis. Once the contributions have been paid, the group has no further payment obligations.

	Defined contribution plan costs		21.6	18.8
	POST-RETIREMENT HEALTHCARE BENEFITS
	The group provides a subsidy of medical aid contributions to retired employees. Only those employees employed prior to 1 August 1997 qualify for this benefit. The liability was valued as at 31 March 2010 by a qualified actuary in accordance with the requirements of IAS 19. The group has a commitment to meet these unfunded benefits.

	AMOUNTS RECOGNISED IN THE INCOME STATEMENT
	Current service cost		0.9	0.9
	Interest cost		3.5	3.3
	Actuarial gain		(1.3)	(0.4)
	Income statement charge		3.1	3.8


	MOVEMENT IN POST-RETIREMENT HEALTHCARE LIABILITY
	Present value of liability at the beginning of the year		42.7	40.8
	Charged to income statement		3.1	3.8
	Employer benefit payments		(2.0)	(1.9)
	Post-retirement healthcare benefits liability		43.8	42.7

	PRESENT VALUE OF POST-RETIREMENT HEALTHCARE OBLIGATIONS
	Beginning of year		42.7	40.8
	Current service cost		0.9	0.9
	Interest cost		3.5	3.3
	Benefit payments		(2.0)	(1.9)
	Actuarial gain		(1.3)	(0.4)
	End of year		43.8	42.7


	PRINCIPAL ACTUARIAL ASSUMPTIONS USED WERE AS FOLLOWS:
	Healthcare inflation rate		5.75%	5.75%
	CPI inflation		5.25%	5.75%
	Discount rate		9.00%	9.00%
	Average retirement age (years)		63	63

	SENSITIVITY		Increase	Decrease
	The effects of a 1% movement in the assumed medical aid inflation rate were
	as follows:
	Effect on aggregate of the current service and interest cost		0.7	(0.6)
	Effect on defined benefit obligation		5.7	(4.7)

				Experience
				adjustments
	TRENDS		Obligation	gain/(loss)
	The trends of the present value of the obligation and experience adjustments
	are as follows:
	2010		43.8	1.1
	2009		42.7	0.2
	2008		40.8	0.2
	2007		40.5	2.4
	2006		41.2	4.9
	2005		34.7	(2.7)

			GROUP
			2010	2009
			Rm	Rm
14	TRADE AND OTHER PAYABLES
	Trade payables		64.1	84.8
	Accruals and other payables		134.4	142.9
	Due to reinsurers		121.1	105.3
	Insurance provisions		130.4	71.1
			450.0	404.1


15	SHORT-TERM INTEREST-BEARING BORROWINGS
	These borrowings are unsecured. The average closing interest rate on these borrowings was 9.00% (2009: 12.08%)		611.4	637.0
			611.4	637.0


16	INSURANCE PREMIUMS EARNED
	Gross insurance premiums		732.6	645.8
	Reinsurance commission		183.2	197.3
	Reinsurance premiums		(299.8)	(261.7)
			616.0	581.4


17	COST OF MERCHANDISE SALES
	Purchases		1 312.6	1 315.9
	Movement in inventory		18.0	2.4
	Cost of merchandise sales		1 330.6	1 318.3
	Merchandise gross profit		714.9	601.6


18	DIRECTORS AND EMPLOYEES
	18.1	Employment costs
		Salaries, wages, commissions and bonuses	550.4	497.5
		Retirement benefit costs	38.4	30.2
		Share-based payments	10.9	10.6
		Other employment costs	7.7	3.7
			607.4	542.0


	18.2	Share-based payments
		As the fair value of the services received cannot be measured reliably, the services have been valued by reference to the fair value of shares and options granted. The fair value of such options and shares is measured at the grant date using the Black-Scholes model.

		In terms of IFRS 2, share-based payments are required to be expensed over the vesting period. Any accelerated vesting of the awards and options requires immediate recognition of the unrecognised portion.

		VALUE OF SERVICES PROVIDED:
		In respect of share awards and options granted subsequent to date of listing (refer note 18.3)	10.9	10.6

			R	R
		Significant assumptions used were:
		Weighted average share price	50.85	47.52
		Weighted average expected volatility	63.1%	48.7%
		Weighted average expected dividend yield	6.5%	6.5%
		Weighted average risk-free rate (bond yield curve at date of grant)	8.6%	9.7%

	18.3	Share incentive schemes
		The employee share incentive schemes are in operation for employees, executives and directors holding salaried employment office. The aggregate number of shares which may be utilised for these schemes shall not exceed 10% of the issued share capital of the company.

		LEWIS ALL EMPLOYEE SHARE SCHEME	No. of shares and options
		In terms of the rules of the share scheme, participants are granted an award to receive shares for no consideration. Participants will only receive their share award if they remain in the employ of the group until vesting date. Share awards under this scheme usually vest between two and four years.
		Beginning of year	6 080	–
		Granted	–	6 080
		Forfeited	–	–
		Vested and exercised by payment of consideration	–	–
		End of year	6 080	6 080

		LEWIS EXECUTIVE PERFORMANCE SCHEME
		In terms of the scheme, senior executives have been offered the right to acquire shares of the group for no consideration subject to the achievement of performance targets. The shares will vest after three years and is conditional upon the executive still being in the employ of the company other than in the event of death, ill health, retirement or retrenchment. The performance targets are set by the Remuneration and Nomination Committee and are approved by the board. These targets will be set at the beginning of each of the three years and a proportionate number of the shares granted will be allocated to each year. No performance shares will accrue if the group achieves less than 90% of target. Any achievement between 90% and 100% of target will result in a proportionate accrual of shares weighted towards 100% of target.


		Beginning of year	572 971	294 312
		Granted	890 303	287 747
		Forfeited	(82 201)	(5 333)
		Vested	(139 957)	(3 755)
		End of year	1 241 116	572 971

		LEWIS CO-INVESTMENT SCHEME
		Senior executives are eligible for an annual bonus based on achievement of performance targets. These eligible executives can elect to invest all or part of their net bonus in the group’s shares (“invested shares”).

		These shares are deferred for three years and matching shares equal to the before tax bonus are awarded for no consideration at the end of the period. The matching share award will lapse should the executive terminate his or her employment before the completion of the three-year period other than in the event of death, ill health, retirement or retrenchment.

		The grant in respect of the matching share option is as follows:
		Beginning of year	217 535	167 321
		Granted	49 582	50 214
		Forfeited	–	–
		Vested	(128 198)	–
		End of year	138 919	217 535

		Invested shares paid for through the investment of executives’ net bonuses amounted to 83 350 shares (2009: 130 518 shares). These shares are held by the Trust on the executives’ behalf.

				GROUP
				2010	2009
				R	R
	18.4	Directors’ emoluments
		NON-EXECUTIVE DIRECTORS – FEES AS DIRECTORS
			D M Nurek	576 000	533 000
			H Saven	407 000	372 000
			B van der Ross	295 000	273 000
			F Abrahams	295 000	273 000
			M S P Marutlulle⁽¹⁾	89 000	–
			Z Bassa⁽¹⁾	128 000	–
			A J Smart⁽¹⁾	109 000	–
				1 899 000	1 451 000
		⁽¹⁾	M S P Marutlulle and Z Bassa were appointed as directors on 1 October 2009 and A J Smart became a non-executive director on 1 October 2009.

		EXECUTIVE DIRECTOR – A J SMART (PAID BY SUBSIDIARY)
			Salary	1 324 740	2 440 000
			Bonuses paid during the year	1 098 000	1 120 000
			Contributions to pension scheme	211 958	390 400
			Contribution to medical aid	25 404	46 488
			Other material benefits	99 200	158 400
			Gains on share awards	5 178 480	–
				7 937 782	4 155 288

		EXECUTIVE DIRECTOR – J ENSLIN (PAID BY SUBSIDIARY)⁽²⁾
			Salary	1 857 312	n/a
			Bonuses paid during the year	675 000	n/a
			Contributions to pension scheme	297 170	n/a
			Contribution to medical aid	62 538	n/a
			Other material benefits	53 394	n/a
			Gains on share awards	1 360 656	n/a
				4 306 070	n/a
		⁽²⁾	The above remuneration is for the whole year, although J Enslin was only appointed on 1 October 2009.

		EXECUTIVE DIRECTOR – L A DAVIES (PAID BY SUBSIDIARY)
			Salary	1 677 864	1 283 335
			Bonuses paid during the year	630 000	550 000
			Contributions to pension scheme	268 458	205 333
			Contribution to medical aid	75 486	66 289
			Other material benefits	–	172 320
			Gains on share awards	1 433 952	–
				4 085 760	2 277 277

		GAINS ON SHARE AWARDS – EXECUTIVE DIRECTORS
		A J Smart
			Share awards vested	102 759	–
			Offer date	30 June 2006	–
				19 June 2007	–
			Date vested	30 June 2009	–
				22 Sept 2009
			Exercise price	–	–
			Exercise cost	–	–
			Sale proceeds	5 178 480	–
			Gain	5 178 480	–

		J Enslin
			Share awards vested	28 347	n/a
			Offer date	30 June 2006	n/a
			Date vested	30 June 2009	n/a
			Exercise price	–	n/a
			Exercise cost	–	n/a
			Sale proceeds	1 360 656	n/a
			Gain	1 360 656	n/a

		L A Davies
			Share awards vested	29 874	–
			Offer date	30 June 2006	–
			Date vested	30 June 2009	–
			Exercise price	–	–
			Exercise cost	–	–
			Sale proceeds	1 433 952	–
			Gain	1 433 952	–

				2010	2009
				No. of shares/options
		OUTSTANDING SHARE AWARDS AND OPTIONS – EXECUTIVE DIRECTORS
		Share awards under Lewis Executive Performance Scheme granted (refer note 18.3):
		Granted on 30 June 2006:
			A J Smart	–	44 753
			L A Davies	–	22 287
		Granted on 11 June 2007:
			A J Smart	34 718	34 718
			J Enslin	17 049	n/a
			L A Davies	17 049	17 049
		Granted on 24 June 2008:
			J Enslin	35 057	n/a
			L A Davies	35 057	35 057
		Granted on 10 June 2009:
			J Enslin	34 669
			L A Davies	34 782
		Granted on 17 September 2009:
			J Enslin	120 000
			L A Davies	80 000
		Matching share options under Lewis Co-Investment Scheme (refer note 18.3):
		Granted on 30 June 2006:
			A J Smart	–	36 344
			J Enslin	–	n/a
			L A Davies	–	12 044
		Granted on 19 June 2007:
			A J Smart	–	30 756
			J Enslin	15 379	n/a
			L A Davies	13 840	13 840
		Granted on 24 June 2008:
			J Enslin	16 345	n/a
			L A Davies	16 345	16 345
		Granted on 10 June 2009:
			J Enslin	13 924
			L A Davies	12 995
		The Trust holds 53 296 shares (2009: 65 596 shares) on their behalf by virtue of the investment of their bonuses into the scheme.

				Rm	Rm
	18.5	Remuneration of key executives
		Salary		8.8	9.0
		Bonus		3.6	3.5
		Retirement and medical contributions		1.8	1.4
		Other benefits		0.5	1.3
		Gains on share awards vested		9.5	–
				24.2	15.2

		Key executives compromise the directors of Lewis Stores (Proprietary) Limited, the main operating subsidiary.

19	DEBTOR COSTS
	Bad debts, repossession losses and bad debt recoveries			331.5	201.9
	Movement in doubtful debts provision			102.7	136.9
				434.2	338.8


20	LEASE COMMITMENTS
	The group leases the majority of its properties under operating leases.
	The lease agreements of certain store premises provide for a minimum annual rental payment and additional payments determined on the basis of turnover.

	Payments on a cash flow basis:
	Within one year			101.5	96.3
	Two to five years			150.9	181.5
	Over five years			–	–
				252.4	277.8
	Payments on a straight line basis:
	Within one year			98.2	95.0
	Two to five years			137.8	166.5
	Over five years			–	–
				236.0	261.5

Annual financial statements

NOTES TO THE ANNUAL FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 MARCH 2010