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notes
Basis of preparation and IFRS adoption
The interim financial statements comply with IAS 34 (AC127) of International Financial Reporting Standards (IFRS).
In accordance with the listing requirements of the JSE Limited the group is adopting IFRS with effect from 1 July 2005. As the group publishes comparative information in its financial statements, the date of transition to IFRS is 1 July 2004, which represents the start of the earliest period of comparative information presented. The financial information has been prepared in accordance with IFRS and interpretations in effect on 1 July 2005.
Accounting policies used are consistent with those used in the published June 2005 annual financial statements, except where accounting policies have changed as a result of the first-time adoption of IFRS as noted below.
| 1.1 | Foreign currency translations
Foreign operations are subsidiaries of the group based in a country or currency other than that of the holding company.
Foreign operations are translated from their functional currency into South African rands 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' balance sheet items are taken directly to non-distributable reserves.
The change in translation method for foreign subsidiaries has resulted in a reclassification of foreign exchange losses between retained profits and the foreign currency translation reserve, both of which form part of equity.
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| 1.2 | Property, plant and equipment
The useful lives and residual values of assets are reviewed annually. This requirement has resulted in a lower depreciation charge and a reversal of accumulated depreciation.
| | 1.3 | Investment property
Property which the group holds to earn rental income or for capital appreciation is classified as investment property.
Investment properties are initially recognised at cost. Subsequently they are stated at cost less accumulated depreciation and any impairment in value.
Transfers are made from or to investment properties when there is a change in use of the property.
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| 1.4 | Financial instruments
Financial assets are subject to impairment when there is objective evidence that a loss event has impacted the estimated future cash flows to be received from that asset.
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| 1.5 | Transitional arrangements
IFRS 1 - First-time adoption of IFRS requires full retrospective application of the standards with the exception of certain optional and mandatory exemptions. The exemptions as noted below have been elected.
| 1.5.1 |
Employee benefits - Previously unrecognised actuarial losses of R7.3m relating to the post-retirement medical aid liability have been included in the liability at the transition date. |
| 1.5.2 |
Business combinations - The group has elected not to revisit the fair values and goodwill estimation of past business combinations. |
| 1.5.3 |
Share-based payments are expensed from 1 July 2004 onward. |
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| IFRS impact on reported balance sheets | | | | |
| | Effect on | Effect on | Effect on |
| | assets | liabilities | equity |
| | Notes | Rm | Rm | Rm |
| Transition date 1 July 2004 | | | | |
| Employee benefits | 1.5.1 | 2.1 | 7.3 | (5.2) |
| Property, plant and equipment | 1.2 | 52.1 | – | 52.1 |
| Impairment of financial services assets | 1.4 | 52.0 | – | 52.0 |
| Foreign currency translations | 1.1 | 7.1 | – | 7.1 |
| | | 113.3 | 7.3 | 106.0 |
| Year ended June 2005 | | | | |
| Employee benefits | 1.5.1 | 2.1 | 7.3 | (5.2) |
| Property, plant and equipment | 1.2 | 57.9 | – | 57.9 |
| Impairment of financial services assets | 1.4 | 33.9 | – | 33.9 |
| Foreign currency translations | 1.1 | 7.9 | – | 7.9 |
| | | 101.8 | 7.3 | 94.5 |
| Interim period ended December 2004 | | | | |
| Employee benefits | 1.5.1 | 2.1 | 7.3 | (5.2) |
| Property, plant and equipment | 1.2 | 55.6 | – | 55.6 |
| Impairment of financial services assets | 1.4 | 43.5 | – | 43.5 |
| Foreign currency translations | 1.1 | 7.6 | – | 7.6 |
| | | 108.8 | 7.3 | 101.5 |
| IFRS impact on reported results |
| | Net profit | | Outside | Attributable |
| | before tax | Tax | shareholders | profit |
| | Notes | Rm | Rm | Rm | Rm |
| Year ended June 2005 |
| Share-based payments | 1.5.3 | (10.4) | – | – | (10.4) |
| Property, plant and equipment | 1.2 | 7.6 | – | – | 7.6 |
| Impairment of financial services assets | 1.4 | (25.6) | (7.4) | – | (18.2) |
| Foreign currency translations | 1.1 | 2.7 | 0.8 | – | 1.9 |
| | | (25.7) | (6.6) | – | (19.1) |
| Interim period ended December 2004 |
| Share-based payments | 1.5.3 | (4.8) | – | – | (4.8) |
| Property, plant and equipment | 1.2 | 3.5 | – | – | 3.5 |
| Impairment of financial services assets | 1.4 | (11.1) | (3.3) | – | (7.8) |
| Foreign currency translations | 1.1 | 1.6 | 0.5 | – | 1.1 |
| | | (10.8) | (2.8) | – | (8.0) |
IFRS audit opinion
The preliminary IFRS financial information as at 30 June 2005 has been audited. A copy of the unqualified Special Purpose Audit Report of the joint auditors, Ernst & Young and SAB & T Inc., is available for inspection at the registered office of the company.
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Change in comparative period classifications and disclosures
Certain operational costs of the distribution subsidiary have been reclassified from cost of sales to other operating costs.
The 2005 reclassification amounts to R103.4m which has the effect of increasing gross margin to 32.7% from 31.2% as would have been previously stated.
Operating leases – In accordance with guidance provided by Circular 7/2005 released by SAICA, operating lease expenses are recognised on a straight-line basis over the term of the lease.
The effect on profit was R11.7m net of deferred tax at the prevailing rate.
- The tax rate of 31.5% (2004: 29.4%) is the estimated average annual effective income tax rate of 29.0% (2004: 29.4%) plus Secondary Tax on Companies (STC) on the dividend portion of the final distribution for the June 2005 year, paid in September 2005.
- The difference between earnings per share and diluted earnings per share results from outstanding options.
- Unutilised banking facilities amount to R1 971.4m (2004: R1 391.9m). In terms of the Articles of Association, there is no limit on the group's authority to raise interest-bearing debt.
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