LIMITED - ShareData · Scope and boundary of the report The Integrated Annual Report covers the...

Integrated Annual Report 2014

LIMITED

Contents

1 Integrated reporting

2 Highlights

3 Strategy

4 Performance summary

5 Business philosophy

6 Mission

6 Operational footprint

7 Group at a glance

8 Financial highlights

9 Performance indicators

11 Letter to stakeholders

14 Directorate

16 Management

19 Chief Financial Officer’s report

24 Historic review 2008 – 2014

26 Review of group’s main functions

30 Human resources

32 Corporate governance report

35 Corporate structure

38 Risk management

44 Remuneration report

49 Transformation report

50 Audit and risk report

54 Summarised consolidated financial statements

62 Shareholder and other information

64 Value added statement

65 Definitions

67 Stakeholder relations

68 Notice of annual general meeting

Form of proxy – attached

IBC Corporate information

IBC Shareholders’ diary

Integrated reporting

Holdsport Limited is pleased to present its Integrated Annual Report to stakeholders, being for the 2014 financial period, in accordance with the principles contained in the King Code of Governance for South Africa 2009 (King III).

As a JSE-listed company we support the principle of integrated reporting which provides us with the opportunity to show how our sustainable business practices can create and sustain value, and ensure the short-, medium- and longer-term viability of Holdsport Limited and its subsidiaries (the group).

At the same time, this report sets out to provide a greater understanding of the group’s strategy and business model and its impact on economic, social and environmental systems. It also offers an insight into how the group’s business is managed.

Holdsport Limited is committed to transparent, balanced and relevant disclosure and has aimed to demonstrate this in its financial reporting to shareholders.

Scope and boundary of the report The Integrated Annual Report covers the activities and performance of the group, which includes Sportsmans Warehouse, Outdoor Warehouse and Performance Brands, for the year ended 28 February 2014. The group operates principally in South Africa and generates the majority of its revenue and profit in this country. It has one store in Namibia.

The financial reporting contained in the Integrated Annual Report complies with International Financial Reporting Standards (IFRS), which have been applied in relation to the annual financial statements. We have applied the principles of King III relating to integrated reporting and have also considered the guidelines contained in the discussion paper of the integrated reporting committee.

We have further applied the principle of materiality in determining the content and levels of disclosure throughout the Integrated Annual Report.

External assuranceThe group has not sought external verification of the content of the Integrated Annual Report.

The group’s external auditor, KPMG Inc., has provided assurance on the financial statements, as confirmed in the Independent Auditor’s Report.

Content of the reportThe Integrated Annual Report is targeted primarily at our shareholders, potential investors and the broader investment community. It has been prepared to assist these stakeholders in making a more informed assessment of the group’s ability to create and sustain value.

The group has applied the provisions of the Companies Act No. 71 of 2008 (“the Companies Act”), which allows for summarised financial statements as contained in this Integrated Annual Report to be distributed to shareholders. Our 2014 annual financial statements are available on our website and printed copies shall be provided to shareholders on request.

The following information is available online at www.holdsport.co.za:

• IntegratedAnnualReport

• AnnualFinancialStatements

• GlobalReportingInitiative

• KingRegisterofCompliance

Forward-looking statementsThis Integrated Annual Report contains certain forward-looking statements which relate to the financial position and results of the operations of the group. These statements by their nature involve risk and uncertainty as they relate to events and depend on circumstances that may occur in the future. Factors that could cause actual results to differ materially from those in the forward-looking statements include, but are not limited to, global and national economic conditions, changes in trading space, interest rates, merchandise clearance rates, inventory levels, gross and operating margins achieved, and competitive and regulatory factors. These forward-looking statements have not been reviewed or reported on by the group’s external auditors.

Approval of the integrated annual reportThe board acknowledges its responsibility to ensure the integrity of the report. The directors confirm they have collectively assessed the content of the Integrated Annual Report and believe it addresses the material issues and is a fair representation of the integrated performance of the group. The board has approved the 2014 Integrated Annual Report for release to stakeholders.

Syd MullerNon-executive Chairman

Kevin HodgsonChief Executive Officer

Holdsport Integrated Annual Report 2014 1

Highlights

The group’s history dates back to 1986 when the first Sportsmans Warehouse was opened in Rondebosch. It was the first sporting goods superstore of its kind in South Africa and remains dedicated to the active sporting enthusiast by providing customers with quality branded merchandise at competitive prices.

The group has a national store network operating the Sportsmans Warehouse and Outdoor Warehouse retail chains.

These chains operate large-format stores mostly located in value centres in recognised retail nodes throughout South Africa. Holdsport also owns Performance Brands, a rapidly expanding outdoor apparel and equipment wholesaler. The group is firmly associated with South Africans’ love of sport and the outdoors.

Holdsport has been listed on the JSE Limited since 18 July 2011.

Holdsport Limited is a leading South African

cash retailer and a wholesaler selling

sport, leisure and recreational

merchandise.

Total sales up 3.1%

Operating margin at 17.6%

Core headline earnings up by 1.9% to 423.3 cents per share 1.9%

Total gross dividend of 220 cents per share for the

year, up 10.0% from last year10.0%

Investments in wholesale and retail distribution capacity completed

Trading density (R’000 per m2)

201116.4

200914.0

201318.4

200814.4

201217.4

201014.7

201418.1

2

Strategy

Increasing sales from existing stores. Holdsport has increased trading densities in existing stores over time. Product development in the sporting and outdoor retail industry is rapid, and successful product innovation and adoption of new trends is key to driving future growth.

Holdsport has an operational advantage over its competitors as its large-format stores facilitate the introduction of new products and product categories.

Expanding distribution.There are a number of areas that management is exploring in delivering product to its customers outside of the traditional store environment, and specifically through internet sales.

Continuing to expand exclusive offerings. Holdsport will continue to procure new and exclusive products that will support the group’s differentiated position in the market.

Expanding its store base using its proven store model. Holdsport’s compelling store economics and its successful track record of opening profitable new stores provides it with a strong foundation for continued growth through new store openings. Holdsport foresees opportunity and demand for opening new stores. Holdsport’s future store openings will be in existing markets as well as adjacent markets.

Leveraging Holdsport’s supply chain excellence. The group has accumulated expertise in its merchandise department and its successful wholesale operation and there is capacity to leverage this expertise to enhance the growth of the business.

Geographic expansion. Holdsport has one store outside of South Africa, in Windhoek, Namibia, and the group is well positioned to leverage its platform in South Africa and Namibia for expansion into sub-Saharan Africa as these markets develop.

Organic and acquisitive initiatives exist to drive future growth. Holdsport plans to continue to strengthen its position as South Africa’s leading dedicated sporting and outdoor retailer through:

Total retail space at end of year (gross square metres)

201166 808

200966 740

201373 896

200861 926

201268 882

201067 593

201476 496


Performance summary

Achievements• Holdsport maintained strong operating margins in a challenging environment.

• Core headline earnings per share increased by 1.9% to 423.3 cents.

• The group opened two new stores during the period, closed one store and expanded one store, with a weighted increase in trading area of 5.7% relative to the prior corresponding period. It has successfully concluded lease agreements for a further two new stores, three relocations and three expansions in 2015.

• The group completed construction of and moved into the new retail and wholesale distribution centres.

Challenges• High levels of competition and the risk of overtrading in the industry.

• Threat of increasing inflation and resulting increase in interest rates could impact on customers’ purchasing habits and consumption.

• Continuous increases in fuel, electricity and property rates expenses above the general inflation rate.

Strategic focus areas• Expansion of the store base and evolution of the in-store experience.

• Evolution of online sales offer and digital contact with customers.

• Relentless focus on efficiencies.

• The development and retention of key staff and the promotion of transformation in the group.

Moresport distribution centre

4

Business philosophy

Business model“large stores with genuine range and depth of product”Holdsport pioneered the concept of large-format destination stores dedicated to the active sport and outdoor enthusiast, and in so doing, transformed the South African sporting goods landscape.

The group aims to provide the widest possible range of brands and products in an authentic environment with well-trained, knowledgeable staff providing customers with high levels of service and advice.

In addition the group seeks to utilise its scale to ensure that this proposition is delivered to customers in the most efficient manner, thereby providing genuine value to customers.

Market position“the most authentic national retailer of sporting and outdoor goods”The South African sporting and outdoor retail market is growing and vibrant. Holdsport has a differentiated position in this market-place, offering genuine range and depth of product across equipment, footwear and apparel in large-format stores, and as such is the most authentic national retailer of sporting and outdoor goods.

Holdsport’s key competitive strengths include:

(i) a strong market position in an attractive segment;

(ii) differentiated merchandising and value-for-money proposition;

(iii) distinctive retail experience;

(iv) well-known brand names;

(v) compelling store economics;

(vi) proven track record of delivering profitable growth and operational excellence; and

(vii) an experienced management team with a significant shareholding in the business.


Mission

Port Elizabeth

East London

Cape Town

Bloemfontein

Rustenburg

Kimberley

NAMIBIA

Windhoek

Pietermaritzburg

Polokwane

Nelspruit

• providing the widest range of unique, innovative quality product;

• offering service excellence; and

• providing a dynamic customer-orientated store environment.

Operational footprint

Cape Town Rondebosch Tokai Canal Walk Bellville Somerset West Parklands Sea Point

Pretoria Centurion Atterbury Zambezi Drive Pretoria East

Johannesburg East Rand Cresta Park Meadows The Glen Westgate Fourways Modderfontein Woodmead Struben’s Valley Boksburg

Great Gauteng – PWV Westrand Witbank Klerksdorp Vanderbijl Park Alberton

Durban Pavilion Gateway Springfield

Sportsmans Warehouse Outdoor Warehouse

To be a credible, world-class retailer of sports-

and outdoor-related equipment, apparel and footwear that generates

superior returns by: Holdsport sustains its credibility through ongoing training and development of staff.

Durban

Pretoria

JohannesburgGreater PWV

6

Group at a glance

Sportsmans Warehouse is positioned to support the needs of all sporting enthusiasts, from the beginner to competitive participants.

Sportsmans Warehouse operated 34 stores across South Africa at year-end and one store in Windhoek, Namibia.

“Winning starts here!”The chain offers a broad range of sports equipment, footwear and apparel and caters for all of the major South African team and individual sports. It offers all the major brands and a number of its own private label products.

The chain increased sales by 4.3% and operating profit by 9% in a challenging year. It opened one new store in Sea Point and closed its store in Amanzimtoti.

Sportsmans Warehouse continued to expand its core propositions of range and service to strengthen its position as the headquarters for sporting goods.

Outdoor Warehouse assists its customers to prepare

“for every adventure!”The chain sells a wide range of outdoor and camping equipment, apparel and related merchandise for adventure activities. The chain is focused on camping, hiking, off-road and general open-air recreation. School holidays are important trading periods for Outdoor Warehouse.

Outdoor Warehouse had 20 stores throughout South Africa at year-end and increased sales by 0.2% from last year. Like-for-like store sales reduced by 3.9% and operating profit declined by 6.6% from last year.

The chain opened one new store in Rondebosch during the year.

Performance Brands is a multi-brand developer and wholesaler of technical apparel and equipment. Its portfolio includes the iconic First Ascent and Capestorm brands and specialised cycling equipment by BBB. The company completed construction of an additional warehouse during the year in order to expand its distribution capacity and maintain high levels of stock availability for its customers.

The company’s products are distributed nationally through independent outlets as well as Holdsport-owned stores. Sales to external customers decreased by 1.5% from last year but increased by 26.9% to Outdoor and Sportsmans Warehouse and by 11.7% in total.

Total sales73.5%

Total sales22.8%

Total sales3.7%


Financial highlights

Financial highlights and salient features % change2014

Audited2013

Audited

Total sales (Rm) 3.1 1 417.6 1 374.5

– Retail sales (Rm) 3.3 1 365.1 1 321.3

– Wholesale sales (Rm) (1.4) 52.5 53.2

Operating profit before finance charges (Rm) 2.8 250.0 243.3

EBITDA (Rm) 4.0 292.7 281.4

Profit before tax (Rm) 3.3 242.5 234.7

Core headline earnings (Rm) 1.9 182.7 179.4

Headline earnings (Rm) 3.0 173.2 168.3

Total equity (Rm) 10.8 900.9 813.1

Total liabilities (Rm) (5.1) 307.2 323.6

– Bank loans (Rm) 4.6 130.0 124.3

– Other liabilities, including trade payables (Rm) (11.0) 177.3 199.3

Net borrowings (Rm) (17.7) 72.4 88.0

Core headline earnings per ordinary share** (cents) 1.9 423.3 415.7

Headline earnings per ordinary share* (cents) 2.9 401.5 389.9

Earnings per ordinary share* (cents) 3.1 402.6 390.5

Net tangible asset value per ordinary share** (cents) 40.0 789.6 564.2

Total dividend per share (cents) 10.0 220.0 200.0

– interim 7.1 75.0 70.0

– final 11.5 145.0 130.0

Gross number of shares in issue (millions) – 43.2 43.2

Net number of shares in issue (millions) – 43.2 43.2

Weighted average number of shares in issue – 43.2 43.2

Closing US$ exchange rate 22.2 10.80 8.84

Average US$ exchange rate 19.1 9.98 8.38

* Based on the weighted average number of shares in issue.** Based on the actual number of shares in issue.

8

Performance indicators

Financial 2014 2013

Gross margin (%) 48.2 47.8

Trading expenses to total sales (%) 31.0 30.3

Operating margin (%) 17.6 17.7

ROE (%) 20.3 21.8

Current ratio (times) 4.0 1.6

Debt:equity ratio (%) 14.4 15.3

Total liabilities to total equity (%) 34.1 39.8

Net borrowings to EBITDA (times) 0.2 0.3

Finance charge cover (times) 25.0 20.9

EBITDA finance charge cover (times) 29.3 24.1

Cash conversion (%) 66.1 56.9

Dividend cover by core headline earnings (times) 1.9 2.1

Number of stores 55 54

Retail trading space (m2) 76 496 73 896

Stock turn (times) 2.1 2.2

Other performance indicators % change 2014 2013

Value added (Rm) – Refer page 64 5.2 462.9 440.0

Total number of stores 1.9 55 54

Total number of distribution centres – 2 2

Electricity consumption (KWH) 2.6 15 149 14 766

Total number of employees at year-end:

Permanent full-time employees 1.5 1 266 1 247

Flexitime employees (24.6) 611 810

Employee turnover (%) (10.1) 34.9 38.8

Employment equity (% representation of previously disadvantaged groups among permanent employees)

Non-executive directors – 50.0 50.0

Top management – – –

Senior management 42.6 30.6 21.4

Specialists and middle management (16.1) 47.6 56.8

Skilled technical and junior management (7.8) 80.5 87.4

Semi and unskilled employees 4.4 90.2 86.4


10

Letter to stakeholders

Economic, social and trading environmentThe period under review was characterised by growing certainty in the recovery of the Eurozone and the US which contrasted starkly with the uncertainty in the local economy.

South Africa can be proud of once again holding elections that were free and fair and with little violence and intimidation. The results of the elections reflected a growing polarisation between centrist parties and those of the left. It is plain to see that the forces that advocate maximum state intervention are growing.

Should the government bow to these pressures then the impact on the country in general and business in particular will be severe. It is perhaps lost in these debates that calls for nationalisation simply transfer the risk of business failure from the private sector to taxpayers. The regular calls for funding and support from State enterprises such as SAA and Eskom should be sufficient to demonstrate the injudiciousness of such policies.

Probably the most significant element of uncertainty relates to labour relations. Nowhere is this more aptly demonstrated than the negative effects of the extended strike on the Platinum Belt which have been felt throughout the economy. The suffering of the workforce and the loss of earnings by the mines directly impacts business and the economic health of the country and influences customers’ ability and appetite to spend.

The calling for strike action in the metal and other industries could be even more devastating and one can only hope that all parties will draw lessons from the Platinum Belt strike and ensure that protracted industrial activity does not repeat itself. Should this strike take hold it will blunt the positive impact that the improvement in Western economies should have on our exports. The knock-on effect of this on businesses and consumers fundamentally affects retail spending.

We stated in our report of last year that government needed to proceed with the implementation of the NDP with a greater degree of resolution and urgency. While it is difficult to find evidence of this it is hoped that the renewed mandate given to the government will ensure an assertive roll-out of this plan.

There is of course significant concern that the fiscal and monetary constraints that have been brought to bear as a result of slow growth, strike activity and higher interest rates could restrict the funds available for the substantial government spending called for in the NDP.

Government will need to be resolute to ensure that critical infrastructure development is not sacrificed for higher short-term consumption expenditure.

The increase in the consumer price index has broken through the 6% upper limit set by the Reserve Bank and this may result in further upward interest rate adjustments taking place in the near future, with an obvious impact on our customers.

An important message arising from the election results is that slow and inefficient service delivery and high levels of corruption will no longer be tolerated. It appears that government is taking these calls more seriously. Too many of our fellow South Africans live in dire circumstances and the future of our country could well be determined by how their lives are improved.

There is no doubt that these factors together with rating downgrades and other less than business-friendly legislation provide the underlying reasons for the significant decline in the level of business and consumer confidence in the economy.

However, there are important countervailing forces that need to be taken into account.

While interest rates are forecast to increase they are still at low levels and there does not appear to be strong pressure for rates overseas to increase. This supports a higher level of customer spending. Relatively low interest rates are however dependent on the inflation outlook and so it is critical that this be maintained to avoid the impact on disposable income.

The curtailing of unsecured lending and the tighter credit-granting criteria being applied should in time improve the financial health of customers. Already the major credit apparel retailers have announced substantial increases in cash sales and low increases in credit sales. These trends demonstrate that there is still an appetite for the customer to spend, albeit in a more responsible and sustainable manner.

Contradicting many of the negative economic metrics is a stock market which is at an all-time high. This has a positive influence, particularly on the upper end of the market and it has helped sustain consumer confidence and spending in this segment.

The changing demographics in the market-place have spurred, and continue to spur, sales. The spending of Black people in middle-income categories now substantially exceeds that of other race groups and has been the catalyst of improving sales. We continue to benefit from this change and will do so to an ever greater extent in the future.


Letter to stakeholders continued

Trading overview• Groupsalesincreased3.1%toR1.4 billion

• Operatingprofitincreased2.8%toR250 million

• Profitbeforetaxincreased3.3%toR242 million

• Coreheadlineearningspershareincreased1.9%to423 cents per share

• Wedeclaredafinalgrossdividendof145 centspershare, an increase of almost 12% on last year and this resulted in a total gross dividend of 220 cents for the year

The year ended February 2014 was challenging. At a macro level we experienced low levels of consumer confidence and a definite tightening of consumer spending, particularly on bigger ticket discretionary goods. This was not helped by the devaluation of the Rand against the Dollar in the second half of the year and the sporting goods industry remained extremely competitive during the period under review.

Sportsmans WarehouseAt a divisional level we were satisfied with the performance of Sportsmans Warehouse, which generates almost three-quarters of our operating income. We were able to increase operating profit by 9% to R220 million on a sales increase of 4.3% primarily due to a slight increase in margin and rigorous management of costs.

We opened a new store in Sea Point and closed the Amanzimtoti store, which had consistently underperformed since its opening five years ago.

In terms of future expansion we will open a new store in George later this year, relocate our Klerksdorp store to the Matlosana Mall and add almost 1 000 m2 in total to our Cresta, East Rand and Tokai stores. This expansion being part of our strategy of making our big stores bigger facilitates the expansion of ranges and the introduction of new categories.

In addition we will be opening a 2 558 m2 combo store in the new Grove Mall in Windhoek. This store will feature a Sportsmans Warehouse and Outdoor Warehouse store under the same roof and will provide us with an opportunity to evaluate the potential of this model.

Outdoor WarehouseOutdoor Warehouse had a very disappointing year with profit falling 6.6% from last year to R50 million.

The outdoor market is not growing at the same rate as the sporting goods market and there was a decrease in demand for bigger ticket items.

However, as we have previously stated, this is still a substantial market and our brand is well known and respected. Our strategy remains to offer customers as much unique product as possible supported by high levels of service and to maintain a strong presence in this market.

During the year we opened a new store in Rondebosch next door to Sportsmans Warehouse, creating a precinct of almost 3 500 m2 of specialist sporting and outdoor retail, a unique concept in the Cape Town market.

Performance BrandsPerformance Brands increased total turnover by 12%, primarily due to a significant increase in sales to our own retail chains. Demand from the independent market was weak and strategically we anticipate the internal turnover contribution to continue to grow at a greater rate.

Whilst the financial performance of this division was disappointing much was achieved in bedding down the acquisition of Capestorm and preparing this division to design and produce a meaningful portion of the Sportsmans and Outdoor private label product.

Group initiativesWe opened our new warehouse facility in Philippi, Cape Town during the year. This modern facility is 11 000 m2 in size and enables the group to expand distribution of locally sourced products in addition to the distribution of our directly sourced imported goods.

We continued to invest in our online strategy, taking Outdoor Warehouse live with an online retail offering during the year. We are excited about the prospects of the online environment and we intend deploying further resources in an effort to capitalise on the potential of this market.

OutlookLooking forward we are still concerned about the macro environment and in particular the prevailing low level of consumer sentiment, which is particularly relevant to our business.

The increase in the presence of international retailers is taking place at an accelerating pace. Further, there is once again a substantial increase in retail shopping centres opening over the next two years.

12

These factors significantly increase competition for the customers’ spend.

However, in terms of the sporting goods industry we are seeing evidence that we are through the worst of what we previously referred to as an “overtraded market”. There has been a definite slowdown from the new entrants to the market, and in particular many of our suppliers in the opening of new stores, and there is now some evidence of a contraction in the amount of retail space being allocated to sporting goods in the South African market.

We believe our group is well positioned for the future. We have invested in warehouse capacity as well as our capabilities to be more self-sufficient in our own product design and development. Moreover we have identified numerous opportunities to expand our retail divisions, which will further entrench our brands in the future.

Board changes and governanceMary Vilakazi and Crispin Sonn both resigned from the Board effective 1 July 2014. Mary has taken up a senior executive post at MMI. Crispin has growing executive responsibilities at Old Mutual. The substantial constraints on their time resulted in them requesting to step down from the board. We thank them for the substantial contribution they made to our deliberations and we wish them well in their endeavours.

Effective from the same date we welcome Keneilwe Moloko and Phillip Matlakala to our board as non-executive directors. Both have extensive and relevant business experience and we look forward to them making a meaningful contribution to the fortunes of the company.

In line with the best practice of corporate governance, Bryan Hopkins has been appointed lead independent director.

Prospects and appreciationWe believe our group is well positioned for the future. We have invested in warehouse capacity as well as our capabilities to be more self sufficient in our own product design and development. Moreover we have identified numerous opportunities to expand our retail divisions, which will further entrench our brands in the future.

Our appreciation and gratitude goes to all stakeholders for their support to Holdsport during this period. In particular, we extend our appreciation to our employees, working together with our suppliers, who strive to bring a unique range of products and a world-class shopping experience to our customers.

The board is a constant source of guidance and wisdom and we thank them for their contribution to the affairs of the business.

Syd MullerNon-executive Chairman

Kevin HodgsonChief Executive Officer

Cape Town30 June 2014


DirectorateNon-executive directors

Phillip Matlakala

Phillip Matlakala was appointed as an independent non-executive director from 1 July 2014.

Phillip is the chief executive of Metropolitan Retail at MMI Holdings Limited where he is responsible for providing savings, income and protection products to clients in the lower and middle-income markets. He serves on various other boards.

Keneilwe Moloko CA(SA)

Keneilwe Moloko was appointed as an independent non-executive director from 1 July 2014. Keneilwe has extensive knowledge in the building and construction industry and investment management field. She started her career as a quantity surveyor and then qualified as a chartered accountant after nearly a decade in the construction industry. She completed her articles at KPMG, was the development executive at Spearhead Properties and worked for Coronation Fund Managers as a fixed interest credit analyst. She currently serves on boards and audit committees of several organisations.

Bryan Hopkins CA(SA)

Bryan Hopkins is a non-executive director of Resilient Property Income Fund, Makalani Holdings Limited and Kagiso Asset Management Proprietary Limited. He has also served on a number of other listed company boards. He co-authored the Juta publication, “Generally Accepted Accounting Practice – A South African Viewpoint.” Bryan was appointed as an independent non-executive director in June 2011 and as lead independent non-executive from 1 July 2014.

Crispin Sonn

Crispin Sonn was appointed as an independent non-executive director in June 2011 and served on the board and the transformation, sustainability, social and ethics committee until 30 June 2014.

Crispin is the managing director of the Retail Mass cluster of businesses at Old Mutual. This comprises the unsecured lending business, the Iwyze Short Term insurance business and the business previously referred to as Group Schemes.

Mary Vilakazi CA(SA)

Mary Vilakazi was appointed as a non-executive director in June 2011. She served on the board and chaired the audit and risk committee until 30 June 2014. Mary was an audit partner at PricewaterhouseCoopers in the Financial Services practice and subsequently the chief financial officer of Mineral Services Group.

She was appointed as the CEO of Balance Sheet Management at MMI from 1 May 2014.

14

Executive directors

Non-executive directors (continued)Syd Muller Chairman CA(SA)

Syd Muller was formerly the chairman of Woolworths Holdings and a director of other companies in the Wooltru group. He is a director of MMI Holdings Limited and sits on a number of board subcommittees of that group. He is the chairman of the sub-Saharan Africa review board of Air Liquide S.A. He is a director of a number of private operating companies. Syd was appointed as chairman of the group’s operating company in 2007.

Kevin Hodgson Chief Executive Officer CA(SA)

Kevin Hodgson is the chief executive officer of Holdsport. Kevin joined the company in 1998, at the time of the Moregro unbundling, as chief financial officer. He was later appointed as chief executive officer in 1999.

Kevin completed his tertiary education at Durban University before serving his articles with Deloitte. He qualified as CA(SA) in 1994.

Cobus Loubser Chief Financial Officer CA(SA)

Cobus Loubser is the chief financial officer of Holdsport. He was appointed to this role in 2007 following four years as the national financial manager for Virgin Active South Africa.

He qualified as CA(SA) in 2002 after completing his articles with KPMG.

Bradley Moritz

Bradley joined the group in 1998 and served as the merchandise executive from 2003 before his appointment as chief operating officer in 2011. He was appointed as an executive director in 2013.


ManagementExecutive management

Toni Haarburger Executive

Toni has been involved in the retail industry for 32 years. She began her retail career with Woolworths before moving to Totalsports in 1988 where she was instrumental in the establishment of the business. She is the former chief operating officer and was an executive director of Holdsport until 30 August 2013. She continues to manage various strategic initiatives.

Alison Riley Planning Executive

Alison is responsible for the development and maintenance of the merchandise planning processes. Alison has played an integral role in the sophistication of the group’s IT systems. She joined Sportsmans Warehouse in 1997 as an apparel planner. She fulfilled numerous roles within the merchandise department before being appointed to her current position in 2002.

Kobus Potgieter Marketing Executive

Kobus is responsible for the planning and execution of marketing processes. He joined the group in 2012 with nearly 20 years of experience in the marketing field, including two years as the global marketing executive for KWV.

Johan Strydom E-Commerce Executive

Johan Strydom has recently been appointed as E-commerce Executive and will be tasked with driving the group’s various digital and online strategies. Johan joins Holdsport from the Naspers group. He has more than 15 years of experience in the online financial payments, e-commerce, real estate and media portal industries.

Andrew Gold Managing Director of Performance Brands

Andrew joined Performance Brands (previously named First Ascent SA) in 1998 and has played an integral role in the expansion and development of the business. He is responsible for the execution of the company’s operational, marketing and merchandise strategies.

Anthony Shaw Operations Executive

Anthony joined Totalsports in 1994 as a store manager and was promoted to the level of regional manager in 1997. In February 2001 he was appointed as operations executive for Outdoor Warehouse and subsequently to his current position in 2011. He oversees the execution of the operational, marketing and merchandise strategies.

16


18

Chief Financial Officer’s report

IntroductionHoldsport continued to deliver on its track record of consistent sales and operating profit growth in 2014.

The group’s headline earnings per share (HEPS) for the period increased by 2.9% to 401.5 cents, whilst core headline earnings per share (core HEPS) increased by 1.9% to 423.3 cents. Shareholders will receive a total dividend of 220 cents for the year, a 10% increase on last year. Core headline earnings excluding foreign exchange adjustments increased by 1.3% to 424.0 cents.

Return on net assets reduced to 65.7% for the year from 82.6% in the previous year due to the capital invested in additional distribution capacity. The group’s cash conversion1 for the year increased to 66.1% (2013: 56.9%). The return on shareholders’ interest (ROE) reduced from 21.8% to 20.3% for the year.

The group has applied the provisions of the Companies Act and provides summarised financial statements to shareholders in this Integrated Annual Report. These audited summarised financial statements appear on pages 54 to 62.

The following review of the group’s financial performance for the year ended 28 February 2014 is limited to the key line items of the statement of comprehensive income and the statement of financial position which have a material impact on performance, and should be read together with the audited summarised financial statements and the supplementary information provided elsewhere in this report. Shareholders are reminded that the group audited

annual financial statements are available for inspection at the company’s registered office during normal business hours and on Holdsport’s website www.holdsport.co.za.

Statements of comprehensive incomeSalesTotal retail sales increased by 3.3% to R1.36 billion for the year from R1.32 billion in the previous year and the group recorded selling price inflation of 4.9% (2013: 2.9%)

The 1.1% comparable store sales increase consisted of a 2.9% increase in Sportsmans Warehouse stores and a 3.9% decrease in Outdoor Warehouse.

Sportsmans Warehouse added one new store, expanded two stores and closed one store, whilst Outdoor Warehouse added one new store. Weighted average trading space increased by 5.7% and trading density decreased by 1.7% to R18 126 per m2 (2013: R18 438 per m2).

Performance Brands’ sales to non-group companies declined by 1.4%.

The performance of the business units is also covered in the operational review on page 7.

Total incomeTotal income, which comprises gross profit and other income, grew by 4.4% to R689.0 million.

The total income margin, which reflects total income as a percentage of sales, increased from 48.0% to 48.6% mainly due to a 0.4% increase in the gross margin.

Segmental sales2014

Rm2013

Rm

Change on prior year

%

Comparable sales growth

%

Price inflation/ (deflation)

%

Sportsmans Warehouse 1 042.0 999.0 4.3 2.9 6.6

Outdoor Warehouse 323.1 322.3 0.2 (3.9) (0.5)

Total retail sales 1 365.1 1 321.3 3.3 1.1 4.9

Performance Brands 52.4 53.2 (1.4)

Total sales 1 417.5 1 374.5 3.1

1 Cash conversion = cash generated from operations minus all capital expenditure divided by EBITDA.


Chief Financial Officer’s report continued

The growth in trading expenses is attributable to the following:

• Employmentcostsincreasedby4.9%andby1.6%on a comparable basis if non-comparable store costs and the share-based payment charge of R7.5 million (2013: R4.9 million) relating to the Holdsport Forfeitable Share Plan (FSP) are excluded.

• Occupancycostsincreasedby6.4%andby3.2%on a comparable basis. Weighted trading space increased by 5.7%.

• Thegroupentersintoforward-exchangecontractsonall its direct imports to hedge itself against volatile exchange rate movements. Holdsport recorded a profit on foreign exchange transactions of R0.9 million for the year, compared to a profit in the previous year of R0.5 million.

• OtheroperatingcostsincludeITcosts,bankfeesandtransaction charges, security costs, maintenance and insurance and increased by 4.5%. If non-comparable store costs were excluded, other operating costs increased by 2.7% from the previous year.

Operating profitOperating profit increased by 2.8% to R250.0 million (2013: R243.3 million), rendering an operating profit margin of 17.6% for the year, down from 17.7% in the previous year.

If the effect of the foreign exchange profits and losses (which are partly included in cost of sales and partly recorded as a foreign exchange profit within trading expenses) is excluded, operating profit increased by 2.2% from the previous year and the operating margin for the current year reduced slightly to 17.7% from 17.8% in the previous year.

Net finance costsNet financing costs reduced from R8.3 million in 2013 to R7.6 million in the current year due to the repayment of interest-bearing bank debt.

Profit after taxThe group generated a profit after tax of R173.7 million for the year, an increase of 3.1% on the R168.5 million for the previous year.

The effective tax rate remains higher than the normal South African corporate tax rate of 28% owing to the tax charge for the store in Namibia which is taxed at 34% and certain non-deductible expenses.

Statement of financial positionThe group’s net asset value per share was 2 087.9 cents per share at year-end (2013: 1 884.3 cents).

Trading expensesTrading expenses as a percentage of sales increased to 31.0% from 30.3% despite tight cost control following low sales growth. Total trading expenses increased by 5.3% as set out in the table below:

Summary trading expenses2014

Rm2013

Rm

Change on prior year

%

Expense as % of turnover

2014 %

2013 %

Employment costs 167.7 159.9 4.9 11.8 11.6

Occupancy costs 123.8 116.3 6.4 8.7 8.5

Depreciation 29.8 25.1 18.5 2.1 1.8

Amortisation 13.0 13.0 – 0.9 0.9

Advertising costs 19.6 20.8 (5.7) 1.4 1.5

Foreign exchange losses/(profits) (0.9) (0.5) 87.0 (0.1) (0.0)

Other operating costs 86.0 82.3 4.5 6.1 6.0

Trading expenses 439.0 416.9 5.3 31.0 30.3

20

Assets and capital expenditureHoldsport incurred capital expenditure of R81.1 million in 2014 (2013: R79.3 million). This consisted of the following:

• Holdsportcompletedconstructionofanewretaildistribution centre, totalling R28 million in this year (2013: R19 million was incurred on this project).

• PerformanceBrandscompletedconstructionon its current premises for R12.2 million (2013: R12.0 million was incurred on this project).

• ThegroupincurredR40.9milliononmaintainingand expanding its retail operations, which included two new stores and two expansions.

The group depreciates store fixtures over four years, leading to a stable and consistent maintenance profile.

Working capitalInventoryThe group has invested an additional R8.3 million in inventory, which ended 2.4% higher than the previous year. The inventory levels increased due to the 3.5% gross increase in trading space as at year-end and the impact of the weaker exchange rate on the cost of imported products. The group’s stock turn is 2.1 times (2013: 2.2 times). Inventory ageing is comparable to last year and allowances for obsolescence are at similar levels.

Trade creditors and other payablesTrade and other payables as a percentage of stock on hand were lower than last year due to later replenishment for Easter which was three weeks later in 2014 than in 2013. Given the high level of directly imported product, combined with slow stock turns for the sporting goods industry, Holdsport cannot improve its working capital efficiency by getting creditors to fund a greater portion of its investment in inventory. This is factored into the group’s margin expectations and achievement.

Working capital and general banking facilitiesHoldsport currently has working capital facilities in South Africa and Namibia with Standard Bank. The working capital facilities consist of a general banking facility of up to R150 million, which may be availed of by way of overdrafts and overnight advances, and

two facilities of R50 million each for forward-exchange contracts and letters of credit for imports respectively.

Holdsport’s full overdraft of R150 million under its working capital facilities were available and undrawn as at 28 February 2014. Standard Bank may cancel or reduce the working capital facilities amount without notice.

Other reservesThe group introduced the Holdsport Forfeitable Share Plan in 2011 and awarded R32.5 million of Holdsport shares over the last three years. The initial cost of acquiring the Holdsport shares awarded to participants in the FSP is recorded as a reserve in terms of IFRS 2: Share-based Payment Expenses. Subsequently, R7.5 million has been expensed during 2014 to recognise the cost of these awards to staff over the vesting period (2013: R4.9 million).

Derivative instrumentsThe derivatives at year-end consist of fair valued open foreign exchange contracts.

DebtHoldsport repaid loans of R124.3 million to Standard Bank during the year and replaced them with a R130 million loan from the FirstRand Group, repayable by 31 August 2016.

The group’s net debt amounted to R72.4 million at the end of the current year compared to R88.0 million in the prior year.

The group is able to service its debt with its existing lenders without penalties and complies comfortably with all debt covenants.

None of the material loans have any conversion or redemption rights.

Capital expenditureThe group has approved capital expenditure of R45.0 million for the 2015 financial year to support its strategies. This has been allocated as follows:

•R41millionforstoredevelopmentandmaintenance,including two new stores, relocating three stores, expanding four stores and reducing one store; and

•R4millionforIT,motorvehiclesandothercapitalexpenditure.


Chief Financial Officer’s report continued

Cash flowCash and cash equivalents increased by 59.2% to R57.6 million (2013: R36.3 million).

The group generated R274.1 million (2013: R239.1 million) in cash from operating activities during the year. This was used primarily for dividend payments (R88.4 million), the Holdsport FSP (R4.9 million) and investment in property, store maintenance and development (R81.1 million).

Dividend policyThe group is in a strong financial position which, coupled with its strong cash generation, allows it to pay a final dividend of 145 cents per share.

The total dividend for 2014 is covered 1.9 times by the year’s core HEPS in accordance with the group’s dividend policy. The group paid an interim dividend of 75 cents per share which brings the total dividend for the year to 220 cents per share, a 10.0% increase on last year.

Accounting policies and standardsThe accounting policies and standards applied by the group have remained consistent with those applied during the prior period.

Financial targets and outlookHoldsport has been able to achieve and maintain attractive margins due to a combination of factors including a culture of rigorous cost management,

its direct sourcing model, private label ranges, economies of scale, diverse product offering and purchasing expertise.

Financial targets have been reviewed relative to the performance for 2014 and to reflect the expected trading conditions and operating environment for the 2015 financial period.

Selling price inflation is expected to trend higher but remain at mid-single digits for the year.

Holdsport indicated at the time of its listing that it wished to open two to three new stores per annum over the next three to five years. The group is on track to achieve this objective. However, new stores may initially not be as profitable as the group’s current operations.

AcknowledgementsIn closing I would like to thank my finance colleagues for their enthusiasm and dedication to maintaining a high standard of financial reporting and control in the business.

Cobus LoubserChief Financial Officer


TargetsTarget*2015

Actual 2014

Actual 2013

Actual 2012

Gross margin (%) 48.0 48.2 47.8 48.6

Operating margin (%) 17.5 17.6 17.7 18.2

Inventory turn (times) 2.3 2.1 2.2 2.4

* Excluding effect of foreign exchange adjustments.

22

Moresport distribution centre


Historic review 2008 – 2014

The following selected financial information is derived from the consolidated financial statements of Holdsport in so far as it relates to continuing operations.

Years ended

6-year com-

pound growth

%2014R’000

2013R’000

2012R’000

2011R’000

2010R’000

2009R’000

2008R’000

Profitability

Total turnover from continuing operations 8.9 1 417 584 1 374 531 1 243 539 1 132 482 1 017 167 930 344 850 686

Operating profit before finance charges 12.2 250 009 243 290 226 431 195 607 150 708 146 260 125 491

Profit before tax 23.5 242 450 234 742 217 259 99 001 102 005 91 723 68 475

Profit attributable to equity holders 22.5 173 710 168 516 153 695 68 866 71 729 64 918 51 429

Headline earnings 22.5 173 237 168 259 153 547 68 673 71 385 64 733 51 273

Statement of financial position

Non-current assets 21.0 150 265 98 282 51 903 42 759 45 949 58 726 47 846

Intangible assets 620 336 633 299 638 083 650 637 663 192 675 746 688 300

Current assets 14.2 437 652 405 086 393 486 316 239 315 864 242 608 197 152

Total assets 1 208 253 1 136 667 1 083 472 1 009 635 1 025 005 977 080 933 298

Total shareholders’ interest 11.2 900 930 813 082 731 545 643 556 627 344 538 601 475 987

Non-controlling interest – – – 1 027 2 380 747 69

Non-current liabilities 154 590 24 452 146 813 174 816 196 541 241 447 260 595

Deferred tax 42 806 49 623 55 595 59 738 86 755 98 390 108 852

Current liabilities 2.7 109 927 249 510 149 519 130 498 111 985 97 895 93 535

Total equity and liabilities 1 208 253 1 136 667 1 083 472 1 009 635 1 025 005 977 080 939 038

Cash flow statement

Cash flows from operating activities* 11.6 101 609 76 522 113 820 139 071 135 337 87 733 52 600

Cash flows from investing activities (81 088) (79 311) (31 613) (19 868) (11 333) (32 830) (26 400)

Cash flows from financing activities 772 (38 301) (72 752) (153 762) (54 767) (34 719) (37 364)

Net increase/(decrease) in cash 21 293 (41 090) 9 455 (34 559) 69 237 20 184 (11 164)

Cash at the beginning of the year 36 284 77 374 67 919 102 478 33 241 13 057 24 221

Cash at the end of the year 57 577 36 284 77 374 67 919 102 478 33 241 13 057

* Cash flows from operating activities include dividends paid of R20.2 million in 2012, R79.8 million in 2013 and R88.5 million in 2014. The group did not pay dividends before 2012.

24

Performance measures/ratios2014 2013 2012 2011 2010 2009 2008

Sales growth (%) 3.1 10.5 9.8 11.3 9.3 9.4 20.6

Like-for-like retail sales growth (%) 1.1 8.3 6.6 12.1 5.9 0.9 10.8

Trading density (R’000 per m2) 18.1 18.4 17.4 16.4 14.7 14.0 14.4

Growth in trading density (%) (1.6) 5.9 6.2 11.5 4.7 (2.9) 7.7

Operating margin (%) 17.6 17.7 18.2 17.3 14.8 15.7 14.6

Return on net assets (%) 65.7 82.6 103.3 108.0 83.0 84.0 97.0

Debt:equity ratio (%) 14.4 15.3 20.6 112.7

Current ratio (times) 4.0 1.6 2.6 1.9 2.8 2.5 2.1

Headline earnings per ordinary share (HEPS) (cents) 401.5 389.9 355.8 189.1 196.6 179.0 141.2

Change in HEPS (%) 2.9 9.6 88.2 (3.8) 9.9 26.8 62.6

Core headline earnings per ordinary share (cents) 423.3 415.7 387.4 316.4

Change in core HEPS (%) 1.9 7.3 22.4

Dividends declared per ordinary share (cents) 220.0 200.0 162.0 – – – –

Tangible net asset value per ordinary share (cents) 789.6 564.2 372.6 (535.8) (722.1) (944.9) (2 132.6)

Market capitalisation at year-end (Rm) 1 695.8 1 898.2 1 764.8 n/a n/a n/a n/a

Statistics

Number of ordinary shares in issue (millions) 43.2 43.2 43.2 36.3 19.4 19.4 19.4

Number of ordinary shares on which headline earnings and net asset value per share is calculated (millions) 43.2 43.2 43.2 36.3 36.3 36.3 36.3

Number of stores 55 54 51 49 50 49 45

Floor area (gross square metres) 76 496 73 896 68 882 66 808 67 593 66 740 61 926

n/a = not applicable

NoteHoldsport defines core headline earnings as headline earnings, plus amounts included therein in respect of fair value adjustments on loans, the amortisation of trademarks, any non-recurring exceptional expenses and straight-lining of leases.

The trademarks relate to:• theSportsmansWarehouseandOutdoorWarehousebrands,whichwererecognisedwhenEthosacquiredthe

business in 2006;• theFirstAscentbrandacquiredin2007;and• theCapestormbrandacquiredin2013.

The amortisation of these trademarks is an IFRS requirement and does not affect cash flows. Given the focus of management on returns and cash generation, the group does not believe this figure is as relevant in assessing the financial health of the business.

Straight-lining of leases relates to the straight-line accounting treatment of the aggregate lease payments over the term of the lease. The adjustment above relates to the non-cash portion of what was actually paid versus the accounting treatment.


Review of group’s main functions

MerchandiseMerchandise selection and management is structured and follows a proven methodology. The success of the buying and planning process is dependent on a team of highly skilled and trained specialists with a clear product focus, a thorough understanding of customer needs, adherence to a systems-driven process and, most importantly, a passion for the industry.

The group is committed to developing talent and have a merchant trainee programme which focuses on the development of recent graduates for merchandise functions.

The merchandise team consists of 60 dedicated professional staff who manage the planning, ordering and distribution processes for over 25 000 stock keeping units (SKUs). Holdsport currently has approximately 100 international and 300 local suppliers. All stock is ordered centrally by the merchandise team.

• Holdsportbuysmostofitsmerchandisefromlocalsuppliers, who are required to deliver products directly to stores. Local suppliers typically import most of their products and generally dominate the apparel and footwear categories. Lead times are long.

• Thegroupimportsapproximately30%ofitsstockdirectly, mainly from China. Directly imported goods are received into the distribution centre where it is unpacked, warehoused and distributed. Payments are predominantly made through letters of credit. All imports are fully covered by specific forward-exchange contracts per import order at the date that the order is placed. A portion of the imported products are brands which are exclusive to Holdsport.

Holdsport imports more equipment directly compared to footwear and apparel. This product suffers from long manufacturing and shipping lead times.

• PerformanceBrandshasaseparatedistributioncentre given the specialised nature of its products, which are predominantly imported.

Stock is distributed regularly to the individual stores, based on sell-offs. The number of deliveries per week depends on cyclical demands.

The sporting and leisure goods market is not as exposed to fashion trends as other retail sectors and Holdsport’s inventory mark-downs are low by industry standards.

MarketingThe group has a comprehensive marketing strategy that focuses on presence and branding at large sporting events, selected schools’ sports days, as well as participation in community-based activities.

Holdsport has a marketing team who executes the overall marketing strategy and provides support to stores’ community involvement programmes. Creative marketing work is outsourced to a specialist retail advertising firm.

The majority of the advertising budget is spent on comprehensive brochures, which are distributed through the national press. This medium allows the group to advertise an extensive range of products on a consistent basis.

Other advertising mediums, such as radio, are also used by the group. The group increasingly uses electronic and online channels to interact directly and effectively with current and prospective customers.

Finance and administrationHoldsport has a highly centralised finance structure, with competent financial managers being responsible for different divisions in the group. Financial managers report to the chief financial officer, and actively collaborate with one another and operational and merchandise staff in their units to achieve business objectives. Stores focus on tactical execution of operational and merchandise strategy, and have limited transactional rights.

The finance function is responsible for the full array of financial functions, as well as the following:

• ITmanagement;

• preparing,trainingandtestinginternalcontrolprocesses and policies;

• supplychainandlogisticalmanagement;

• propertymanagement;and

• riskmanagement.

Information technology and infrastructureThe group is highly dependent on reliable and efficient information and technology systems to process sales transactions and manage stock, protect data, facilitate appropriate financial record-keeping, and ensure effective and reliable reporting to management.

26

Holdsport’s information technology function is outsourced to UCS Limited (UCS), a company listed on the JSE in the Software and Computer Services sector until 2011 when it was sold to Business Connexion and delisted. UCS has significant software expertise and technical experience.

The chief financial officer and the finance function are responsible for the group’s IT requirements. UCS’s performance is monitored in terms of a detailed service level agreement, which covers, amongst other things:• softwarelicencesanddevelopment;• hardwareinfrastructurehostingandsupport;• datastorage,recoveryandbackup;• ITsupporton-site;• systemimplementation;• systemresumption;and• disasterrecovery.

The group’s retail operations use Dolfin and Dolfin Live to manage its merchandise stock. Dolfin is integrated with Accpac, the accounting system.

Performance Brands use Microsoft Dynamic NAV, which is an integrated accounting, distribution and stock management system that is well suited to the different manufacturing and wholesale processes in the business.

Holdsport’s sophisticated systems cater for different authorisation levels to manage the approval and execution of transactions and control reporting thereon. The software platform is scalable and the group is able to add additional stores without placing significant pressure on its IT infrastructure.

The group continues to invest in suitable IT systems and infrastructure to support its strategies, and the following IT projects are worth noting:

• OutdoorWarehouselaunchedonlinesalesofitsproducts during the year. The group continues to sophisticate its online sales offerings.

• ThegroupsuccessfullyimplementedCQuential’swarehouse management system in the new distribution centre from July 2013.

Logistics and supply chainRetail distribution centreDirectly imported merchandise for the retail stores are received and warehoused in a 11 000 m2 dedicated distribution centre in Philippi, Cape Town. The new facility was developed in a 50:50 joint venture with Redefine Properties and has been in use since July 2013.

Holdsport introduced environmentally friendly features in the design of the new warehouse, including the installation of low emission materials handling equipment, energy-efficient lighting and heating and water-efficient plumbing and landscaping.

Performance Brands distribution centrePerformance Brands expanded its warehouse space to 3 000 m2 by constructing an additional warehouse adjacent to its premises and moved into the new facility in January 2014.

StoresHoldsport has a national store footprint, with both retail chains operating across nine provinces, in prime retail locations, that management believes is hard to replicate. The group only opens new sites, or signs new leases, after confirming a business case for that site and taking into account the surrounding catchment area, ensuring as far as possible that each new store opened is immediately profitable.

As at 28 February 2014 Holdsport operated a total of 55 stores, including 35 Sportsmans Warehouse stores and 20 Outdoor Warehouse stores.

Sportsmans Warehouse stores vary between 1 200 m2 and 3 000 m2, whilst Outdoor Warehouse stores average 800 m2 in size. Stores are typically situated in a value centre or standalone locations in recognised retail nodes. Furthermore, Holdsport has an increasing store presence in malls.

Holdsport rents all its premises. The lease terms are generally five to ten years, with the majority of the agreements including a renewal option. The renewal negotiations are relatively evenly spread, with approximately ten store rental negotiations per year.

The group is an attractive tenant for landlords, not only due to its strong reputation as a reliable tenant, but also as it broadens the offering of a site and enhances its attractiveness to consumers.

Holdsport is well positioned for further growth, having opened two new stores in the previous financial year, as well as having agreed leases for a further two stores to be opened in September 2014 and in December 2014 respectively. New locations may initially be less profitable than the existing levels achieved in mature stores.

The group continuously invests in its stores to enhance the quality of the trading environment and to ensure that stores meet growing customer demand. Stores are also relocated to improved trading positions.


Review of group’s main functions continued

Holdsport is specifically focused on extending stores with high trading densities to offer customers even greater variety and an improved shopping experience. During the period one store was closed while a further eight were renovated and two expanded.

Energy-efficient lighting and other measures have been implemented in stores to reduce electricity consumption and generate savings, given rising energy costs. These measures have assisted in containing the increase in electricity consumption to 2.6% despite a 5.7% weighted increase in space.

New stores Relocations, expansions and closures2015 Windhoek (The Grove) – Combined Sportsmans

and Outdoor Warehouse of 2 558 m2

George (Eden Meander) – Sportsmans Warehouse of 1 700 m2

East Rand: Sportsmans Warehouse to expand by 513 m2

Tokai: Sportsmans Warehouse size to increase by 341 m2

Cresta: Sportsmans Warehouse to add an extra 85 m2

Bloemfontein: Sportsmans Warehouse to reduce size by 667 m2

Klerksdorp: Sportmans Warehouse relocating to Matlosana Mall, size increasing by 300 m2

Bloemfontein: Outdoor Warehouse relocating to Bloemfontein Value Mart, size increasing by 185 m2

Fourways: Outdoor Warehouse relocating to Fourways Crossing Centre, size increasing by 239 m2

2014 Rondebosch – Outdoor Warehouse of 1 069 m2

Sea Point – Sportsmans Warehouse of 1 513 m2

Rondebosch: Sportsmans Warehouse size increased from 2 401 m2 to 2 666 m2

Nelspruit: Sportsmans Warehouse size increased from 1 031 m2 to 1 660 m2

Amanzimtoti: Sportsmans Warehouse of 1 209 m2 closed

Number of Sportsmans Warehouse stores

200725

201132

200932

201335

200829

201233

201032

201435

Number of Outdoor Warehouse stores

200713

201117

200917

201319

200816

201218

201018

201420

28


Human resources

The group’s sustainability hinges on its human resources, and there is significant focus on skills development, succession planning, employment equity and industrial relations. All aspects of employee rewards and incentives are covered in the Remuneration Report which follows on pages 44 to 48.

PhilosophyHoldsport seeks to attract, retain and develop skilled and talented staff, and it has a preference for promoting from within the group.

The group has dedicated operational HR professionals who provide day-to-day HR assistance and guidance. The experienced HR team has an intimate knowledge of the business and promotes high standards of customer service through recruiting the right people, actively training staff and supporting performance management and disciplinary processes.

As a group, we are committed to individual growth and development, offering on-the-job coaching and formal in-house training.

Holdsport values the following attributes in its staff:• integrity;• innovation;•energyandspeedtoexecute;and•expertiseandattentiontodetail.

These attributes are emphasised in induction programmes for new employees and in performance management reviews to ensure that employees are actively displaying the attributes.

Holdsport favours a flat structure with an emphasis on personal growth and lateral development rather than upward promotion.

Employees are rewarded based on their measured contribution and value added to the business, with the emphasis on teamwork. The performance of all employees is assessed at least annually based on definitive measures and they are rated on key deliverables for their specific roles.

Workforce profileThe group’s workforce profile is set out below:

Employee statistics % change 2014 2013

Total number of employees at year-end:

Permanent full-time employees 1.5 1 266 1 247

Flexitime employees (24.6) 611 810

Employee turnover % (excluding flexis) (10.1) 34.9 38.8

The staff turnover for permanent employees decreased to 34.9% (2013: 38.8%). Staff turnover at middle and senior management levels is below 20% which promotes business continuity and sustained performance. The average age of senior and top management employees is 38, with more than six years’ service in the group.

Employment Equity %Representation of previously disadvantaged groups among permanent employee groups

Non-executive directors

2013–

2014–

Top management Senior management Specialists and middle management

Skilled technical and junior management

201386.4Semi and unskilled

employees

201450.0

201350.0

201321.4

201356.8

201387.4

201430.6

201447.6

201480.5

201490.2

30

Employment equityThe group promotes transformation in the racial composition of the workforce in accordance with its employment equity plan. The current employment equity plan covers the period from 2011 to 2016, with the relevant stakeholders meeting regularly in structured forums before reporting to the board. A review of the group’s employment equity performance is provided in the Transformation Report on page 49.

Employee equity statistics#

Designated groups Non-designated groups

Male Female WhiteForeign nationals Total

Occupational Levels A C I A C I Male Female Male Female 2014 2013

Non-executive directors – 1 – 1 – – 2 – – – 4 4

Top management* – – – – – – 6 1 – – 7 7

Senior management 7 6 5 1 2 1 42 8 – – 72 70

Professionally qualified/ Middle management 10 7 2 18 10 3 34 21 – – 105 111

Skilled technical/ Junior management 50 32 8 54 33 5 17 27 – – 226 214

Semi-skilled 217 103 30 214 164 15 40 39 1 1 824 809

Unskilled 2 – – 4 1 – – – – – 7 11

Flexitime employees 130 74 35 166 93 18 67 28 – – 611 810

Total 2014 416 223 80 458 303 42 208 124 1 1 1 856

Total 2013 516 220 79 496 260 59 277 118 1 4 2 036

# Statistics are for South African employees only.* Top management includes executive directors.

A = African C = Coloured I = Indian

TrainingHoldsport values its human capital and ensures that staff is developed through in-house programmes and through on-the-job experiences to grow stronger and operate on a higher level. The responsibility for learning is shared and self-development is achieved through the empowerment of staff at all levels.

The group’s training programmes develop and retain key employees and are vital for the sustainability of the business in focusing on areas of scarcity such as merchandise buying and planning, and retail management.

Holdsport’s in-house training is a key factor in its labour productivity and high levels of customer service.

Training statistics % change 2014 2013

Investment in employee training and development

Total expenditure (Rm) 2.9 1.29 1.25

% of payroll (2.0) 0.77 0.78

Total number of employees trained (9.1) 680 748

Total number of training incidences# 1.9 1 367 1 342

# Refers to attendees and not individual employees.


Corporate governance report

Commitment and approachThe directors endorse and accept full responsibility for the application of the principles necessary to ensure that effective corporate governance is practised consistently throughout the group. In discharging this responsibility the board complies with the King Code in both letter and spirit, unless where it is not practicable as explained. Compliance with the King Code is also reported in the King Compliance Register on our website www.holdsport.co.za.

Application of King lll principlesAll JSE-listed companies are required to report and disclose the application of the King lll principles in their integrated annual reports. The directors have proactively taken steps to ensure that the elements required to make the group compliant with the recommendations incorporated in the King Code have been implemented.

The board has applied the principles of King lll and elected to explain the principles that are not applied:

• Principle7.1ofKingIIIprovidesthattheboardshould ensure that there is an effective risk-based internal audit. The Report further suggests that the internal audit function “should adhere to the Institute of Internal Auditors Standards for the Professional Practice of Internal Auditing and Code of Ethics at a minimum”. The group does not have an independent internal audit function, but engaged Mazars Inc. to conduct a review over the design and effectiveness of selected key controls. This review did not identify any material weaknesses in the system of internal control.

• Principle3.2ofKingIIIrecommendsthatthechairman of the board should not be a member of the audit committee. The chairman of the board, Syd Muller, currently serves on the audit and risk committee due to the small size of the board. The nomination committee considered the issue and recommended to the board that Mr Muller should remain a member of the audit and risk committee owing to his skills, knowledge and experience which allow him to make a significant contribution to the committee. The board accepted and approved the recommendation that he continues to serve on the committee. The group’s audit and risk committee comprises three non-executive directors, including the board chairman.

• Principle9.3recommendsthatsustainabilityreporting and disclosure should be independently assured. The external auditor has assured the annual

financial statements. The group has not sought external verification of the content of the Integrated Annual Report.

Board of directors’ roleThe company’s board of directors currently consists of three executive directors and four non-executive directors. The board of directors is ultimately responsible for the day-to-day management of the group’s business, its strategy and key policies. The board of directors is also responsible for approving Holdsport’s financial objectives and targets. Members of the board of directors are appointed by the company’s shareholders.

The group’s executive directors, who are also members of the executive committee, are involved in the day-to-day business activities of the group and are responsible for ensuring that the decisions of the board of directors are implemented in accordance with the mandates given to it by the board.

CommitteesThe board of directors has delegated specific responsibilities to board committees, each with its own terms of reference that define its powers and duties. The board committees meet independently and report back to the board through their chairpersons. All committees are chaired by an independent non-executive director.

LeadershipThe board elected the chairman after the last AGM in August 2013 and will continue to follow this practice after the AGM each year.

The roles of the non-executive chairman and the chief executive officer are formalised, separate and clearly defined. This division of responsibilities at the helm of the group ensures a balance of authority and power, with no one individual having unrestricted decision-making powers.

The non-executive directors have extensive business experience and specialist skills across a range of sectors, including accounting, finance, law, retailing, health care and human resources. This enables them to provide balanced and independent advice and judgement in the decision-making process.

Non-executive directors have direct access to management and may meet with management independently of the executive directors.

The group has no controlling shareholder or group of shareholders.

32

The board meets at least four times a year. Additional meetings can be convened to consider specific business issues which may arise between scheduled meetings. No additional meetings were required during the year.

Director appointment and inductionThe remuneration and nomination committee considers directors for appointment to the board and motivates these candidates to the board in a thorough and transparent process.

Newly appointed directors undergo a formal induction programme which outlines their fiduciary duties and provides an in-depth understanding of the group and its operations. This includes meetings with business unit heads and visits to stores and distribution centres.

Directors do not have a fixed term of appointment. One-third of the directors, being those longest in office, are required to retire by rotation each year and are eligible for re-election by shareholders at the AGM. Directors appointed during the year are required to have their appointments ratified at the following AGM.

Independence assessmentKing lll requires the board to review the independence of long-serving non-executive directors.

The remuneration and nomination committee conducted an evaluation of the independence of the chairman and non-executive directors.

All relevant factors which could impact on their independence were considered, in particular the factors outlined in King lll and the Companies Act. The nomination committee believes there are no factors which prevent the directors from exercising independent judgement or acting in an independent manner. All four non-executive directors, including the chairman, are therefore appropriately classified as being independent in terms of both the King Ill definition and the guidelines outlined in the JSE Listings Requirements as at 28 February 2014 and as at the date of approval of the annual financial statements.

Board and committee meeting attendance

Board Audit and riskRemuneration

and nomination

Transformation, sustainability,

social and ethics

Syd Muller 4* 2 2 2*

Bryan Hopkins 4 3 2* –

Mary Vilakazi 3 3* – –

Crispin Sonn 1 – – 1

Kevin Hodgson 4 3 2 2

Toni Haarburger# 2 – – –

Bradley Moritz# 2 – – –

Cobus Loubser 4 3 – 2

Meeting attendance in 2014 (%) 85.7 93.3 100.0 87.5

* Chairperson.# Bradley Moritz appointed from 30 August 2013 to replace Toni Haarburger.


Corporate governance report continued

Board evaluationsThe board has the relevant knowledge relating to the group’s business. The directors believe board meetings are well organised, efficiently run and all relevant aspects of the group’s businesses are dealt with thoroughly by the board and its various committees which have all discharged their responsibilities adequately.

Personal share dealingsThe group’s insider trading policy precludes directors and staff from trading in the group’s shares during two formalised closed periods. These closed periods run from the end of the interim and annual reporting periods until the financial results are disclosed on the Securities Exchange News Service (SENS) of the JSE.

Embargoes can also be placed on share dealings at any other time if directors or executives have access to price-sensitive information which is not in the public domain.

Directors are required to obtain written approval prior to dealing in the company’s shares. It is also mandatory for directors to notify the company secretary of any dealings in the company’s shares. This information is then disclosed on SENS within 48 hours of the trade being effected. These dealings are also reported retrospectively at board meetings.

Directors’ interests in contractsDirectors do not have any interest, directly or indirectly, in any contracts with the group.

Directors’ and officers’ insuranceThe group has directors’ and officers’ insurance in place.

RemunerationRemuneration is dealt with in the Remuneration Report on pages 44 to 48.

Shareholder approval will be sought at the upcoming AGM for the increase in fees for the 12-month period to 31 August 2015.

Donations to political partiesWhile the group supports the democratic system in South Africa, it does not make donations to individual political parties.

Executive committeeThe board determined that the prescribed officers in terms of the Companies Act are the members of

the group executive committee, which comprises Toni Haarburger, Kobus Potgieter (the Marketing Executive), Anthony Shaw (the Operations Executive) and the three executive directors, namely Kevin Hodgson, Cobus Loubser and Bradley Moritz.

These are the people who exercise general executive control and management of the whole or a significant portion of the group’s businesses and activities. All other senior management employees report to members of the group executive.

No fees are payable to executives for service on this committee.

Company secretaryThe company secretary is Andre Erasmus van Zyl CA(SA). He is also the group accountant of Holdsport. He has acted in the capacity of company secretary since September 2011 and is not a director.

The secretary of the company is required to provide the directors of the group, collectively and individually, with guidance as to their duties, responsibilities and powers. He is also required to ensure that the directors are aware of all laws and legislation relevant to, or affecting the group, and reporting to any meetings of the shareholders of the group or of the group’s directors, any failure on the part of the group or a director to comply with the company’s memorandum of incorporation (MOI) or the rules of the company or the Companies Act.

The company secretary must certify in the group’s annual financial statements whether the group has filed required returns and notices in terms of the Companies Act, and whether all such returns and notices appear to be true, correct and up to date, and ensure that a copy of the group’s annual financial statements is sent, in accordance with this Companies Act, to every person who is entitled to it. Furthermore the company secretary is responsible for carrying out the functions of a person designated in its annual returns to ensure the group’s compliance with its transparency, accountability and integrity of requirements set out in sections 22 to 34 of the Companies Act, and the enhanced accountability and transparency requirements set out in chapter 3 of the Companies Act, to the extent applicable.

The company secretary is also required to ensure that minutes of all shareholders’ meetings, directors’ meetings and the meetings of any committee of the directors are properly recorded in accordance with sections 24(d) and (e) and section 73 of the Companies Act.

The company maintains an arms-length relationship between the company secretary and the board of directors. The board is satisfied that the company secretary has the requisite expertise and experience to meet the responsibilities of this position.

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Corporate structure

Audit and risk committee

Objectives and functions Composition

The committee is governed by a formal audit and risk committee charter that complies with the requirements of King III. This charter guides the committee in terms of its objectives, authority and responsibilities, which include:• nominatingandappointingthegroup’sauditor

and ensuring that such auditor is independent of the group;

• determiningthefeestobepaidtotheauditorandthe auditor’s terms of engagement;

• ensuringthattheappointmentoftheauditorcomplieswith the provisions of the Companies Act and any other relevant legislation;

• determiningpolicieswithregardtonon-auditservicesprovided by the external auditor from time to time;

• dealingwithanycomplaints(whetherfromwithinoroutside the group) relating to accounting practices, internal audits of the group or the content of the group’s financial statements and related matters;

• ensuringthatallkeyriskareashavebeenproperlyidentified and that the group mitigates such risks;

• ensuringthatthegroupcomplieswithrelevantlegislation and sound corporate governance principles;

• assistingtheboardinfulfillingitsresponsibilitiesbyreviewing the effectiveness of internal control systems in the group;

• reviewingtheannualfinancialstatements,integratedreport and interim reports of the group as well as other public communications of a financial nature;

• consideringsignificantaccountingissues;• reviewingauditrecommendations;• reviewinganysignificantcasesoffraud,misconduct

or conflicts of interests; and• reviewingtheexpertise,experienceandperformance

of Holdsport’s chief financial officer.

Chairperson: Bryan Hopkins*

Other committee members:• KeneilweMoloko#

• SydMuller

All the members of this committee are non-executive directors and at the date of this report two are independent.

Executive directors, members of executive management and the external audit partners and staff attend meetings at the invitation of the committee. Independently of management, members of this committee meet separately with the external auditors.

The group’s external auditors have unrestricted access to the audit and risk committee and attend its meetings.

The audit and risk committee meets three times per financial year, excluding any ad hoc meetings held to consider special business.

The chairperson of this committee attends the annual general meeting.

* Mary Vilakazi chaired the audit and risk committee until 30 June 2014. Bryan Hopkins will act as chairman from 1 July 2014 until the next annual general meeting.

# Keneilwe Moloko replaced Mary Vilakazi from 1 July 2014 as member of the committee.


Remuneration and nomination committee


This committee is governed by a formal charter to ensure that there is a transparent procedure for developing policies on executive remuneration and determining remuneration packages of individual directors and senior executives, within agreed terms of reference and within the framework of good corporate governance. The key mandate of the committee is to compile emolument proposals in accordance with the group’s remuneration strategy.

The charter guides the remuneration and nomination committee in terms of its objectives, authority and responsibilities, which include:• reviewingthegroup’sboardstructures,thesize

and composition of the various boards within the group and to make recommendations in respect of these matters, as well as an appropriate split between executive and non-executive directors and independent directors;

• assistingintheidentificationandnominationofnewdirectors for approval by the board;

• theassessmentofnewexecutiveandnon-executivedirectors;

• consideringandapprovingtheclassificationofdirectors as independent, overseeing induction and training of directors, and conducting annual performance reviews of the board and various board committees;

• ensuringtheproperandeffectivefunctioningofthe group’s boards and assisting the chairman in this regard;

• consideringandmakingrecommendationstotheboard on, inter alia, the remuneration policy of the group, the payment of performance bonuses, executive remuneration, short-, medium- and long-term incentive schemes and employee retention schemes; and

• usingexternalmarketsurveysandbenchmarkstodetermine executive directors’ remuneration and benefits, as well as non-executive directors’ base fees and attendance fees.

Chairperson: Bryan Hopkins

Other committee members: • SydMuller• PhillipMatlakala*

The members of this committee are non-executive directors and two are independent.

The chief executive and other executives attend meetings of the remuneration and nomination committee by invitation, but do not participate in discussions regarding their own remuneration and benefits.

The committee’s powers regarding non-executive remuneration are limited to making recommendations to the board.

The remuneration and nomination committee meets at least twice per financial year, excluding any ad hoc meetings held to consider special business.

The chairman of this committee attends the annual general meeting.

* Effective from 1 July 2014.

Corporate structure continued

36

Transformation, sustainability, social and ethics committee


The scope of authority of this committee is clearly defined in a formal charter. It has established a broad-based BEE strategy aligned to the Broad-based Black Economic Empowerment Act of 2003 and the associated codes of good practice.

Guidelines have been defined for each of the seven elements of BBBEE, being equity ownership, management control, employment equity, skills development, preferential procurement, enterprise development and socio-economic development.

The charter guides the committee in terms of its objectives, authority and responsibilities, which include:• monitoringthegroup’sactivities,havingregard

to any relevant legislation; legal requirements and prevailing codes of best practice in respect of social and economic development, good corporate citizenship (including the promotion of equality, prevention of unfair discrimination, the environment, health and public safety); consumer relationships; social and ethics, and labour and employment issues;

• advisingtheboardonallrelevantaspectsthatmay have a significant impact on the long-term sustainability of the group; and

• drawingtotheattentionoftheboardmatterswithinits mandate as the occasion requires and reporting to the shareholders at the group’s annual general meeting on such matters.

In order to carry out its functions, the committee will be entitled to request information from any directors or employees of the group, attend and be heard at general shareholders’ meetings, and receive notices in respect of such meetings.

Chairperson: Phillip Matlakala*

Other committee members:• SydMuller#

• KevinHodgson

Two members of this committee are non-executive directors.

Other executives and management attend meetings of the transformation committee by invitation.

The transformation, sustainability, social and ethics committee meets at least twice per financial year, excluding any ad hoc meetings held to consider special business.

The committee has an ongoing responsibility to monitor and review all aspects of the group’s BBBEE strategies and to ensure the achievement of its targets.

* Phillip Matlakala replaced Crispin Sonn from 1 July 2014 as member of the committee and will also take over from Syd Muller as the chairman of the committee from this date.

# Syd Muller was the chairman of this committee until 30 June 2014.


Risk management

The board is responsible for risk management, while management is accountable to the board for this process and for reporting on the operation and effectiveness of controls.

The group has adopted an ongoing, systematic and documented risk management process that ensures that all material risks are identified, evaluated, effectively managed and, where this is practical, quantified. This process will ensure sustainable risk awareness and culture at all levels. The assessments are aligned to the strategic objectives of the group.

Risk register Risks have been specifically defined and recorded in a risk register, and management evaluated the impact, likelihood and response to these risks. Each risk on the register is assigned an impact and probability rating, which in turn determines the inherent risk rating and its significance to the group. Detailed risk mitigation plans are developed for each risk, which then determines the level of residual (net) risk. Residual risk ratings are then assigned to each risk. Key risks facing the group are detailed in the Report on pages 40 to 43.

Financial riskThe group is exposed to financial risks through currency and interest rate exposures.

Exposure to foreign currency exchange rate fluctuations arises from the group’s direct imports of merchandise into South Africa, mainly from China. It is the group’s policy to enter into forward cover contracts for all import orders to cover import commitments. There were no uncovered foreign currency liabilities at the end of the period. No speculative foreign exchange trading is permitted.

Internal auditThe group does not currently have an independent in-house internal audit department.

This is compensated for by established internal control structures and specific review and detective processes performed by the finance team, including:•formalcompletionofstandardauditchecklistsand

reporting on the results thereof;•dailybankreconciliationsandinvestigationsat

store level;•regularstockcountsandinvestigations;•regularanddetailedreviewofsignificantand

extraordinary transactions by experienced staff;

•regularstorevisitsbyregionaloperationalmanagers;and

•adhocstorevisitsbyfinancialmanagersandothersenior staff.

The finance team reports on various operational KPIs on a weekly and monthly basis and investigates any out-of-line measurements.

Furthermore, the group engaged Mazars Inc., an independent audit firm, to conduct a review of certain selected key controls to confirm that the design of the controls is effective and whether the controls operated effectively. Their review did not indicate any significant weaknesses.

Regional managers and financial managers conduct monthly store audits to ensure compliance with operating procedures and policies, using formalised standard audit checklists and scorecards.

The group’s stock and cash losses as a percentage of sales are generally low by industry standards, which suggest overall that key operational controls are effective. Furthermore, merchandise margins and profitability is actively measured and reviewed at a granular level, and has been sustained through rigorous cost management and control over merchandise and procurement practices.

Internal control systemsTo meet the group’s responsibility to provide reliable financial information, Holdsport maintains financial and operational systems of internal control. These controls are designed to provide reasonable assurance that transactions are concluded in accordance with management’s authority; that the assets are adequately protected against material losses, unauthorised acquisition, use or disposal; and those transactions are properly authorised and recorded.

The systems include a documented organisational structure and division of responsibility; established policies and procedures which are communicated throughout the group; and the careful selection, training and development of people.

The group monitors the operation of the internal control systems in order to determine if there are deficiencies. Corrective actions are taken to address control deficiencies as they are identified. The board of directors, operating through the audit and risk committee, oversees the financial reporting process and internal control systems.

There are inherent limitations on the effectiveness of any system of internal control, including the possibility

38

of human error and the circumvention or overriding of controls. Accordingly, an effective internal control system can provide only reasonable assurance with respect to financial statement preparation and the safeguarding of assets.

CultureThe group has clear organisational structures that ensure segregation of duties and encourage accountability with appropriate oversight and support.

The business model and processes are mature and management has developed a disciplined business with internal control frameworks that consist of various codes of conduct and ethics and detailed policy and procedure manuals which are reviewed regularly and updated as systems are improved and processes evolve to meet new demands or mitigate new risks.

Control environmentThe group has various preventative and detective controls which interact to ensure the efficiency of the internal control systems. The business is fundamentally split into three areas, being merchandise, operations and finance. Accounting and merchandise functions are centralised at head office, and transaction steps are appropriately segregated and supervised.

Except for insignificant petty cash expenses, stores cannot make any payments for stock purchases, other expenses or to staff. Various levels of authorisation are in place at head office to monitor and approve transactions.

The group has a whistle-blowing hot line, which is monitored by the finance function.

Reporting and measurementSpecific risk management frameworks have been determined per area, and are supported with various reports and KPIs to enable measurement of the effectiveness of controls. Accounting and reporting processes are robust and enable accurate and regular analysis of information compared to predetermined performance measures and historical trends.

Key measurements and reports include:

• dailybankreconciliationsperstore;

• weeklysectionalcountsofselectedstockandbiannual full stock counts in stores;

• weeklyhigh-riskstorereviewreports;

• resultsofauditchecklistscompletedbystoremanagers and regional managers;

• variousmerchandisereportsonperformancepercategory and across various matrices;

• monthlyExcomeetingsandcomprehensivemonth-end packs which cover financial, merchandise and operational performance; and

• monthlymeasurementofoutsourcepartners’performance in terms of their service level agreements.

InsuranceThe group accepts a certain level of self-insurance risk to reduce overall insurance cost. Individual claims of up to R100 000 are self-insured, but limited to a total aggregate of R1 million for motor claims and R300 000 for all other risks per annum. The self-insurance risk stimulates the understanding and importance of asset protection controls in the group.

Management uses independent insurance broker AON as a specialist consultant to assist in annually reviewing the scope and appropriateness of the short-term insurance programme. Various factors are considered when setting and reviewing insurance covers, including the expanding business operation and resulting growth in sales, profits, assets and employees, as well as changes in business practices and legislation.

Other matters covered in the review are: uninsured and uninsurable risks, the appropriateness of policy deductibles, exclusions and indemnity limits. Management also considers the credit ratings and stability of underwriters and their ability to service the group’s needs. Management reports to the audit and risk committee on the insurance renewal process and on material incidents during the year.


Risk management continued

Significant risks

Risk ResponseExpansion through new store openings

The group is considering a number of locations for the opening of new stores, but its ability to successfully do so is dependent on a number of factors, including the availability of site locations suitable to house the warehouse-style premises that the group generally operates from, and the group’s ability to successfully negotiate acceptable lease conditions.

The group plans to open at least two new stores per year, but there is no guarantee that such plans will be successful.

New stores may be unproductive or dilute existing stores’ profits.

• Engagepropertydeveloperstoidentifyandsecurenew space where possible, or extend existing stores

• Viabilityanalysistoconsiderproposednew sites• Storeperformanceisreviewedcontinuouslyand,

should it become necessary, stores may be closed or relocated

Impairment of store locations and other adverse effects on trading density

Changes to the demographic profile of the area in which stores are located may result in a decline in customer traffic and sales volume in respect of such stores.

Furthermore, specialist, independent retailers focused on the sales of a narrow range of categories, which open near to the group’s stores, may impact on sales volume and customer traffic.

Other extraneous factors like weather and holidays, as well as the success of national and/or regional sports teams, also affect the group’s sales.

• Engagepropertydeveloperstoidentifyandsecurenew space where possible, or extend existing stores

• Viabilityanalysistoconsiderproposednew sites• Expandingthestorebaseintodifferentlocationslike

malls and new geographic locations• Ongoingmaintenanceandrefurbishmentofstore

fixtures and fittings• Closelymonitorthemarket,bothlocally

and internationally• Storeperformanceisreviewedcontinuouslyand,

should it become necessary, stores may be closed or relocated

• Undertakeresearchtoproperlyunderstandlocal demographics

Retail lease risks

The group generally has little bargaining power in negotiating the terms of leases and is usually bound to the owners’ standard terms and conditions of lease. The group can give no assurances that it will be able to renew leases on acceptable terms.

Furthermore, where the lease agreements limit the right of the group to terminate on notice, the group’s ability to readily adapt to changes in the industry, the demographic profile of the area, or prevailing business is reduced.

There is also a risk that high increases in property rates and electricity may threaten the viability of stores.

• Themajorityofleasesareforinitialtermsoffiveyears, with options to renew, which provides a measure of flexibility

• Engagepropertydevelopersearlytonegotiatelease agreements

• Storeperformanceisreviewedcontinuouslyand,should it become necessary, stores may be closed or relocated

• Concertedfocusonreducingelectricityusageand costs

40

Risk ResponseExpansion of product offering/categoriesThe growth of the group depends partly on the introduction of new products and new categories across stores.

If the group is unsuccessful in forecasting developing trends or the introduction of new products and categories is misjudged, new products may not be available when customers request them or, alternatively, the group may be overstocked with products for which there is low demand.

Similarly, failure to accurately forecast customer demand may lead to excess inventory, possibly requiring large-scale clearance sales and inventory write-offs, or a shortage of stock.

Such outcomes could harm the perception of the group as a market leader and preferred shopping destination, and damage customer loyalty, leading to adverse effects on sales and profits.

• Regularinteractionwithsupplierstoidentifynewproducts and developments

• Visitstointernationaltradeshows• Experiencedbuyingteams• Sophisticatedmerchandiseprocesses,whichinclude

detailed forecasting of demand and stock levels

Loss of or inability to retain or recruit senior management and key personnel and expertise

The group operates in an environment where there is a scarcity of retail-specific skills.

The success of the group is based, in part, on the operational and strategic contributions of its key personnel, who have extensive experience in the retail industry.

In the event that the group is unable to retain the services of such individuals, its prospects and financial condition may suffer material adverse effects.

Failure to internally develop and train, or otherwise recruit, adequately experienced and skilled personnel to ensure long-term competitiveness will adversely affect the prospects of the group.

• Ensuringthatprocessesareinplacetoattract,retainand develop high-quality staff

• Developmentprogrammestoenhancethepoolofleadership skills

• Merchanttraineeprogrammedevelopsgraduatesforroles in merchandise functions

• Competitiveremunerationandincentiveschemestoenhance retention

• Successionplans

Disruptions to distribution processes

The group imports approximately 30% of the products sold through its stores directly and handles this through a dedicated distribution centre.

The success of the distribution function impacts directly on stock availability and therefore on sales and profitability. Potential disruptions to the distribution process include labour issues, electricity shortages, destruction or damage.

Furthermore, the group relocated to a new facility during the year and assumed full operational management of its distribution centre.

• Riskreviewstoconsidereventsandfactorsthatcancause a disruption in the supply chain

• Maintainappropriateinsurance cover• Qualityassuranceandqualitycontrolprocesses• Sourcingfromdifferentsuppliersandcountries

to expand procurement opportunities, including considering local manufacturers as substitutes and/or assuming distribution on behalf of local suppliers

• Consultingwithlogisticalspecialists


Risk management continued

Significant risks (continued)

Risk ResponseSupply chain

The inability to provide our customers with the appropriate merchandise at the right price and time as a result of deficiencies in the supply chain.

The group’s suppliers are subject to certain operational risks, including labour disputes, economic instability, disruptions or delays in distribution and other factors beyond the control of the group.

Where suppliers suffer operational issues which cause delivery delays or increased production costs, such effects may be passed on to the group, negatively impacting inventory levels and decreasing profitability.

• Maintainappropriateinsurancecoverforlossof profit

• Specificsuppliertermsandconditions• Regularfollow-uponorderstatuswithsuppliers• Riskreviewstoconsidereventsandfactorsthatcan

cause a disruption in our supply chain• Closelymonitorthemarket,bothlocallyand

internationally• Qualityassuranceandqualitycontrolprocesses• Sourcingfromdifferentsuppliersorimportingdirectly

Information technology (IT) systems

The group is highly dependent on reliable, effective and efficient information and technology systems to process sales transactions, control access and process transactions and information.

Should the group’s systems be affected by viruses, unauthorised access, system failure, loss of data or similar disruptions, the group may suffer material adverse effects on its operations, business, sales and revenues.

The ever-increasing reliance upon computer systems necessitates a stable, secure and uninterrupted computer infrastructure.

• Thegroup’sinformationtechnologyisoutsourcedto UCS, a company with significant expertise and experience. UCS is part of the BCX Group. UCS’s performance is monitored by the group in terms of a detailed service level agreement, which covers, amongst other things, data storage recovery and backup, system implementation, and system resumption

• SeniormanagementreviewandupdatetheIT strategic plan

• Maintainingaregularlytesteddisasterrecoveryplanthat should provide seamless computing capacity in the event of a disaster, involving the establishment of secure computer suites in separate locations with adequate capacity to provide backup access to critical systems

• Changecontrolproceduresforallsystemenhancements

• Ensuringthataccesscontrolsareimplementedand enforced

• Standardisationofapplicationsandinfrastructuretechnology

• Regularupgradesandtechnologychangestoensurethat our applications and infrastructure are current and supported

• EmphasisatalllevelsonenhancingITsecurityfromall potential threats, both internal and external

• ReviewITgovernance

42

Risk ResponsePersonal liability and legal compliance

Customers may lodge personal liability claims against the group for harm caused by or suffered in connection with the use of goods sold by the group’s subsidiaries.

The legislative framework within which we operate has become increasingly complex.

Amendments to existing laws, new laws and pending Bills have to be tracked and continuously assessed to ensure compliance. Business processes have to be aligned to ensure compliance.

• Ongoingreviewoflegislation(existing,newandpending)

• Compliancereport-backsgiventocommitteessuchas the risk committee

• Workshopsandtaskteamsareformedwithinourbusiness to assess the impact of laws and to agree on implementation action items

• Awarenesssessionsforourstaffonnewlaws

Exchange rate, interest rate and inflation fluctuations

Sudden changes in the exchange rate may affect the costs of goods imported, directly and indirectly.

Significant and sudden increases in local interest rates may curb consumer expenditure, in addition to increasing the cost of borrowing and corporate funding.

Such changes may adversely affect the group’s profitability and growth. Furthermore, higher inflation rates may curb the group’s profitability where such increased inflation rates are not associated with increased productivity and/or impacts on consumer spending.

• Allimportordersarecoveredbyforward-exchangecontracts

• Thegroupisabletoadjustrangestofitkeyprice points

• Thegroupisabletopasspriceincreasesonto customers

Crime

Prevailing high levels of crime in South Africa pose a risk to the group, which may suffer losses from fraud and theft.

• Continuallyreviewingsecurityatstores• Stafftrainingonhowtodealwitharmedrobberies• Anonymouswhistle-blowingnumbertoreport

criminal acts• Tightcontrolsoverthehandlingofcashandcontrol

over stock

Business continuity

The loss of a major head office facility or distribution centre could impact upon critical business functions.

• Separateheadofficebuildinganddistributionfacility

• Providingbackupfacilitiesforcriticalfunctions• Splittingthecomputingcapacityoverdifferentserver

rooms in separate locations• Businesscontinuityplansanddisasterrecoveryplans• Comprehensivephysicalprotectionmeasures• Appropriateinsurancecover


Remuneration report

PrinciplesHoldsport’s remuneration philosophy is to structure packages in such a way that performance, contribution and potential are clearly linked to the rewards received, and aligned with shareholder wealth creation. Accordingly, guaranteed remuneration is competitive to attract potential employees and motivate and retain current employees, whilst long- and short-term incentives are aligned with the achievement of business objectives.

Total remuneration consists of salary, travel allowance, short- and long-term incentives, pension and medical aid funding.

Remuneration governanceThe remuneration and nomination committee assists the board in ensuring that the group has a competitive remuneration policy which is aligned with the group’s strategy and performance goals. The key duties of the committee, in terms of a board-approved documented charter, include:

• ensuringthegrouphasaremunerationpolicythatpromotes the achievement of strategic objectives and encourages individual performance;

• ensuringthecombinationoffixedandvariableremuneration meets the group’s needs and objectives;

• ensuringallbenefits,includingretirementbenefitsandother financial arrangements, are justified;

• reviewingincentiveschemestoensurecontinuedcontribution to shareholder value and that these are administered in terms of the rules;

• consideringtheresultsoftheevaluationoftheperformance of the chief executive officer and other executive directors, both as directors and as executives, in determining remuneration;

• approvethequantumofshort-termcash-basedincentives and the award of long-term share-based incentives;

• advisingontheremunerationofnon-executivedirectors, subject to shareholder approval; and

• reviewingtheremunerationpolicytoensurethatitisaligned with market practice.

The remuneration and nomination committee comprises three non-executive directors: Bryan Hopkins, Phillip Matlakala and Syd Muller. The chief executive officer attends meetings by invitation, but is excused when his own remuneration is discussed by the committee. The committee meets at least twice per year.

For further details regarding the committee, please refer to the Corporate Governance Report on pages 32 to 37.

Components of remunerationRemuneration comprises the following elements:

Guaranteed remuneration Variable and performance-related remuneration

Annual base salary Short-term performance Long-term performance

Includes travel allowance, company contributions to pension and medical aid funding, group life and disability insurance

Short-term cash-based incentive scheme

Share incentive scheme: the Holdsport Forfeitable Share Plan

Salary is based on performance, contribution and market value relative to responsibilities within the group

Incentives are based on group and individual performance criteria

Long-term share-based incentives are aimed at retention to encourage sustainable shareholder wealth creation

44

Remuneration policies and practices were reviewed to align with the recommendations of King lll. The group’s remuneration policy will be proposed to shareholders for a non-binding advisory vote at the annual general meeting (AGM) in August 2014.

The guaranteed remuneration is reviewed annually and performance-related increases take effect in July. The performance appraisal process utilises a three-point scale and appraisal results are moderated centrally to ensure fairness and consistency across business units.

Salary increases are awarded within the range approved for each performance level, after taking into account other relevant information including the employees’ position within the pay band, prevailing economic conditions, inflation, the group’s remuneration position relative to other comparable retailers and scarcity of skills.

Employees’ performance ratings are confirmed in the communication regarding their annual increases.

Performance measurementThe performance of executive directors is reviewed annually by the remuneration and nomination committee against predetermined financial targets and strategic objectives to ensure ongoing alignment with shareholder interests. The financial metrics for the 2014 financial period were the achievement of earnings targets after net finance charges, before tax.

The CEO is remunerated on the achievement of long-term strategic goals, including succession planning and defining and executing the strategic direction of the business.

Sustainability is an underlying principle in determining remuneration. The board is satisfied that the financial targets do not encourage an inappropriate level of risk-taking to achieve group or individual targets.

Annual performance reviews are conducted with each employee to measure performance against key financial and operational indicators relating to their own areas of responsibility, including sales growth, profitability, shrinkage, expense management and innovation.

EmployeesThe remuneration package for the majority of employees comprises a guaranteed salary, pension and medical aid contributions and an annual bonus.

Salaries are reviewed annually in June and the level of increase is based on both group and individual

performance. Salaries of flexitime employees are reviewed annually in February in line with sectorial determination requirements and individual performance.

Incentive schemesThe short-term and long-term incentive schemes described below ensure that employee performance is aligned with the interests of shareholders.

Short-term cash incentivesThe group’s employees are financially incentivised through a number of different bonus schemes, including:

• a13thchequebonuswhichispayableinDecemberannually;

• operationalstoreemployees(otherthanmanagers)are incentivised through a monthly sales-linked scheme for above-target sales;

• storemanagersandprofessionalstaffareincentivisedthrough a “balanced scorecard” where employees are evaluated on a number of dimensions including profitability, customer service, asset control, people development and community involvement;

• middleandseniormanagershaveincentivestructureswhich are designed to reflect the efficiency of controls in their areas of responsibility, both financial and operational, through “balanced scorecards”. The balanced scorecards foster goal congruence across business structures, since lower-level scorecards are rolled up and aggregated for line managers; and

• theexecutivemanagementisincentivisedbasedon the achievement of profit and strategic goals, as approved by the remuneration and nomination committee.

Incentive payments are subject to the achievement of financial targets, and are directly linked to the achievement of the group’s objectives and the goals of individual employees.

No ex gratia payments were made to employees in the period under review and no extraordinary incentive payments were made to retain key employees.

Long-term share-based incentive scheme: The Holdsport Forfeitable Share PlanThe group adopted the Holdsport Forfeitable Share Plan (Holdsport FSP or FSP) in line with South African and global market practice. The purpose of the Holdsport FSP is to provide executive directors and employees of Holdsport with the opportunity to receive shares in the company, thereby aligning their interests with those of shareholders of the group.


Remuneration report continued

Participation in the scheme is at the discretion of the remuneration and nomination committee and is generally limited to employees whose role or contribution could directly influence the performance of the group.

Under the FSP a participant is granted a number of forfeitable shares by way of an award. Participants are not required to pay for the grant of an award or to make a payment in order for the award to vest. Awards granted under the FSP may be subject to the achievement of specific performance conditions and all awards are subject to continued employment until the vesting date, unless otherwise specified.

Generally the initial vesting period is a period of at least three years from the date that the award was made, after which participants will own the shares outright if the performance conditions have been satisfied.

During the vesting period, the forfeitable shares are held for the absolute benefit of the participant and the participant shall have all shareholder rights in respect of the shares with effect from the settlement date. However, the forfeitable shares are subject to restrictions in that they cannot be disposed of, ceded, transferred

or otherwise encumbered until they vest on the vesting date. In addition, the shares are subject to a risk of forfeiture until they vest on the vesting date.

To the extent that the performance condition is not satisfied or the participant leaves the employment of the group before the vesting date (other than retirement, death or disability), the forfeitable shares will be forfeited. The relevant award lapses and the participant will lose all rights to the relevant forfeitable shares.

In these circumstances, the participant will not be compensated for the loss of the forfeitable shares. The forfeited shares will be sold as soon as practicable after the lapse date and the sales proceeds will be remitted to the group.

If, at any point during the performance period, an event occurs which causes the board to consider that the performance condition is no longer appropriate, the board may substitute or vary the performance condition in such manner as:• isreasonableinthecircumstances;and• producesafairermeasureofperformanceandisnot

materially less difficult to satisfy.

Awards to dateThe group purchased 498 750 shares at a cost of R15.5 million for the initial awards to participants in July 2011, then awarded a further 265 506 shares at a cost of R12.1 million in 2012, followed by an award of 105 761 shares at a cost of R4.9 million in the current year. Details of awards made to executive directors and employees of the group in terms of the FSP are set out below:

Number of shares per vesting date:

Award dateNumber ofparticipants

Total shares awarded July 2014 July 2015 July 2016 July 2017 July 2018

Directors July 2011 3 209 152 69 717 69 717 69 718 – –

August 2012 2 66 174 – 22 058 22 058 22 058 –

August 2013 2 21 572 – – 7 191 7 191 7 190

Employees July 2011 24 238 112 79 371 79 371 79 370 – –

August 2012 30 201 884 – 67 295 67 295 67 294 –

August 2013 43 133 123 7 707 7 701 44 372 36 666 36 677

Total 48# 870 017 156 795 246 142 290 004 133 209 43 867

# Total number of unique participants in FSP.

The performance conditions are determined by the remuneration committee and are based on the achievement of a minimum return on net assets.

Participation by an individual employee is currently limited to a maximum number of shares equating effectively to 1% of the company’s issued shares.

The current number of shares held in the FSP is about 2.0% of the company’s shares in issue.

46

Employee benefitsRetirement fundingMembership of the Alexander Forbes Retirement Fund (AFRF) is compulsory for all permanent employees in South Africa.

• Thefundisadefinedcontributionschemeandthegroup carries no liability in relation to the fund.

• Thefundprovidesdeathanddisabilitycover,aswellas a funeral benefit.

The fund is an umbrella fund and has a board of trustees, with internal and external trustees that comply with the appropriate governance frameworks. Holdsport has a management committee that comprises 50% employee-elected representatives and 50% employer-appointed representatives, who oversees the administration of the fund by Alexander Forbes.

Health careIt is a condition of service for all permanent employees in South Africa to join the Horizon Medical Aid Scheme unless they are covered by the health-care fund of their partner. Horizon is a closed scheme which services the group and the Clicks Group. It has been designed to best suit the needs of most employees. The scheme is

managed by Medscheme, is sufficiently capitalised and complies with the Medical Schemes Act.

The group contributes a portion of the cost per member and at the end of the year 1 135 employees were members of Horizon.

Non-executive directors’ remunerationNon-executive directors received fixed remuneration for services to the board and its committees. These fees reward directors fairly for the time, service and expertise provided to the group as well as legal obligations and risk.

Non-executive directors may not participate in incentive schemes. None of the non-executive directors have service contracts with the group and no consultancy fees were paid to non-executive directors during the period.

The remuneration of non-executive directors is reviewed annually by the remuneration and nomination committee and recommendations for increases are made to shareholders at the AGM for consideration and approval.

Shareholder approval will be sought at the upcoming AGM for the increase in fees for the 12-month period to 31 August 2015.


Remuneration report continued

Executive and non-executive directors’ remunerationExecutive directors receive a remuneration package including long-term incentives on the same basis as all other senior management and executives. The remuneration of executive and non-executive directors was as follows:

Months paid

Directors’ fees

(R’000)Salaries(R’000)

Travel allow-ance

(R’000)

Pension fund

contributions(R’000)

Health-care

contributions(R’000)

Per-formance

bonus(R’000)

Total remu-

neration(R’000)

Value of awards ito FSP# (R’000)

2014ExecutiveKG Hodgson 12 – 2 503 150 – 13 225 2 891 653JP Loubser 12 – 1 442 72 91 13 225 1 843 920B Moritz* 6 – 783 30 – 7 225 1 045 928EA Haarburger* 6 – 843 42 58 6 – 949 392Total – 5 571 294 149 39 675 6 728 2 893Non-executiveSA Muller 12 673 – – – – – 673 –CF Sonn 12 224 – – – – – 224 –BD Hopkins 12 264 – – – – – 264 –M Vilakazi 12 235 – – – – – 235 –Total 1 396 – – – – – 1 396 –Total remuneration 1 396 5 571 294 149 39 675 8 124 2 893

2013ExecutiveKG Hodgson 12 – 2 327 150 – 12 1 100 3 589 587JP Loubser 12 – 1 127 72 76 12 600 1 887 353EA Haarburger 12 – 1 627 84 109 12 800 2 632 628Total – 5 081 306 185 36 2 500 8 108 1 568Non-executiveSA Muller 12 628 – – – – – 628 –CF Sonn 12 209 – – – – – 209 –BD Hopkins 12 246 – – – – – 246 –M Vilakazi 12 219 – – – – – 219 –Total 1 302 – – – – – 1 302 –Total remuneration 1 302 5 081 306 185 36 2 500 9 410 1 568# The value of shares awarded in terms of the Holdsport FSP is the annual expense determined in accordance with IFRS 2: Share-based

Payment and is presented for information purposes only. This does not constitute remuneration, given that the value was neither received nor accrued to the directors during the period. The value of awarded shares will be disclosed in the annual financial statements in the period when vesting occurs. The shares granted to directors are presented on pages 46 and 61.

* The remuneration for 2014 is only for a portion of the year: EA Haarburger was a director for the first six months of the year and B Moritz for the second half of the year.

Three highest paid executivesKing III recommends that the remuneration of the three highest paid executives, excluding executive directors, be disclosed. This information is not disclosed separately, due to the value of these individuals to the group and the highly competitive South African retail environment, but has been disclosed in aggregate as detailed below:

Highest paid executives in aggregate2014R’000

2013R’000

Salary 3 821 3 031Performance bonus 200 1 125Travel allowances 186 114Pension contributions 192 108Health care 39 24Total remuneration 4 438 4 402

48

Transformation report

Transformation and empowerment are important areas of sustainability in the South African business environment. The group has thus far not pursued a broad-based black economic empowerment (BBBEE) rating and has focused its transformation efforts on staff and community involvement.

While some progress has been made over the past year it remains challenging to attract and retain senior black talent.

This report outlines the group’s performance and progress against the seven elements of the BBBEE scorecard.

OwnershipGiven its history of highly geared private equity owners, followed by the recent listing of the group, Holdsport does not have significant black ownership.

The group has introduced an employee share ownership programme (the Holdsport Forfeitable Share Plan) to enable employees to share in the growth of the group. Through the FSP, 2.0% of the group’s issued shares have been awarded to certain key full-time permanent employees.

At this stage the majority of the participants in the FSP are not previously disadvantaged.

Refer to the Remuneration Report on pages 44 to 48 for further detail on the objectives and operation of the FSP.

Management controlIt remains a challenge to improve the representation of black people and females at senior management level.•Black,colouredandIndianstaffrepresents27.8%

(2013: 19.5%) of senior and top management (excluding non-executive directors).

•Womenaccountfor16.5%(2013:14.3%)ofseniorand top management (excluding non-executive directors).

• 14.2%(2013:14.2%)ofdirectorsareblackand28.6% (2013: 28.6%) are women.

Employment equityTransformation is managed within a governance framework which includes the board transformation committee and the employment equity committee in which both the chief executive and the group

human resources officer participate with a number of employee representatives.

The group continues to create an increasingly diverse workforce through the advancement of previously disadvantaged people and the empowerment of women.

A transformation plan for 2014 to 2016, which is aligned to the Department of Trade and Industry’s (DTI) codes of good practice, has been developed to guide the implementation of the group’s transformation strategy.

The following statistics demonstrate the diversity of the group’s employees:• Blackstaffrepresents47.1%(2013:49.3%)ofthe

total workforce.• Womencomprise49.9%(2013:48.6%)ofall

employees.

Skills developmentThe group spent R1.29 million (2013: R1.25 million) on learning and development, which equates to 0.77% (2013: 0.78%) of the basic payroll.

A total of 680 employees (2013: 748) participated in learning and development programmes.

Learning and development programmes were mainly focused on investing in developing product knowledge, management development, internal transformation and industrial relations.

Preferential procurementThe group’s procurement practices are dependent on the holders of the branded merchandise that it sells, of which a significant portion is large internationally-owned brands. The group commenced with the verification of the BBBEE scores of suppliers and applies preferential procurement strategies in so far as it is possible to do so.

Enterprise developmentHoldsport has no enterprise development programmes.

Socio-economic developmentThe group actively participates in various social and sporting events organised by clubs and schools in the communities within which it operates. Furthermore, stores act as registration points for participants in a number of running and cycling races.


Audit and risk report

This report of the audit and risk committee is presented to shareholders in compliance with the requirements of the Companies Act No. 71 of 2008, as amended (the Companies Act).

Role and responsibilitiesThe audit and risk committee has an independent role with accountability to both the board and to shareholders. The committee’s responsibilities include the statutory duties prescribed by the Companies Act, activities recommended by King lll and the responsibilities assigned by the board.

The responsibilities of the committee are set out on pages 35 and 51.

Composition of the committeeThe committee comprises three non-executive directors who are all suitably skilled directors, with all three members having relevant financial experience. The committee is elected by shareholders at the annual general meeting.

Biographical details of the committee members appear on pages 14 and 15.

King III recommends that the chairman of the board should not be a member of the audit and risk committee. The chairman of the board, Syd Muller, currently serves on the committee due to the small size of the board. The board has considered the issue and believes that the chairman’s skills, knowledge and experience allow him to make a significant contribution to the committee and the board has therefore recommended that he continues to serve on the committee.

Fees paid to the committee members for 2014 and the proposed fees for 2015 are disclosed in the Remuneration Report on page 48 and in the Notice of the Annual General Meeting on page 72.

The effectiveness of the committee will be assessed as part of the annual board and committee self-evaluation process.

Internal auditInternal audit should provide information to assist in the establishment and maintenance of an effective system of internal control to manage the risks associated with the business. The group does not have an independent internal audit function, but engaged Mazars Inc. to conduct a review of the design and effectiveness of selected key controls. This review did not identify any material weaknesses in the system of internal control.

The finance function is responsible for the following duties:• evaluatingcontrolprocesses,includingethics;• assessingtheeffectivenessoftheriskmethodology

and internal financial controls; and• evaluatingbusinessprocessesandassociated

controls in accordance with the annual audit plan.

Internal controlSystems of internal control are designed to manage, rather than eliminate, the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against misstatement or loss.

While the board of directors is responsible for the internal control systems and for reviewing their effectiveness, responsibility for their actual implementation and maintenance rests with executive management. The systems of internal control are based on established organisational structures, together with written policies and procedures, and provide for suitably qualified employees, segregation of duties, clearly defined lines of authority and accountability. They also include cost and budgeting controls, and comprehensive management reporting.

The committee has assessed the effectiveness of the internal control system based on information and explanations given by management, internal audit work done by an independent audit firm and discussions with the external auditor on the results of the audit. Through this process no material matter has come to the attention of the committee that has caused the directors to believe that the group’s system of internal controls and risk management is not effective and that the internal financial controls do not form a sound basis for the preparation of reliable financial statements.

External auditThe audit and risk committee appraised the independence and expertise of KPMG Inc. as the external auditor, as well as approving the terms of engagement and the fees paid to KPMG Inc.

The external auditor has unrestricted access to the group’s records and management. The auditor furnishes a written report to the committee on significant findings arising from the annual audit and is able to raise matters of concern directly with the chairperson of the committee.

The committee is satisfied that the external auditor is independent of the group.

50

Policy on non-audit servicesNon-audit services provided by the external auditor may not exceed 25% of the total auditor’s remuneration except if specifically approved by the committee. These services should exclude any work which may be subject to external audit and which could compromise the auditor’s independence. All non-audit services undertaken during the year were approved in accordance with this policy.

During the year KPMG received fees of R10 500 (2013: R11 000) for non-audit services relating to turnover rent certificates. The services in the previous year related to services as independent reporting accountant on the listing documents and conducting a risk workshop. The fees were approved by the committee.

KPMG satisfied the audit and risk committee that appropriate safeguards have been adopted to maintain the independence of the external auditor when providing non-audit services.

Activities of the audit and risk committeeThe committee met three times during the financial year. Members of the committee, the external auditor and the group CFO may request a non-scheduled meeting if they consider this necessary. The chairperson of the audit and risk committee will determine if such a meeting should be convened.

Minutes of the meetings of the committee, except those recording private meetings with the external and internal auditors, are circulated to all directors and supplemented by an update from the audit and risk committee chairperson at each board meeting. Matters requiring action or improvement are identified and appropriate recommendations made to the board.

The chairperson of the committee will attend all statutory shareholder meetings to answer any questions on the committee’s activities.

The committee performed the following activities relating to the audit function during the year under review, with certain of these duties being required in terms of the Companies Act:

• recommendedtotheboardandshareholderstheappointment of the external auditors, approved their terms of engagement and remuneration, and monitored their independence, objectivity and effectiveness;

• determinedthenatureandextentofanynon-auditservices which the auditor may provide to the group and preapproved any proposed contracts with the auditors;

• reliedonthefinancefunction’sreviewofthegroup’s internal financial control and financial risk management systems; and

•engagedMazarsInc.,anindependentauditfirm,toconduct a review over the design and effectiveness of selected key controls, which did not identify any material weaknesses in the system of internal control.

• reviewedandrecommendedtotheboardforapproval the Integrated Annual Report and Annual Financial Statements for the year ended 28 February 2014.

Refer to pages 38 to 43 for an overview of the risk management process and function.

Evaluation of the chief financial officerThe audit and risk committee is satisfied that the expertise and experience of the chief financial officer is appropriate to meet the responsibilities of the position. This is based on the qualifications, levels of experience, continuing professional education and the board’s assessment of the financial knowledge of the chief financial officer.

Approval of the audit and risk committee reportThe committee confirms that it has functioned in accordance with its terms of reference for the 2014 financial year and that its report to shareholders has been approved by the board.

Mary VilakaziChairperson: Audit and Risk Committee

Cape Town6 May 2014


Contents

Summarised consolidated financial statements54 Summarised consolidated statements of financial position

55 Summarised consolidated statements of comprehensive income

56 Summarised consolidated statements of changes in equity

57 Summarised consolidated statements of cash flows

58 Notes to the summarised consolidated financial statements

61 Directors’ holdings in shares

62 Major shareholders

52


Notes

2014 Audited

R’000

2013 Audited R’000

ASSETS

Non-current assets

Property, plant and equipment 150 265 98 282

Goodwill and other intangibles 620 336 633 299

Total non-current assets 770 601 731 581

Current assets

Inventories 354 436 346 054

Trade and other receivables 24 782 22 346

Cash and cash equivalents 57 577 36 284

Taxation 857 –

Derivative instruments – 402

Total current assets 437 652 405 086

Total assets 1 208 253 1 136 667

EquITy AND LIABILITIES

Capital and reserves

Share capital 6 229 312 229 312

Other reserves (17 926) (20 521)

Retained earnings 689 544 604 291

Equity attributable to owners of the company 900 930 813 082

Non-current liabilities

Loans 130 000 –

Deferred taxation 42 806 49 623

Straight-lining lease liability 24 590 24 452

Total non-current liabilities 197 396 74 075

Current liabilities

Trade and other payables 109 843 125 085

Derivative instruments 84 –

Short-term portion of loans – 124 282

Taxation – 143

Total current liabilities 109 927 249 510

Total liabilities 307 323 323 585

TOTAL EquITy AND LIABILITIES 1 208 253 1 136 667

as at 28 February 2014

Summarised Consolidated Statements of Financial Position

54

Notes

2014 Audited

R’000


Sales 1 417 584 1 374 531

Cost of sales (734 035) (717 971)

Gross profit 683 549 656 560

Other income 5 470 3 667

Trading expenses 4 (439 010) (416 937)

Operating profit 250 009 243 290

Finance income 2 441 3 104

Finance cost (10 000) (11 652)

Profit before taxation 242 450 234 742

Taxation (68 740) (66 226)

Profit for the year 173 710 168 516

Other comprehensive income – –-

Total comprehensive income for the year 173 710 168 516

Attributable to:

Equity holders of the company 173 710 168 516

Profit for the period and total comprehensive income for the year 173 710 168 516

for the year ended 28 February 2014

Summarised Consolidated Statements of Comprehensive Income


Share capital

AuditedR’000

Other reservesAuditedR’000

Retained earnings

AuditedR’000

TotalAuditedR’000

Balance at 1 March 2012 229 312 (13 370) 515 603 731 545

Share-based payment reserve: initial award – (12 049) – (12 049)

Share-based payment expense – 4 898 – 4 898

Dividends paid – – (79 828) (79 828)

Total comprehensive income for the year – – 168 516 168 516

Balance at 28 February 2013 229 312 (20 521) 604 291 813 082

Balance at 1 March 2013 229 312 (20 521) 604 291 813 082

Share-based payment reserve: initial award – (4 946) – (4 946)

Share-based payment expense – 7 541 – 7 541

Dividends paid – – (88 457) (88 457)

Total comprehensive income for the year – – 173 710 173 710

Balance at 28 February 2014 229 312 (17 926) 689 544 900 930

Dividends per share (cents) 220

– Interim 75

– Final 145


Summarised Consolidated Statements of Changes in Equity

56

Notes

2014 Audited

R’000


Cash flows from operating activities

Cash generated from operations 5 274 182 239 122

Finance income 2 441 3 104

Finance costs (10 000) (11 652)

Dividends paid (88 457) (79 828)

Taxation paid (76 557) (74 224)

Net cash inflows from operating activities 101 609 76 522

Cash flows from investing activities

Additions to property, plant and equipment (82 353) (72 489)

Additions to intangibles – (8 179)

Proceeds on sale of assets 1 265 1 357

Net cash outflows from investing activities (81 088) (79 311)

Cash flows from financing activities

Increase/(Decrease) in loans 5 718 (26 252)

Forfeitable share plan awards (4 946) (12 049)

Net cash inflow/(outflows) from financing activities 772 (38 301)

Net increase/(decrease) in cash and cash equivalents 21 293 (41 090)

Cash and cash equivalents at the beginning of the year 36 284 77 374

Cash and cash equivalents at the end of the year 57 577 36 284


Summarised Consolidated Statements of Cash Flows


1. Basis of preparationThe summary consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports and the requirements of the Companies Act applicable to summary financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS) and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and to also, as a minimum, contain the information required by IAS 34: Interim Financial Reporting. These financial statements incorporate the financial statements of the company, all its subsidiaries and all entities over which it has operational and financial control.The accounting policies applied in the preparation of the consolidated financial statements from which the summary financial statements were derived are in terms of International Financial Reporting Standards and are consistent with those accounting policies applied in the preparation of the previous consolidated annual financial statements.These audited summarised consolidated results have been prepared under the supervision of the group’s Chief Financial Officer, JP Loubser (CA(SA)).

Report of the independent auditorKPMG Inc., the group’s independent auditor, has audited the consolidated financial statements for the year to 28 February 2014 and has expressed an unmodified opinion on the consolidated financial statements. The summary financial statements have been audited and an unmodified opinion has been expressed on the summary financial statements. The summary consolidated financial statements presented in this report have been summarised from the audited consolidated financial statements. Their audit opinions are available for inspection at the company’s registered office and on its website, www.holdsport.co.za.

2014 Audited

R’000


2. Earnings per share and net asset value per shareEarnings per ordinary share– Basic (cents) 402.6 390.5 – Headline (cents) 401.5 389.9 – Core headline (cents) 423.3 415.7 – Core headline before foreign exchange effect (cents) 424.0 418.7 Ordinary shares in issue (’000) 43 150.2 43 150.2 Weighted average ordinary shares in issue (’000) 43 150.2 43 150.2 Net asset value per ordinary share (cents) 2 087.9 1 884.3 Net tangible asset value per ordinary share (cents) 789.6 564.2 Reconciliation to core headline earningsThe group uses core headline earnings as a consistent measure of performance for management purposes. Core headline earnings exclude exceptional once-off costs, the amortisation of trademarks and the lease straight-lining expense, and are presented below:

2014 Audited

R’000


Basic earnings 173 710 168 516 Adjusted for (net of taxation):Profit on sale of assets (473) (257)Headline earnings 173 237 168 259

Adjusted for (net of taxation):Amortisation of intangibles 9 333 9 333 Straight-lining of leases 100 1 786 Core headline earnings 182 670 179 378

Adjusted for (net of taxation):Foreign exchange gains (621) (332)Foreign exchange adjustments in cost of sales 922 1 636 Core headline earnings before foreign exchange effect 182 971 180 682


Notes to the Summarised Consolidated Financial Statements

58

3. Segmental informationThe group’s reportable segments have been identified as Sportmans Warehouse, Outdoor Warehouse, Performance Brands and Corporate. Sportsmans Warehouse is a retailer of sports-related footwear, apparel and equipment. Outdoor Warehouse is a retailer of outdoor-related footwear, apparel and equipment.

Performance Brands is responsible for the manufacturing and wholesale distribution of technical and sports apparel and accessories, while Corporate is involved in the provision of warehousing, distribution and corporate treasury and support functions.

The three trading divisions and Corporate are separately reported in the group’s management accounts and reviewed by the chief operating decision-maker (the group executive committee) for the purpose of allocating resources and evaluating performance.

Sportsmans Warehouse

R’000

Outdoor Warehouse

R’000

Performance Brands

R’000Corporate

R’000GroupR’000

year ended 28 February 2014Total sales 1 042 008 323 117 111 003 – 1 476 128 Less inter-segment sales – – (58 544) – (58 544)External sales 1 042 008 323 117 52 459 – 1 417 584 External interest received – – 88 2 353 2 441 External interest paid – – (3) (9 997) (10 000)Depreciation and amortisation (19 732) (6 263) (3 407) (13 323) (42 725)Profit/(Loss) before taxation 219 692 50 739 19 017 (46 998) 242 450

Capital expenditure 28 698 9 190 14 338 30 126 82 352 Segment assets 301 671 105 835 115 149 685 598 1 208 253 Segment liabilities 81 601 18 629 10 790 196 303 307 323

year ended 28 February 2013Total sales 999 042 322 251 99 348 – 1 420 641 Less inter-segment sales – – (46 110) – (46 110)External sales 999 042 322 251 53 238 – 1 374 531 External interest received – – 258 2 846 3 104 External interest paid – – (4) (11 648) (11 652)Depreciation and amortisation (16 856) (5 691) (2 954) (12 572) (38 073)Profit/(Loss) before taxation 201 540 54 300 23 393 (44 491) 234 742

Capital expenditure 29 164 7 891 22 327 21 286 80 668 Segment assets 283 545 100 183 101 925 651 014 1 136 667 Segment liabilities 87 644 24 638 11 117 200 186 323 585


2014 Audited

R’000


4. Trading expensesDepreciation on property, plant and equipment 29 762 25 110 Amortisation of intangibles 12 963 12 963 Occupancy cost 123 625 113 791 Straight-lining of leases 138 2 480 Staff costs 167 711 159 888 Foreign exchange gains (862) (461)Other operating costs 105 673 103 166

439 010 416 937

5. Cash generated from operationsOperating profit 250 009 243 290 Adjustments for:Depreciation 29 762 25 110 Amortisation of intangibles 12 963 12 963 Profit on sale of assets (657) (357)Fair value loss/(gain) on derivative instruments 486 (1 497)Forfeitable share plan expense 7 541 4 898 Straight-lining of leases 138 2 480 Changes in working capital:

Increase in trade and other receivables (2 436) (2 957)Increase in inventories (8 382) (49 331)(Decrease)/Increase in trade and other payables (15 242) 4 523

Cash generated from operations 274 182 239 122

6. Share capitalAuthorised130 000 000 ordinary shares of no par value – –

Issued43 150 220 ordinary shares of no par value 229 312 229 312

7. Capital commitmentsCapital expenditure budgeted, but not recognised in these financial statements, is as follows:

Property, plant and equipment– contracted for – 45 000 – not contracted for 45 000 47 000

45 000 92 000


Notes to the Summarised Consolidated Financial Statements

60

2014 2013

Indirect beneficial

shares

Holdsport Forfeitable Share Plan

Indirect beneficial

shares

Holdsport Forfeitable Share Plan

KG Hodgson 4 940 913 80 445 5 220 913 80 445

EA Haarburger (resigned 30 August 2013) 3 076 361 48 267

B Moritz (appointed 30 August 2013) 651 884 108 228

JP Loubser 490 000 108 225 490 000 97 439

6 082 797 296 898 8 787 274 226 151

Shares held by directors through the Holdsport Forfeitable Share Plan are included in the above figures. The Holdsport Forfeitable Share Plan was introduced in 2012, whereby executive directors and certain employees were granted forfeitable shares in the company by way of an award. Participants were not required to pay for the grant of the award and are not required to make a payment for the award to vest. The forfeitable shares are held during the vesting period for the absolute benefit of the participant and the participant shall have all shareholder rights in respect of the shares from the grant date, except the right to dispose thereof.

The forfeitable shares generally have a vesting period of three, four and five years from the grant date, and are subject to certain vesting conditions being met. In the case of senior employees the vesting of the forfeitable shares is dependent on certain performance conditions being met, while vesting of all forfeitable shares are subject to continued employment within the group up to and including the vesting date. The performance conditions are based on the return on net assets achieved.

The following shares have been granted to directors through the forfeitable share plan:

Director Date of awardNumber of

shares awardedTotal shares

awarded Vesting date

B Moritz 18 July 11 64 354 2014; 2015; 2016

14 August 2012 33 088 2015; 2016; 2017

21 August 2013 10 786 108 228 2016; 2017; 2018

JP Loubser 18 July 2011 64 353 2014; 2015; 2016

14 August 2012 33 086 2015; 2016; 2017

21 August 2013 10 786 108 225 2016; 2017; 2018

KG Hodgson 18 July 2011 80 445 80 445 2014; 2015; 2016

Total 296 898

The vesting of the shares will take place in equal tranches in years three, four and five of the Holdsport Forfeitable Share Plan, subject to the fulfilment of the vesting conditions.

There have been no changes in directors’ interest in share capital from year-end to the date of approval of the annual financial statements. It is the group’s policy that all directors and officers, as well as those employees who have access to price-sensitive information, should not deal in company shares, or receive or exercise share options of the company during the closed periods. Closed periods commence on the last day of a reporting period and end at close of business of the day that the financial results are announced on the JSE news service (“SENS”).


Directors’ Holdings in Shares


Holders of major beneficial interests in sharesAccording to the company’s register of disclosures of beneficial interests made by registered shareholders acting in a nominee capacity, and the disclosures made by fund managers in terms of section 56 of the Companies Act 71 of 2008, the following persons had beneficial interests in excess of 5% of the company’s shares at year-end:

2014 2013

Major shareholdersNumber of

shares held

Percentage holding

(%)Number of shares held

Percentage holding

(%)

Shareholders, other than directors and employees, who hold a direct or indirect beneficial interest in 5% or more of ordinary shares:

Government Employees Pension Fund 2 008 365 4.7 2 455 117 5.7

Fund managers who hold more than 5% on behalf of their clients:

Coronation Fund Managers Limited 9 181 602 21.3 8 948 349 20.7

Investec Asset Management (Proprietary) Limited 5 986 071 13.9 6 285 040 14.6

STANLIB Asset Management Limited 3 233 246 7.5 2 621 652 6.1

Allan Gray (Proprietary) Limited 2 236 406 5.2

Abax Investments (Proprietary) Limited 2 211 453 5.1

Direct and indirect beneficial interest of directors and employees

The Moresport Investment Trust – – 9 721 042 22.5

The Moresport Incentive Trust 490 544 1.1 654 060 1.5

The Holdsport Forfeitable Share Plan* 524 852 1.2 764 256 1.8

KG Hodgson 5 021 358 11.6 – –

EA Haarburger 3 172 895 7.4 – –

B Moritz 760 112 1.8 – –

JP Loubser 598 225 1.4 490 000 1.1

Other 86 238 0.2 86 238 0.2

* The FSP shares exclude shares allocated to the directors, which have been included in their interests for 2014 in this table.


Major Shareholders

62

Number of shareholders %

Number of shares %

Shareholders’ spread1 – 1 000 shares 848 53.9 282 986 0.71 001 – 10 000 shares 468 29.8 1 523 590 3.510 001 – 100 000 shares 191 12.1 6 530 822 15.1100 001 – 1 000 000 shares 58 3.7 19 908 336 46.11 000 001 shares and over 8 0.5 14 904 486 34.5

Total 1 573 100.0 43 150 220 100.0

Distribution of shareholdersBanks 23 1.46 2 188 615 5.07Brokers 11 0.70 509 126 1.18Closed corporations 10 0.64 36 330 0.08Endowment funds 16 1.02 279 937 0.65Incentive share trusts 1 0.06 490 544 1.14Individuals 1 026 65.23 11 122 125 25.78Insurance companies 15 0.95 2 590 489 6.00Investment companies 10 0.64 299 942 0.70Medical aid schemes 5 0.32 129 149 0.30Mutual funds 87 5.53 15 118 997 35.04Nominees and trusts 171 10.87 1 207 097 2.80Other corporations 22 1.40 94 694 0.22Pension funds 135 8.58 8 634 909 20.01Private companies 37 2.35 412 635 0.96Public companies 4 0.25 35 631 0.08

Total 1 573 100.00 43 150 220 100.00

Share performance 2014 2013

Market price per share– at year-end (cents) 3 930 4 399– highest (cents) 5 398 5 100– lowest (cents) 3 703 3 900– average (cents) 4 536 4 500Number of beneficial shareholders 1 573 1 528Price earnings ratio at year-end– Basic earnings (%) 9.8 11.3– Core headline earnings (%) 9.3 10.6Dividend yield (%) 5.5 4.7Number of shares traded during the year (millions) 15.8 28.3Volume traded/number of shares in issue (%) 36.6 65.6Market capitalisation at year-end (Rm) 1 695.8 1 898.2

Shareholder Information


2014 2013

R’000 Ratio % R’000 Ratio %

Sales 1 417 584 1 374 531

Interest and other income 7 911 6 771

Paid to suppliers for goods and services (962 608) (941 262)

Value added 462 887 100.0 440 040 100.0

Applied as follows:

Employees

Remuneration to employees 167 711 36.2 159 888 36.3

Providers of capital

To lenders as finance charges 10 000 2.2 11 652 2.6

To shareholders as dividends 94 930 20.5 86 300 19.6

Taxation 75 557 16.3 72 198 16.4

Reinvested

Reinvested in the group to finance future expansion and growth 114 688 24.8 110 002 25.0

Employment of value added 462 887 100.0 440 040 100.0

Notes to the Value Added Statement

Reinvested in the group to finance future expansion and growth

Depreciation and amortisation 42 725 37.3 38 073 34.6

Deferred taxation (6 817) (5.9) (5 972) (5.4)

Retained income 78 780 68.7 77 901 70.8

114 688 100.0 110 002 100.0

State taxes

Direct taxation as above 75 557 72 198

Net value added taxation 48 926 40 289

Employees’ taxation 13 016 13 384

Channelled through the group 137 499 125 871


Value Added Statement

64

Cash conversion Cash generated from operations minus all capital expenditure divided by EBITDA.

Current ratio Current assets divided by current liabilities.

Cash flow from trading

Profit before finance costs, interest received, non-cash items and tax.

Cash flow per share

The cash inflow from operations for the period divided by the weighted average number of shares.

Current ratio Current assets divided by current liabilities.

Core headline earnings

The group calculates core headline earnings by adjusting headline earnings for amortisation of intangibles, straight-lining of leases and non-recurring professional fees, net of taxation.

Debt:equity ratio Net borrowings expressed as a percentage of total equity.

Dividend cover Core headline earnings per share divided by annual dividends declared per share.

Dividend yield Annual dividends declared per share divided by the period-end share price on the JSE.

Earnings yield Basic earnings per share divided by the period-end share price on the JSE.

EBITDA Earnings before interest paid, tax, depreciation and amortisation.

EBITDA margin EBITDA divided by sale of merchandise.

EBITDA finance charge cover

EBITDA divided by finance cost.

Free cash flow Cash flow from operations less capital expenditure to maintain operations.

Free float The percentage of the total number of shares issued, excluding any shares held as treasury shares, held by directors or held by employee share schemes that can be traded.

Finance charge cover

Operating profit before finance charges divided by finance cost.

Full-time equivalent (FTE) employees

Determined by converting the actual number of flexi-time employees into a lesser number of full-time equivalent employees (through dividing the aggregate working hours of all flexi-time employees by standard working hours), and adding this result to the actual number of permanent employees.

Fully diluted weighted average number of shares

The weighted average number of shares in issue, adjusted for treasury shares held by subsidiaries, diluted by the share options outstanding in respect of the equity-settled share incentive scheme.

Gross margin Gross profit divided by sale of merchandise.

Gross square metres

Comprises the total leased store area including stockrooms.

Headline earnings Net income attributable to ordinary shareholders adjusted for the effect, after tax, of exceptional items.

Headline earnings per ordinary share

Headline earnings divided by the weighted average number of shares in issue for the year.

Inventory turn Cost of sales for the period divided by average inventories on hand at the beginning and end of the reporting period.

Market capitalisation

The market price per share at the year-end multiplied by the number of ordinary shares in issue at the year-end.

Net assets Total assets less total liabilities.

Net asset turn Sale of merchandise divided by closing net assets.

Net asset value per share

Net assets divided by the number of shares in issue (net of treasury shares) at the end of the reporting period.

Net borrowings Interest-bearing debt and non-controlling interest loans reduced by preference share investment and cash.

Net cash to total equity

Cash and cash equivalents, divided by total equity at the end of the reporting period.

Definitions


Definitions (continued)

Notional interest Interest recognised on a time-apportionment basis using the effective interest rate implicit in the underlying transaction.

Operating profit Profit before tax.

Operating margin Operating profit before finance charges expressed as a percentage of retail sales.

Price earnings ratio The period-end share price on the JSE divided by headline earnings per share for the period.

Profit for the period per FTE employee

Profit for the period, divided by the number of FTE employees in service at the end of the reporting period.

Retail sales Sale of merchandise through retail outlets excluding wholesale sales.

Return on capital Profit before finance costs and tax divided by the average of the current and prior periods’ total net assets.

Return on equity Profit for the period divided by the average of the current and prior periods’ total equity.

Return on invested capital (ROIC)

Profit before tax adjusted for operating lease costs, less depreciation subsequently calculated on the value of operating leases which are capitalised for the purposes of this ratio, less the adjusted tax charge and divided by the sum of core capital and capitalised operating leases at the end of the reporting period.

Return on net assets (RONA)

Return on net assets is defined as profit before interest and tax divided by average of current financial year and previous financial year of:fixed assets+ inventories+ debtors- creditors- straight-line lease liability

Same store (also “like-for-like” or “comparable” store)

Stores which have traded for the full current and previous financial years from the same premises.

Tangible net asset value per ordinary share

Total net asset value, after non-controlling interest, excluding goodwill and intangible assets, divided by the net number of ordinary shares in issue at the year-end.

Trading expenses Trading expenses are costs incurred in the normal course of business and includes, amongst others, depreciation, amortisation, employee costs, occupancy costs, net bad debt and other operating costs.

Trading density Average trading density is total sales from retail operations in the financial year divided by the average trading space (average in m2 for this financial year and the previous financial year-end).

Trading profit Gross profit plus other income less trading expenses.

Trading margin Trading profit divided by sale of merchandise.

Share-based payments

The expense recognised in profit or loss over the vesting period of options granted to employees in terms of the equity- and cash-settled compensation schemes.

Shareholders’ return

Share price at the end of the period minus share price at the beginning of the period plus dividends declared, divided by share price at the beginning of the period.

Weighted average cost of capital (wACC)

The risk-free rate at the end of the reporting period as extracted from the yield curve furnished by a financial institution adjusted by a risk premium appropriate for the group.

Weighted average number of shares in issue

The number of shares in issue at the beginning of the period, increased by shares issued during the period and decreased by share repurchases, weighted on a time basis for the period during which they were in issue.

Weighted average price per share traded

The total value of shares traded divided by the total volume of shares traded for the period on the JSE.

66

Stakeholder Relations

A summary of the group’s engagement with its various stakeholder groups is provided in the following table:

Stakeholder group and key issues Principal methods of engagement

Employees – Employee benefits Sustainability of business

Human resources policiesTraining and development initiativesStaff meetings Notice boards NewslettersE-mailStore visits by senior managersAd hoc discussions

Shareholders – Trading performance

Annual reportsSENS announcements Trading announcements Annual general meetings AdvertisementsWebsiteE-mailPresentations arranged through the Investment Analyst SocietyLocal and international investor relations meetings

Banks and financial institutions – Bank facility reviews and general banking issues

Regular submission of financial reportsMeetings with management

Customers – Customers’ in-store experience

Interaction with store and head office staffCustomer services helplineMonitoring external customer service websitesWebsite E-mail Advertising SponsorshipsPromotions and competitions

Suppliers – Sustainability of relationships between the group and suppliers

Meetings with merchandise suppliers Communication with store and head office staff Regular site visitsSupplier evaluations

Government and regulatory authorities – Regulatory compliance, i.e. implementation of employment equity plans, tax returns, etc.

Ad hoc meetingsE-mailInspections in storesCommunication with store and head office staff Formal meetings with government departments Timeous submission of statutory returns

Community – Requests for sponsorships and support for community events

Community initiatives undertaken by the group and by staff membersAd hoc meetings Sponsorships WebsiteE-mail


Notice of Annual General Meeting

THIS DOCuMENT IS IMPORTANT AND REquIRES yOuR IMMEDIATE ATTENTION. If you are in any doubt as to any aspect of the proposals referred to in this document or as to the action you should take, you should seek your own advice from a stockbroker, attorney, accountant or other professional adviser.

This document should be read as a whole.

If you have sold or transferred all of your shares in Holdsport, please pass this document, together with the accompanying documents, to the purchaser or transferee, or to the person who arranged the sale or transfer so that they can pass these documents to the person who now holds the shares.

Notice is hereby given that the eighth annual general meeting of the shareholders of the company in respect of the year 2014 will be held at Holdsport Limited, The Mill House, 1 Canterbury Street, Cape Town on Wednesday, 13 August 2014 at 16h00 for the purpose of dealing with the business and, if deemed fit, passing, with or without modification, the resolutions set out below.

Record dateThe record date in terms of section 59 of the Companies Act, No. 71 of 2008, as amended (the “Act”), for shareholders to be recorded on the shareholders’ register of the company in order to be able to attend, participate and vote at the annual general meeting is Monday, 4 August 2014.

IdentificationIn terms of section 63(1) of the Act any person attending or participating in the annual general meeting must present reasonably satisfactory identification and the person presiding at the annual general meeting must be reasonably satisfied that the right of any person to participate in and vote (whether as a shareholder or as proxy for a shareholder) has been reasonably verified.

VotingEach shareholder, whether present in person or represented by proxy, is entitled to attend and vote at the annual general meeting.

Dematerialised shareholderShareholders who have dematerialised their shares through a Central Securities Depository Participant (“CSDP”) or broker, other than by own name registration, who wish to attend the annual general meeting should instruct their CSDP or broker to issue them with the necessary authority to attend the meeting, in terms of the custody agreement entered into between such shareholders and their CSDP or broker.

Shareholders who have dematerialised their shares through a CSDP or broker, other than by own name registration who wish to vote by way of proxy, should provide their CSDP or broker with their voting instructions in terms of the custody agreement entered into between such shareholders and their CSDP or broker. These instructions must be provided to their CSDP or broker by the cut-off time or date advised by their CSDP or broker for instructions of his nature.

ProxiesEach shareholder is entitled to appoint one or more proxies (who need not be shareholders of Holdsport) to attend, speak and vote in his/her stead at the annual general meeting. On a show of hands every shareholder who is present in person or by proxy shall have one vote and on a poll every shareholder present in person or by proxy shall have one vote for each share held by him/her. Shareholders who hold their shares in certificated form or who are own name registered dematerialised shareholders who are unable to attend the annual general meeting but who wish to be represented thereat, are required to complete and return the attached form of proxy so as to be received by the transfer secretaries, Computershare Investor Services (Proprietary) Limited, 70 Marshall Street, Johannesburg (PO Box 61051, Marshalltown, 2107) by no later than 16h00 on Tuesday, 12 August 2014.

In compliance with the provisions of section 58(8)(b)(i) of the Act a summary of the rights of a shareholder to be represented by proxy, as set out in section 58 of the Act, is set out below:• Anordinaryshareholderentitledtoattendandvoteattheannualgeneralmeetingmayappointanyindividual(or

two or more individuals) as a proxy or as proxies to attend, participate in and vote at the annual general meeting in the place of the shareholder. A proxy need not be a shareholder of the company.

• Aproxyappointmentmustbeinwriting,datedandsignedbytheshareholderappointingaproxyand,subjecttothe rights of a shareholder to revoke such appointment (as set out below), remains valid only until the end of the annual general meeting.

Holdsport Limited(Incorporated in the Republic of South Africa)(Registration number: 2006/022562/06)

(JSE share code: HSP ISIN: ZAE000157046)(“Holdsport” or “the company” or “the group”)

LIMITED

68

• Aproxymaydelegatetheproxy’sauthoritytoactonbehalfofashareholdertoanotherperson,subjecttoanyrestrictions set out in the instrument appointing the proxy.

• Theappointmentofaproxyissuspendedatanytimeandtotheextentthattheshareholderwhoappointedsuchproxy chooses to act directly and in person in the exercise of any rights as a shareholder.

• Theappointmentofaproxyisrevocablebytheshareholderinquestioncancellingitinwriting,ormakingalaterinconsistent appointment of a proxy, and delivering a copy of the revocation instrument to the proxy and to the company. The revocation of a proxy appointment constitutes a complete and final cancellation of the proxy’s authority to act on behalf of the shareholder as of the later of (a) the date stated in the revocation instrument, if any; and (b) the date on which the revocation instrument is delivered to the company as required in the first sentence of this paragraph.

• Iftheinstrumentappointingtheproxyorproxieshasbeendeliveredtothecompany,aslongasthatappointmentremains in effect, any notice that is required by the Act or the company’s memorandum of incorporation to be delivered by the company to the shareholder, must be delivered by the company to (a) the shareholder, or (b) the proxy or proxies, if the shareholder has (i) directed the company to do so in writing; and (ii) paid any reasonable fee charged by the company for doing so.

Attention is also drawn to the “Notes to the form of proxy”.

1. Approval of the annual financial statements Ordinary resolution number 1 is proposed to receive and accept the group audited annual financial statements

for the year ended 28 February 2014, including the Directors’ Report, the report of the auditors and the report of the audit committee thereon. This Integrated Annual Report includes summarised audited financial statements on pages 54 to 62. A copy of the complete annual financial statements for the preceding financial year may be obtained from the company’s registered office at The Mill House, 1 Canterbury Street, Cape Town and can also be obtained from our website at www.holdsport.co.za.

Ordinary resolution number 1 “Resolved that the audited annual financial statements of the group for the financial year ended 28 February 2014,

including the Directors’ Report, the report of the auditors and the report of the audit committee thereon, be and are hereby received and adopted.”

The percentage voting rights required for ordinary resolution number 1 to be adopted: More than 50% (fifty per cent) of the voting rights exercised on the resolution.

2. Appointment of auditors Section 90(1) of the Act requires the company to appoint an auditor each year at its annual general meeting.

The audit and risk committee conducted an assessment of the performance and the independence of the external auditors and considered whether or not the external auditors comply with the requirements of section 90(2) and (3) of the Act and section 22 of the Listings Requirements of the JSE Limited (“JSE”), and the board considered and accepted the findings. The board is satisfied that the proposed external auditors KPMG Inc. and Mr Henry du Plessis comply with the relevant provisions and are duly accredited by the JSE.

Ordinary resolution number 2 “Resolved that the firm KPMG Inc., as nominated by the audit and risk committee, be reappointed as independent

auditors of the company, to hold office until the conclusion of the next annual general meeting of the company. It is noted that Mr Henry du Plessis will continue as the individual and designated auditor from that firm who will undertake the audit of the company for the financial year ending 28 February 2015.”

The percentage voting rights required for ordinary resolution number 2 to be adopted: more than 50% (fifty per cent) of the voting rights exercised on the resolution.

3. Appointment of a director of the company Syd Muller (65) retires by rotation and, being eligible, has made himself available for re-election as director of

the company.

Syd was appointed in 2007 as the independent non-executive chairman of the group. He is a director of MMI Holdings Limited and sits on a number of boards and board subcommittees of that group. He is also a director and sits on the board of a number of private operating companies. Syd is a qualified chartered accountant (SA).

He is currently chairperson of the group’s transformation, sustainability, social and ethics committee, as well as a member of the audit and risk committee and of the remuneration and nomination committee.


Notice of Annual General Meeting (continued)

Ordinary resolution number 3 “Resolved that Syd Muller is hereby elected as non-executive director of the company.”


4. Appointment of a director of the company Keneilwe Moloko was appointed by the board of directors effective from 1 July 2014 as an independent non-

executive director and member of the audit and risk committee to fill a vacancy that arose since the last annual general meeting. In accordance with the company’s memorandum of incorporation she retires at this annual general meeting.

Keneilwe has extensive knowledge in the building and construction industry and investment management field. She started her career as a quantity surveyor and then qualified as a chartered accountant after nearly a decade in the construction industry. She completed her articles at KPMG, was the development executive at Spearhead Properties and worked for Coronation Fund Managers as a fixed interest credit analyst. She currently serves on boards and audit committees of several organisations.

Keneilwe Moloko (45), being eligible, has made herself available for re-election as director of the company.

Ordinary resolution number 4 “Resolved that Keneilwe Moloko is hereby elected as independent non-executive director of the company.”


5. Appointment of a director of the company Bryan Hopkins (67) retires by rotation and, being eligible, has made himself available for re-election as director of

the company. Bryan is a chartered accountant (SA), and was appointed as an independent non-executive director in June 2011. He is the chairman of the remuneration and nomination committee, and is a member of the audit and risk committee.

Bryan is a non-executive director of Resilient Property Income Fund, Makalani Holdings Limited and Kagiso Asset Management (Proprietary) Limited. He was previously an executive director of Abvest Associates and Old Mutual Asset Managers. He has also served on a number of other listed company boards.

He co-authored the Juta publication, “Generally Accepted Accounting Practice – A South African Viewpoint.”

Ordinary resolution number 5 “Resolved that Bryan Hopkins is hereby elected as director and lead independent non-executive director of the company.”


6. Appointment of a director of the company Phillip Matlakala was appointed by the board of directors effective from 1 July 2014 as an independent non-

executive director and chairperson of the transformation, sustainability, social and ethics committee to fill a vacancy that arose since the last annual general meeting. In accordance with the company’s memorandum of incorporation he retires at this annual general meeting.

Phillip is the chief executive of Metropolitan Retail at MMI Holdings Limited where he is responsible for providing savings, income and protection products to clients in the lower and middle-income markets. He holds a BJuris and BProc from UNISA and serves on various other boards.

Phillip Matlakala (58), being eligible, has made himself available for re-election as director of the company.

Ordinary resolution number 6 “Resolved that Phillip Matlakala is hereby elected as independent non-executive director of the company.”


70

7. Appointment of audit and risk committee Ordinary resolutions numbers seven to nine is proposed to elect an audit committee in terms of section 94(2) of Act

and the King Report on Corporate Governance for South Africa (“King III”). Section 94 of the Act requires that, at each annual general meeting, shareholders of the company must elect an audit committee comprising at least three members.

The board recommends the following three independent non-executive directors to the audit and risk committee of the company: Keneilwe Moloko, Syd Muller and Bryan Hopkins. The board is satisfied that they have the necessary qualifications and/or experience in the areas required to fulfil their responsibilities as members of the audit and risk committee.

The percentage voting rights required for ordinary resolutions numbers seven to nine to be adopted: more than 50% (fifty per cent) of the voting rights exercised on the resolutions, and is subject to the re-election of the directors.

Ordinary resolution number 7 “Resolved that independent director Keneilwe Moloko be elected as member and as chairperson of the audit and

risk committee of the company until the next annual general meeting of the company, subject to her re-election as a director of the company in terms of ordinary resolution number four.”

Ordinary resolution number 8 “Resolved that independent director Bryan Hopkins is elected as member of the audit and risk committee of the

company until the next annual general meeting of the company, subject to his re-election as a director of the company in terms of ordinary resolution number five.”

Ordinary resolution number 9 “Resolved that independent director Syd Muller is elected as member of the audit and risk committee of the company

until the next annual general meeting of the company, subject to his re-election as a director of the company in terms of ordinary resolution number three.”

8. Non-binding advisory vote on remuneration policy The purpose of ordinary resolution number 10 is to endorse, by way of a non-binding advisory vote, the group’s

remuneration policy, as set out in the Remuneration Report section on pages 44 to 48 of the Integrated Annual Report.

The board is responsible for determining the remuneration of executive directors in accordance with the remuneration policy of the company. The remuneration and nomination committee assists the board in its responsibility for setting and administering remuneration policies in the company’s long-term interests. The remuneration and nomination committee considers and recommends remuneration for all levels in the company, including the remuneration of senior executives and executive directors, and advises on the remuneration of non-executive directors. King III recommends that every year the company’s remuneration policy should be tabled to shareholders for a non-binding advisory vote at the annual general meeting. This vote enables shareholders to express their views on the remuneration policies adopted and on their implementation. The remuneration committee prepared and the board considered and accepted the remuneration policy, as set out in the Remuneration Report on pages 44 to 48 of the Integrated Annual Report, and shareholders are required to vote on it.

Ordinary resolution number 10 “Resolved that the group’s remuneration policy, as set out in the Remuneration Report on pages 44 to 48 of the

Integrated Annual Report, be and is hereby endorsed by way of a non-binding advisory vote.”


9. Approval of directors’ remuneration Section 66(8) (read with section 66(9)) of the Act provides that, to the extent permitted in the company’s memorandum

of incorporation, the company may pay remuneration to its directors for their services as directors provided that such remuneration may only be paid in accordance with a special resolution approved by shareholders within the previous two years. The company’s memorandum of incorporation provides that the directors shall be paid such remuneration as the company may from time to time determine in a general meeting. The remuneration committee has considered the remuneration for non-executive directors.

Special resolution number 1 “Resolved that the remuneration of the independent non-executive directors of the company for their services as

directors of the company, for the period from 1 July 2014 to 31 August 2015, as set out below per director per annum, be hereby approved, in terms of section 66(9) of the Act.”



Non-executive directors’ remuneration

Base feeR

Transformation, sustainability,

social and ethics

committeeR

Audit and risk committee

R

Remuneration and

nomination committee

R

Total annual fee

RProposed 2015SA Muller 630 000^ 15 000 50 000 25 000 720 000P Matlakala 140 000 25 000# – 25 000 190 000BD Hopkins 200 000* – 50 000 45 000# 295 000KR Moloko 140 000 – 70 000# – 210 000Total 1 110 000 40 000 170 000 95 000 1 415 000

Actual 2014SA Muller 575 000^ 40 000# 29 000 29 000 673 000CF Sonn 195 000 29 000 – – 224 000BD Hopkins 195 000 – 29 000 40 000# 264 000M Vilakazi 195 000 – 40 000# – 235 000Total 1 160 000 69 000 98 000 69 000 1 396 000

^ Chairman of the board of directors.# Chairperson of committee.* Lead independent non-executive director.

The percentage voting rights required for special resolution number 1 to be adopted: At least 75% (seventy-five per cent) of the voting rights exercised on the resolution.

10. Authority to repurchase shares in the company Special resolution number 2 is proposed to authorise the acquisition by the company or any subsidiary of the

company of shares issued by the company. The board’s intention is for the shareholders to pass a special resolution granting the company or its subsidiaries a general authority to acquire ordinary shares issued by the company in order to enable the company and its subsidiaries, subject to the requirements of the Act, the Listings Requirements of the JSE (“JSE Listings Requirements”) and the company’s memorandum of incorporation, to acquire ordinary shares issued by the company should the board consider that it would be in the interest of the company or its subsidiaries to acquire ordinary shares issued by the company while the general authority subsists.

Special resolution number 2 “Resolved that the company hereby approves as a general approval in terms of the company’s memorandum of

incorporation the acquisition by the company or any of its subsidiaries from time to time of the issued ordinary shares of the company, upon such terms and conditions and in such amounts as the directors of the company may from time to time determine. All such acquisitions of shares will be subject to: the memorandum of incorporation of the company; the provisions of the Act and the JSE Listings Requirements (as presently constituted and which may be amended from time to time); and provided that:

• anysuchacquisitionofordinarysharesshallbeeffectedthroughtheorderbookoperatedbytheJSEtradingsystem and done without any prior understanding or arrangement between the company or any of its subsidiaries and the counterparty (reported trades are prohibited);

• thisgeneralauthorityshallonlybevaliduntilthecompany’snextannualgeneralmeetingprovidedthatitshallnot extend beyond 15 (fifteen) months from the date of passing of this special resolution;

• thegeneralrepurchasebythecompany,andbyitssubsidiaries,ofthecompany’sordinarysharesisauthorisedby its memorandum of incorporation;

• apaidpressannouncementwillbepublishedassoonasthecompanyoritssubsidiarieshas/haveacquiredordinary shares constituting on a cumulative basis 3% (three per cent) of the number of ordinary shares in issue, prior to the acquisition pursuant to which the 3% (three per cent) threshold is reached, and in respect of every 3% (three per cent) thereafter, which announcement shall contain full details of such acquisitions;

72

• acquisitionsbythecompanyanditssubsidiariesofordinarysharesinanyonefinancialyearmaynotexceed20% (twenty per cent) of the company’s issued ordinary share capital from the date of the grant of this general authority;

• subsidiariesof thecompanywillacquire, inaggregate,nomorethan10%(tenpercent)of thecompany’sissued ordinary share capital at any one time;

• indetermining thepriceatwhich the company’sordinary sharesareacquiredby the companyoranyofits subsidiaries in terms of this general authority, the maximum price at which such ordinary shares may be acquired will be at a premium of no more than 10% (ten per cent) of the weighted average of the market price at which such ordinary shares are traded on the JSE, as determined over the 5 (five) business days immediately preceding the date of repurchase of such ordinary shares by the company or any of its subsidiaries;

• thecompanymayatanypointintimeonlyappointoneagenttoeffectanyrepurchase(s)onitsbehalf; • a resolution hasbeenpassedby theboardof directors of the companyor its subsidiariesauthorising the

acquisition, and the company has passed the solvency and liquidity test as set out in section 4 of the Act and that since the application of the solvency and liquidity test by the board there have been no material changes to the financial position of the group; and

• thecompanyoranyofitssubsidiariesmaynotrepurchasesecuritiesduringaprohibitedperiod,asdefinedinthe JSE Listings Requirements, unless they have in place a repurchase programme where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement on SENS prior to the commencement of the prohibited period.”

The percentage voting rights required for special resolution number 2 to be adopted: at least 75% (seventy-five per cent) of the voting rights exercised on the resolution.

Additional information required by the JSE Listings Requirements with regard to authority to repurchase shares

Information required in terms of the JSE Listings Requirements with regard to this general authority for the company or any of its subsidiaries to repurchase the company’s securities appears in the annual financial statements, to which this notice of annual general meeting is annexed as indicated below:

• Directorsandmanagementofthecompany:pages14to16 • Shareholders:pages62and63 • Sharecapital:page60 • Directors’interestinsecurities:pages61and62

Directors’ responsibility statement The directors, whose names are given on pages 14 and 15 of the Integrated Annual Report, collectively and

individually accept full responsibility for the accuracy of the information given in this resolution and certify that to the best of their knowledge and belief there are no facts that have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that the Integrated Annual Report and notice of annual general meeting contains all information required by law and the JSE Listings Requirements.

Material change There has been no material change in the financial or trading position of the company or any of its subsidiaries that

has occurred since the date of signature of the audit report up to the date of this notice.

Litigation statement There are no legal or arbitration proceedings, either pending or threatened, against the company or its subsidiaries,

of which the directors are aware, which may have or have had in the last 12 (twelve) months, a material effect on the financial position of the company or its subsidiaries.

Pursuant to and in terms of the JSE Listings Requirements, the directors of the company hereby state: • thattheintentionofthecompanyandoranyofitssubsidiariesistoutilisetheauthorityifatsomefuturedate

the cash resources of the company are in excess of its requirements. In this regard the directors will take into account, inter alia, an appropriate capitalisation structure for the company, the long-term cash needs of the company and will ensure that any such utilisation is in the interest of shareholders;

• thatthemethodbywhichthecompanyandoranyofitssubsidiariesintendstorepurchaseitssecuritiesandthedate on which such repurchase will take place, has not yet been determined;



• thatafterconsideringtheeffectofamaximumpermittedrepurchaseofsecurities,thecompanyanditssubsidiariesare, as at the date of this notice convening the annual general meeting of the company, able to fully comply with the JSE Listings Requirements. Nevertheless, at the time that the contemplated repurchase is to take place the directors of the company will ensure that:

– the group will be able in the ordinary course of business to pay its debts for a period of 12 (twelve) months after the date of the general repurchase;

– the assets of the group will be in excess of the liabilities of the group for a period of 12 (twelve) months after the date of the notice of the annual general meeting. For this purpose the assets and liabilities will be recognised and measured in accordance with the accounting policies used in these audited annual group financial statements;

– the share capital and reserves of the group will be adequate for ordinary business purposes for a period of 12 (twelve) months after the date of the general repurchase;

– the working capital of the group will be adequate for ordinary business purposes for a period of 12 (twelve) months after the date of the general repurchase; and

• thecompanywillprovideitssponsorandtheJSEwithalldocumentationasrequiredinSchedule25oftheJSE Listings Requirements, and will not commence any repurchase programme until the sponsor has signed off on the adequacy of its working capital, advised the JSE accordingly and the JSE has approved this documentation.

11. Approval of financial assistance to group companies Section 45 of the Act provides, among other things, that, except to the extent that the memorandum of incorporation

of a company provides otherwise, the board may authorise the company to provide direct or indirect financial assistance (which includes lending money, guaranteeing a loan or other obligation and securing any debt or obligation) to a related or interrelated company or corporation, provided that such authorisation shall be made pursuant to a special resolution of the shareholders adopted within the previous 2 (two) years, which approved such assistance either for the specific recipient or generally for a category of potential recipients and the specific recipient falls within that category.

Special resolution number 3 “Resolved that the board of directors be and is hereby authorised in terms of the provisions of section 45(3)(a)(ii)

of the Act as a general approval, to authorise the company to provide direct or indirect financial assistance (as defined in section 45(1) of the Act) that the board of directors may deem fit to any related or interrelated (as defined in section 2 of the Act) company or corporation of the company on the terms and conditions and for the amounts that the board of directors may determine.”

This authority will be in place for two years from the date of adoption of this special resolution number 3.

The percentage voting rights required for special resolution number 3 to be adopted: at least 75% (seventy-five per cent) of the voting rights exercised on the resolution.

12. General authority of directors to do all such things as are necessary to implement the resolutions in this notice

Ordinary resolution number 11 “Resolved that the directors of the company be and are hereby authorised to do all such things and sign all such

documents and take all such action as they consider necessary to implement the resolutions set out in this notice convening the annual general meeting at which this ordinary resolution number 11 will be considered.

13. Other business Further to transact any other business that may be transacted at the annual general meeting.

By order of the board

AE van ZylCompany Secretary


74

ANNuAL GENERAL MEETING13 August 2014 at 16h00.

Proxy form – for use only by certificated shareholders and own name dematerialised shareholders at the annual general meeting of shareholders of the company to be held at Holdsport Limited, The Mill House, 1 Canterbury Street, Cape Town, 8001 at 16h00 on Wednesday, 13 August 2014 (“the eighth annual general meeting”).

A member entitled to attend and vote is entitled to appoint a proxy or proxies to attend the meeting and speak and, on a poll, to vote in his/her stead. A proxy need not be a member of the company.

I/We ____________________________________________________ of ______________________________________

being a member/s of Holdsport Limited and entitled to _____________________________________________ votes

hereby appoint ____________________________________________of _____________________________________

or failing him/her ___________________________________________of _____________________________________

or, failing him/her, the chairman of the eighth annual general meeting, as my/our proxy to vote for me/us and on my/our behalf at the annual general meeting of the company to be held at the offices of Holdsport Limited, The Mill House, 1 Canterbury Street, Cape Town, 8001 at 16h00 on Wednesday, 13 August 2014 and at any adjournment thereof, as follows:

Proposed resolutions In favour of Against AbstainOrdinary resolution number one: to approve the annual financial statements and Directors’ ReportOrdinary resolution number two: to confirm the appointment of KPMG Inc. as auditorsOrdinary resolution number three: to re-elect Syd Muller as a directorOrdinary resolution number four: to re-elect Keneilwe Moloko as a directorOrdinary resolution number five: to re-elect Bryan Hopkins as a directorOrdinary resolution number six: to re-elect Phillip Matlakala as a directorOrdinary resolution number seven: to appoint Keneilwe Moloko to the audit and risk committeeOrdinary resolution number eight: to appoint Bryan Hopkins to the audit and risk committeeOrdinary resolution number nine: to appoint Syd Muller to the audit and risk committeeOrdinary resolution number ten: to endorse the remuneration policy by way of a non-binding advisory voteSpecial resolution number one: to approve the remuneration of the non-executive directorsSpecial resolution number two: to give the directors a general authority to repurchase sharesSpecial resolution number three: to give the directors a general authority to provide financial assistance to group companiesOrdinary resolution number eleven: to authorise the directors to do all such things necessary to implement the resolutions in this notice

(Indicate instructions to proxy by way of a cross in the spaces provided above, failing which the proxy may vote as he/she thinks fit.)

Signed by me/us on this day ______________________________________ of __________________________ 2014.

Name of shareholder (please print) ___________________________________________________________________

Signature ________________________________________________________________________________________

Please read the notes on the reverse side hereof.

Form of ProxyHoldsport Limited(Incorporated in the Republic of South Africa)(Registration number: 2006/022562/06)(JSE share code: HSP ISIN: ZAE000157046)(“Holdsport” or “the company” or “the group”)

LIMITED

Notes to the Form of Proxy

1. A shareholder may insert the name of a proxy or the names of two alternative proxies of the shareholder’s choice in the spaces provided, with or without deleting “the chairman of the eighth annual general meeting”, but any such deletion must be initialled by the shareholder. The person whose name stands first on the form of proxy and who is present at the eighth annual general meeting will be entitled to act as proxy to the exclusion of those whose names follow. In the event that no names are filled in the proxy shall be exercised by the chairman of the eighth annual general meeting.

2. A shareholder’s instruction to the proxy must be indicated by the insertion of the relevant number of votes exercised by that shareholder in the appropriate box provided. Failure to comply with the above will be deemed to authorise the proxy to vote or to abstain from voting at the annual general meeting as he deems fit in respect of all the shareholder’s votes exercised thereat. A shareholder or his proxy is not obliged to use all the votes exercisable by the shareholder or by his proxy, but the total of the votes cast in respect of which abstentions are recorded may not exceed the total votes exercisable by the shareholder or his proxy.

3. Forms of proxy must be lodged with or posted to the company’s transfer secretaries, Computershare Investor Services (Proprietary) Limited, 70 Marshall Street, Johannesburg (PO Box 61051, Marshalltown, 2107) in order to be received by not later than 16h00 on Tuesday, 12 August 2014 in accordance with the instructions thereon.

4. The completion and lodging of this form of proxy will not preclude the relevant shareholder from attending the annual general meeting, speaking and voting in person thereat to the exclusion of any proxy appointed in terms hereof.

5. Documentary proof establishing the authority of the person signing this form of proxy in a representative or other legal capacity must be attached to this form of proxy unless previously recorded by the transfer secretaries of the company or waived by the chairman of the eighth annual general meeting.

6. Any alterations to the form of proxy must be initialled by the signatories.

7. Dematerialised shareholders, other than those with own name registration, who wish to attend the annual general meeting should instruct their CSDP or broker to issue them with the necessary authority to attend the meeting in terms of the custody agreement between such shareholders and their CSDP or brokers. Such shareholders who wish to be represented by proxy at the annual general meeting should provide their CSDP or broker with their voting instructions in terms of the custody agreement between such shareholders and their CSDP or broker.

76

Registered officeHoldsport LimitedRegistration number: 2006/022562/06Incorporated in the Republic of South Africa on 20 July 2006

Trading symbols JSE share code: HSP ISIN:ZAE000157046

The Mill House1 Canterbury StreetCape Town, 8001Western Cape South Africa

Investor relationsE-mail: [email protected] LoubserChief Financial OfficerTelephone: +27 21 464 5366Fax: +27 21 461 0874Mobile: +27 82 884 6874E-mail: [email protected]

Company secretaryAndre Erasmus van Zyl The Mill House1 Canterbury StreetCape Town, 8001Western Cape South Africa

AuditorsKPMG Incorporated(Registration number: 1999/021543/21)1 Mediterranean StreetForeshore Cape Town, 8001Western Cape South Africa

Legal adviserCliffe Dekker Hofmeyr Incorporated (Registration number: 2008/018923/21) 11 Buitengracht StreetCape Town, 8001Western CapeSouth Africa(PO Box 695, Cape Town, 8000)

JSE SponsorUBS South Africa (Proprietary) Limited (Registration number: 1995/011140/07)64 Wierda Road EastWierda Valley Sandton, 2196GautengSouth Africa

Group’s bankerThe Standard Bank of South Africa Limited (Registration number: 1962/000738/06)9th FloorStandard Bank Centre 5 Simmonds Street Johannesburg, 2001Gauteng South Africa

Transfer secretaries Computershare Investor Services (Proprietary) Limited(Registration number: 2004/003647/07)Ground Floor70 Marshall Street Johannesburg, 2001GautengSouth Africa(PO Box 61051, Marshalltown, 2107)

Corporate Information

Shareholders’ DiaryAnnual general meeting 13 August 2014

Preliminary profit announcements– Final results to February 2015 May 2015– Interim results to August 2014 October 2014– Publication of 2014 Integrated

Annual Report June 2014

Ordinary share distributions

2014 final distribution– Last day to trade with distribution

included 30 May 2014– Date of distribution payment 9 June 2014

2015 interim distribution– Last day to trade with distribution

included December 2014– Date of distribution payment December 2014

2015 final distribution– Last day to trade with

distribution included June 2015– Date of distribution payment June 2015

LIMITED

www.holdsport.co.za

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