Notes to the annual financial statements

1

Significant accounting policies

Statement of compliance

Basis of preparation

Basis of consolidation

All intra-group balances, transactions, income and expenses and profit and losses resulting from intra-group transactions are eliminated in full.

Foreign currency translations

Foreign currency transactions are recorded at the exchange rates ruling on the transaction dates. Monetary assets and liabilities designated in foreign currencies are subsequently translated at rates of exchange ruling at the balance sheet date, gains and losses thereon are recognised in the income statement. Upon settlement, foreign currency monetary assets and liabilities are translated at the rates of exchange ruling at the settlement date and resulting gains and losses are recognised in the income statement. Non-monetary assets and liabilities are consistently translated at rates of exchange ruling at acquisition date.

Foreign operations are translated from their functional currency into South African rand at the rates of exchange ruling at the balance sheet date in respect of balance sheet items and at an average rate per month in respect of income statement items. Gains and losses on the translation of foreign operations are recognised directly in equity.

Property, plant and equipment

The cost of an item of property, plant and equipment is recognised as an asset if it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably.

Subsequent to initial recognition, buildings and leasehold improvements are shown at cost less accumulated depreciation and any impairment in value. Land is measured at cost, less any impairment in value. The property portfolio is valued internally on an annual basis and every three years by independent valuers for additional disclosure purposes. Furniture, fittings, motor vehicles and computers are shown at cost less accumulated depreciation and any impairment in value.

Subsequent expenditure, including the cost of replacing parts of the asset, other than day-to-day servicing costs, is included in the cost of the asset when incurred if it is probable that such expenditure will result in future economic benefits associated with the item flowing to the company, and the cost is reliably measurable.

An asset is depreciated from when it is available for use. Depreciation of an asset ceases at the earlier of the date the asset (or disposal group into which the asset falls) is classified as held for sale or included in a discontinued operation in accordance with IFRS 5 and the date that the asset is derecognised. The depreciable amount of an asset, being the cost of the asset less the residual value, is allocated on a straight-line basis over the estimated useful life of the asset. Residual value is the estimated amount that an entity would currently obtain from disposal of the asset after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. Whilst residual value exceeds carrying value, depreciation is discontinued.

Each part of an item of property, plant and equipment with a cost which is significant in relation to the total cost of the item is depreciated separately.

The residual values, useful lives and depreciation methods applied to assets are reviewed at each financial year end based on relevant market information and management consideration.

Items of property, plant and equipment are assessed for impairment as detailed in the accounting policy note on impairment.

Other than goodwill, all of the group’s intangible assets are assessed as having finite useful lives. The group’s intangible assets are amortised over their useful lives using a straight-line basis. Computer software is amortised over a period between 5 to 10 years.

Amortisation commences when the intangible assets are available for their intended use. The amortisation period and method for intangible assets with finite useful lives are reviewed annually. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.

The residual value of an intangible asset may increase to an amount equal to or greater than the asset’s carrying amount. Whilst residual value exceeds carrying value, amortisation is discontinued.

The residual value of an intangible asset shall be zero unless there is a commitment by a third party to purchase the asset at the end of its useful life or if the residual value can be determined by reference to an active market and it is probable that the market will still exist at the end of the asset’s useful life.

Amortisation shall cease at the earlier date that the asset is classified as held for sale (or is included in a disposal group that is classified as held for sale) or the date that the asset is derecognised.

Subsequent expenditure on intangible assets is capitalised if it is probable that future economic benefits attributable to the asset will flow to the group and the expenditure can be reliably measured.

Intangible assets are derecognised upon disposal or where no future economic benefits are expected. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset. These gains and losses are recognised in the income statement when the asset is derecognised.

Intangible assets are tested for impairment if indications of impairment exist. For impairment of intangible assets, refer to the policy on impairment of non-financial assets.

Research costs are expensed as incurred.

After initial recognition, goodwill on acquisitions of subsidiaries is measured at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation can be made to a single cash-generating unit or a group of cash-generating units.

Goodwill is tested for impairment at every financial year end or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Impairment is determined by assessing the recoverable amount of the cash-generating unit to which the goodwill is allocated. Where the cash-generating unit’s recoverable amount is less than its carrying value, an impairment loss is recognised. An impairment loss for goodwill cannot be reversed in future periods. The group performs its annual impairment test of goodwill on 30 June.

Goodwill on acquisitions of equity accounted associates and joint ventures is included in the investments in associates or joint ventures and tested for impairment as part of the carrying value of the investment.

Business combination

Investment properties

Investment properties are initially recognised at cost, including transaction costs, when it is probable that future economic benefits associated with the investment property will flow to the group and the cost of the investment property can be measured reliably. The cost of a purchased investment property comprises its purchase price and any directly attributable expenditure. The cost of a self-constructed investment property is its cost at the date when the construction development is complete.

Investment properties are accounted for under the cost model and the accounting treatment after initial recognition follows that applied to property, plant and equipment.

Investment properties are derecognised when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal.

Prepaid employment costs

Prepaid employment costs are initially recognised at an amount equal to the fair value adjustment on initial recognition of the share loans that give rise to the prepayment.

Taxes

Current tax assets and liabilities are offset if the company has a legally enforceable right to offset the recognised amounts and it intends to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Deferred tax assets are recognised for all deductible temporary differences to the extent that it is probable that future taxable profit will allow the deferred tax asset to be utilised, unless the deferred tax arises from the initial recognition of an asset or liability in a transaction that is not a business combination, and at the time of the transaction affects neither accounting nor taxable profit or loss. In respect of deductible temporary differences associated with investment in subsidiaries, associates and interests in joint ventures, deferred tax assets are recognised only to the extent that it is probable that the temporary difference will reverse in the forseeable future and that taxable profit will be available against which the temporary difference will be utilised.

Deferred tax assets are reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient future taxable income will be available for utilisation of the asset.

Deferred tax liabilities are recognised for all taxable temporary differences except where the deferred tax liability arises from the initial recognition of goodwill, or the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss. In respect of taxable temporary differences associated with investment in subsidiaries, associates and interests in joint ventures, deferred tax liabilities are not recognised when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the forseeable future.

Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

The measurement of deferred tax assets and liabilities reflect the tax consequences that would follow from the manner in which the group expects, at the balance sheet date, to recover or settle the carrying values of its assets and liabilities.

Current and deferred tax is credited or charged directly to equity if it relates to items credited or charged directly to equity.

Deferred tax assets and liabilities are offset if the company has a legally enforceable right to set off current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes levied by the same taxation authority on the same taxable entity, or different taxable entities that intend to settle current tax assets and liabilities on a net basis, or realise the asset and settle the liability simultaneously.

Current assets and liabilities

Inventories

Subsequent to initial recognition, inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs necessary to make the sale. Management estimate, based on their assessment of quality and volume, the extent to which merchandise on hand at the reporting date will be sold below cost.

Raw materials held for use in the production of inventories are not written down below cost if the finished products in which they will be incorporated are expected to be sold at or above cost.

The carrying amount of inventories sold is recognised as an expense in the period in which the related revenue is recognised.

Leases

Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease expenses and income (net of any incentive received from the lessor or incentives given to the lessee) are recognised in the income statement on a straight-line basis over the lease term. Contingent rental escalations, such as those relating to turnover, are expensed in the year in which the escalation is determined.

Cash and cash equivalents

Retirement benefits

Current contributions to defined contribution retirement funds are based on a percentage of the pensionable payroll and are recognised as an employee benefit expense when they are due. The group has no further payment obligations once the contributions are paid.

Share-based payment transactions

The equity-settled share-based payment programmes allow group employees to acquire shares in the company. The fair value of rights to acquire shares granted in the form of share options and convertible preference shares is recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and expensed over the period in which the employees become unconditionally entitled to these rights. The fair value of the grants is measured using option pricing models, taking into account the terms and conditions under which the rights to acquire the shares were granted. In valuing the grants, market conditions imposed, where applicable, on the vesting or exercisability of the share rights are taken into account. No adjustments to the cost of share-based payment schemes are made if a market condition is not satisfied. Where shares are granted at a discount to the ruling market price, the intrinsic value is expensed over the vesting period of the grant. Changes in estimates of the number of shares or rights to acquire shares that will ultimately vest are included in the charge for the year. No subsequent adjustments are made to total equity after the vesting date.

Where the terms of an equity-settled award are modified, the minimum expense recognised is the amount of services received measured at the grant date at the fair value of the equity instruments granted, unless those equity instruments do not vest because of failure to satisfy a vesting condition (other than a market condition) that was specified at grant date. In addition, the group recognises the effects of modifications that increase the total fair value of the share-based payment arrangement or are otherwise beneficial to the employee as measured at the date of the modification.

Where an equity-settled award is cancelled by the group, it is accounted for as acceleration of the vesting of the award. It is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award, and designated as a replacement award on the date that it is granted, the cancelled and new awards are treated as if they were a modification of the original award.

Provisions

Financial instruments

Derecognition of financial assets and financial liabilities
A financial asset is derecognised where the right to receive cash from the asset has expired, or the group has transferred the asset and the transfer qualifies for derecognition. A transfer qualifying for derecognition occurs when the group transfers the contractual rights to receive the cash flows of the financial asset, or retains the rights but assumes a contractual obligation to pay those cash flows in full without material delay to a third party under a ‘pass-through’ arrangement, or where the group has transferred control or substantially all the risks and rewards of the asset. Where the group has transferred its rights to the cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the group’s continuing involvement in the asset.

A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. An exchange between the group and an existing lender of debt instruments with substantially different terms or a substantial modification to an existing financial liability is accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability.

Fair value
The fair value of investments traded in an active market is determined with reference to quoted market bid prices at close of business on the balance sheet date. Where there is no active market, fair value is determined using valuation techniques. Such valuation techniques include using recent arm’s length market transactions, reference to current market value of other similar instruments, discounted cash flow analysis and option pricing models. The fair value of short-term receivables and payables with no stated interest rate may be measured at original invoice amount unless the effect of imputing interest is significant.

Offset
Where a legally enforceable right to offset exists for recognised financial assets and financial liabilities, and there is an intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, such related financial assets and financial liabilities are offset.

Financial assets
The trade date method of accounting has been adopted for ‘regular way’ purchases or sales of financial assets. The group categorises its financial assets in the following categories: loans and receivables, at fair value through profit or loss and available-for-sale. The classification depends on the purpose for which the financial assets are acquired. Management determines the classification of its financial assets at initial recognition.

Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial recognition, such assets are carried at amortised cost, using the effective interest method, less accumulated impairment. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, and through the amortisation process.

The group has classified the following financial assets as loans and receivables:

Participation in export partnerships
Amortised cost for the group’s participation in export partnerships is the group’s cost of original participation less principal subsequent repayments received, plus the cumulative amortisation of the difference between the initial amount and the maturity amount, less any write down for impairment or uncollectability. A corresponding deferred tax liability, equal to the cost of original participation together with the group’s share of the partnership gross profit less the group’s share of subsequent amounts received by the partnership, is recorded.

Financial services assets
Financial services assets comprise loans to customers, Woolworths in-store card and credit card receivables. These assets are subsequently measured at amortised cost less provision for impairment estimated using statistical provisioning models. Refer note 18.

Other loans
Other loans comprise housing and other employee loans as well as share purchase scheme loans.

Trade and other receivables
Trade and other receivables comprise all trade and non-trade debtors other than financial services debtors. Short-term receivables with no stated interest rate are measured at original invoice amount unless the effect of imputing interest is significant.

Cash and cash equivalents
Cash and cash equivalents comprise cash at banks and on hand as well as short-term deposits held at call with banks. Cash equivalents are held for the purpose of meeting short-term cash commitments rather than for investment or other purposes.

Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are financial assets held for trading or designated as at fair value through profit or loss.

Gains and losses on financial assets at fair value through profit and loss are accounted for in the income statement and consist of fair value movements and transaction costs on these assets.

Available-for-sale financial assets
Available-for-sale assets are those non-derivative financial assets that are categorised as available-for-sale.

After initial recognition, available-for-sale assets are measured at fair value with gains and losses recognised in equity until the asset is derecognised or determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement.

Financial liabilities
Financial liabilities consist of interest-bearing borrowings, trade and other payables, bank overdrafts and interest-bearing money market borrowings, liabilities categorised at fair value through profit or loss and derivatives held for hedging (refer derivative instruments accounting policy).

After initial recognition, financial liabilities are recognised at amortised cost, using the effective interest method, except for financial liabilities at fair value through profit or loss which are measured at fair value.

Finance costs on financial liabilities at amortised cost are expensed in the income statement in the period in which they are incurred using the effective interest rate method. In addition, gains and losses on these financial liabilities are recognised in the income statement when the liability is derecognised.

Gains and losses on financial liabilities at fair value through profit or loss arise from fair value movements and related transaction costs on these liabilities. These gains and losses are recognised in the income statement in the period in which they are incurred.

Financial guarantee contracts
Financial guarantee contracts issued by the group are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when it becomes due in accordance with the terms of a debt instrument.

Financial guarantee contracts are recognised initially at fair value.

Subsequently, the contract is measured at the higher of the amount determined in accordance with IAS 37 and the amount initially recognised less cumulative amortisation recognised in accordance with IAS 18, unless it was designated as at fair value through profit or loss at inception.

Financial guarantees are derecognised when the obligation is extinguished, expires or transferred.

The group currently does not recognise any financial guarantee contracts as, in the opinion of the directors, the possibility of loss arising from these guarantees is remote.

Derivative financial instruments and hedge accounting
All derivative financial instruments are classified as financial assets and financial liabilities at fair value through profit or loss unless they are designated as a hedging instrument in an effective hedge.

Derivatives are initially recognised at fair value on the date a derivative contract is entered into. After initial recognition, derivative financial instruments are measured at their fair values, without any deduction for transaction costs that they may incur on sale or other disposal. The method of recognising the resulting gains or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

To the extent that a derivative instrument has a maturity period of longer than 12 months, the fair value of these instruments will be reflected as a non-current asset or liability.

The group is exposed to market risks from changes in interest rates and foreign exchange rates. The group uses derivative financial instruments, being forward exchange contracts and interest rate swaps and collars, to hedge the risks associated with foreign currency and interest rate fluctuations respectively. It is the group’s policy not to trade in derivative financial instruments for speculative purposes. Details of the group’s financial risk management objectives are set out in notes 29 and 30.

The fair value of forward exchange contracts is calculated by reference to forward exchange rates for contracts with similar maturity profiles at year end. The fair value of interest rate swap contracts and interest rate collar contracts is calculated by discounting the future cash flows with the prevailing market interest rate and is calculated by independent experts.

The group designates certain derivatives as cash flow hedges. When a derivative is designated as a hedge, the group documents, at the inception of the transaction, the relationship between the hedging instruments and the hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows of hedged items.

Gains or losses on the effective portions of cash flow hedges in respect of a risk associated with a recognised asset or liability, or highly probable forecast transaction or firm commitment are recognised directly in equity. The gains or losses on the ineffective portions are recognised in the income statement in the period in which they arise. When a hedged forecast transaction is recognised as a non-financial asset or a non-financial liability, the cumulative gains and losses associated with the forecast transaction are removed from equity and included in the initial measurement of the non-financial asset or non-financial liability. When cash flow hedges result in the recognition of a financial asset or a financial liability, the cumulative gains or losses reflected in equity are included in the income statement in the same periods that the related asset or liability affects profit.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognised in equity are transferred to the income statement. If the hedging instrument expires or is sold, or if its designation as a hedge is revoked, amounts previously recognised in equity remain in equity until the forecast transaction or firm commitment occurs.

Impairment

Trecoverable amount is the higher of an asset’s fair value less costs to sell and its value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

The excess of an asset’s carrying amount over its recoverable amount is recognised as an impairment loss in the income statement.

An impairment recognised previously may be reversed when estimates change as a result of an event occurring after the impairment was initially recognised. Such a reversal may not increase the carrying value above what it would have been had no impairment loss been recognised. A reversal of an impairment loss is recognised in the income statement.

Financial assets
The group assesses at each balance sheet date whether objective evidence exists that a financial asset or a group of financial assets is impaired.

Assets carried at amortised cost
If there is objective evidence that assets carried at amortised cost are impaired, the loss is measured as the difference between the asset’s carrying amount and present value of future cash flows discounted at its original effective interest rate. The carrying amount of the asset is reduced through the use of a provision for impairment account, and the amount of the loss is recognised in the income statement. Assets, together with the associated provision for impairment, are written off when there is no realistic prospect of future recovery.

The group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and collectively for assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of an impairment loss decreases due to an event occurring after recognition of the impairment, the previously recognised impairment loss is reversed. Such a reversal is recognised in the income statement to the extent that the carrying value of the asset does not exceed its amortised cost as if the asset has never been impaired at the reversal date.

For certain categories of loans and receivables provisions for impairment are recognised based on the following considerations:

Financial services assets
For financial services assets, provisions for impairment are estimated using statistical models. The models incorporate historic experience such as past write-offs and recoveries for each group of customers, adjusted for current economic situations such as current interest rates and inflation. Objective evidence of impairment exists when the group will not be able to collect all amounts due according to the original terms of the receivables.

Trade and other receivables
For trade and other receivables, a provision for impairment is established when there is objective evidence that the group will not be able to collect all amounts due according to the original terms of the receivables. Indicators of impairment include long overdue accounts, significant financial difficulties of the debtors and defaults in payments.

Available-for-sale financial assets
The group determines that available-for-sale investments are impaired when there has been a significant decrease in its fair value to below cost. In judging what constitutes a significant decrease, the group considers amongst other things industry performance, technological changes and financing and operational cash flows. If available-for-sale financial assets are identified as impaired, the difference between cost and current fair value less any previously recognised impairment loss is transferred from equity to the income statement. The carrying amount of the asset is reduced through the use of a provision for impairment account, and the amount of the loss is recognised in the income statement.

Treasury shares

Revenue recognition

Revenue is recognised when it is probable that the economic benefits associated with the transaction will flow to the group and the amount can be measured reliably.

Revenue is recognised on the following bases:

Borrowing costs

Expenses

Exceptional items

Segmental information

Segment revenue, expenses, assets and liabilities include items directly attributable to a segment and those that can be allocated on a reasonable basis.

The secondary segments are based on the location of customers and assets.

Earnings per share

Distributions paid to shareholders

Use of estimates, judgements and assumptions

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and subsequent periods if the revision affects both.

Significant accounting estimates and assumptions
Estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

Property, plant and equipment
Property, plant and equipment is depreciated over its useful life taking into account residual values, where appropriate. Assessments of useful lives and residual values are performed annually after considering factors such as technological innovation, maintenance programmes, relevant market information and management consideration. In assessing residual values, the group considers the remaining life of the asset, its projected disposal value and future market conditions. Refer to note 9.

Provision for net realisable value of inventory
The provision for net realisable value of inventory represents management’s estimate, based on historic sales trends and its assessment of quality and volume, of the extent to which merchandise on hand at the reporting date will be sold below cost. Refer to note 17.

Fair value of right to acquire equity instruments granted
The fair value of rights to acquire shares granted in terms of share-based payment transactions is obtained using option pricing models and, in the case of options, assuming an option life of between 7 and 10 years, while convertible preference shares issued in terms of the broad-based black economic empowerment scheme have a life of 8 years. Other valuation assumptions include estimates of the volatility of the shares, dividend yield and the risk-free interest rate. Refer to note 20 for additional information regarding the fair value of such instruments at grant date.

Impairment of non-financial assetss
Goodwill, intangible assets and property, plant and equipment are considered for impairment at least annually. An asset is impaired when its carrying value exceeds its recoverable amount. Recoverable amount is the higher of an asset’s fair value less costs to sell, and its value in use.

An asset’s fair value less costs to sell is approximated by its selling price in an arm’s length transaction adjusted for any costs directly attributable to the disposal of the asset. Where an asset is traded in an active market, its fair value less costs to sell will be its quoted price less disposal costs.

Where neither a binding agreement nor an active market for an asset exists, management estimates an asset’s fair value less costs to sell using the entity’s most recent information and experience with similar assets. Where necessary, consulting an independent expert to obtain a valuation will be considered.

The value in use of the relevant asset or, in the case of goodwill, the cash-generating unit to which the goodwill is allocated, is estimated by projecting the future cash flows expected to be generated by the assets or cash-generating units taking into account the expected useful lives of assets and current market conditions. The present value of these cash flows is calculated using an appropriate discount rate and compared to the net asset value. Where the net asset value exceeds the present value of cash flows, an impairment loss is recognised. In the case of goodwill, the impairment loss is allocated first to goodwill and then to other assets in the cash-generating unit. For detailed information regarding the impairment testing of goodwill, refer to note 11.

Impairment of financial assets
Loans and receivables
When evidence of impairment of loans and receivables exists, the present value of the future cash flows of the asset discounted at the asset’s original effective interest rate is determined and compared to the carrying value of the asset. Management judgement is required in the estimation of future cash flows.

Available-for-sale financial assets
The group determines that available-for-sale investments are impaired when there has been a significant decrease in its fair value to below cost. Management judgement is required in determining what constitutes a significant decrease. Management will consider amongst other things industry performance, technological changes and financing and operational cash flows.

Provision for employee benefits
Post-retirement defined benefits are provided for certain existing and former employees. Actuarial valuations are performed to assess the financial position of relevant funds and are based on assumptions which include mortality rates, healthcare inflation, the expected long-term rate of return on investments, the discount rate and current market conditions. Refer to note 25.

Significant judgements in applying the group’s accounting policies
The following areas require significant judgements to be made by management in the application of the group’s accounting policies.

Consolidation of Account on Us (Proprietary) Limited
A programme has been set up whereby Woolworths card receivables eligible for securitisation are sold to Account on Us (Proprietary) Limited. These receivables are used as security for the issuance of asset-backed notes by Account on Us (Proprietary) Limited. Judgement is exercised in developing the appropriate accounting treatment for these transactions. In deciding whether this special purpose entity should be consolidated, management is of the opinion that, due to the back-to-back interest rate swap entered into with Standard Bank of South Africa Limited and as the net income of the entity after settling all expenses is distributed to Woolworths (Proprietary) Limited in the form of a preference dividend, Woolworths retains, in substance, the significant risks and rewards of ownership of the assets of Account on Us (Proprietary) Limited. As a result, Account on Us (Proprietary) Limited has been consolidated.

Probability of vesting of rights to equity instruments granted in terms of share-based payment schemes
The cumulative expense recognised in terms of the group’s share-based payment schemes reflects the extent, in the opinion of the directors, to which the vesting period has expired and the number of rights to equity instruments granted that will ultimately vest. At each reporting date, the unvested rights are adjusted by the number forfeited during the period to reflect the actual number of instruments outstanding. Management is of the opinion that this represents the most accurate estimate of the number of instruments that will ultimately vest.

Income taxes
The group is subject to income tax in more than one jurisdiction. Significant judgement is required in determining the provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

Determining whether an arrangement contains a lease
IFRIC 4 identifes situations where an arrangement entered into may have to be accounted for as a lease. The interpretation concludes that an arrangement is a lease when fulfilment thereof is dependent on the use of specific assets and when the arrangement conveys the right to use those assets. Judgement is exercised in assessing whether existing supplier agreements may contain a lease. In the opinion of management, the requirements of IFRIC 4 were not met during the current year as suppliers do not have to use specific assets to fulfil their supply obligation and, although the group enforces stringent quality standards on goods sourced, it has no control over how assets are used. In addition, purchases are priced per individual order and the group does not control physical access to suppliers’ assets.

2

Revenue

3

Profit before exceptional items includes:

4

Exceptional items

Group

Company

5

Tax

6

Earnings per share

17 872 545 (2007: 1 268 051) shares were repurchased in 2008, which had a negligible effect on the weighted average number of shares in issue due to the timing of the repurchase.

Group

2008

7

Directors’ emoluments

8

Related party transactions

Holding company
The nature of transactions between the holding company and subsidiaries comprise dividends received and interest earned on loans.

Details of interests in subsidiaries and loans owing to/by subsidiaries are disclosed in note 12 and Annexure 1. For the year ended 30 June 2008, the group has not recognised any impairment losses relating to amounts owing by related parties (2007: nil).

Key management personnel
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the group, directly or indirectly, including all directors, executive and non-executive, of Woolworths Holdings Limited and Woolworths (Proprietary) Limited.

Key management personnel has been defined as the board of directors of the holding company and the major operating subsidiary Woolworths (Proprietary) Limited, and the Chief executive officer of Country Road Limited.

The definition of related parties include close family members of key management personnel. The group has not engaged in transactions with close family members of key management personnel during the financial year.

Post-employment benefits comprise expenses determined in terms of IAS 19: Employee Benefits in respect of the group’s retirement and healthcare funds.

No bad or doubtful debts have been recognised in respect of loans granted to key management personnel (2007: nil)

Purchases made by key management personnel are at standard discounts granted to all employees of the company. Interest is charged on outstanding balances on the same terms and conditions applicable to all other card holders. No bad or doubtful debts have been recognised in respect of the Woolworths card and Woolworths visa credit card accounts of key management personnel (2007: nil).

9

Property, plant and equipment

Group

2008

The group’s land and buildings consist of retail stores, distribution centres and corporate owner-occupied properties.