Group Income Statement

Transcription

1 MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2014 Group Income Statement December 2014 December 2013 Rm Notes 52 weeks 53 weeks Revenue 5 78, ,512.9 Sales 5 78, ,263.4 Cost of sales (63,610.8) (58,926.4) Gross profit 14, ,337.0 Other income Depreciation and amortisation 13 and 15 (846.6) (731.1) Impairment of assets 6 (24.6) (41.6) Employment costs (6,109.0) (5,423.5) Occupancy costs (2,678.8) (2,555.3) Other operating costs (3,033.3) (2,750.3) Operating profit before foreign exchange movements and interest 2, ,084.7 Foreign exchange (loss)/gain 7 (49.8) 67.8 Operating profit before interest 8 1, , Finance costs (386.8) (283.8) - Finance income Net finance costs 9 (345.3) (255.1) Profit before taxation 1, ,897.4 Taxation 10 (483.4) (555.3) Profit for the year 1, ,342.1 Profit attributable to: - Owners of the parent 1, , Non-controlling interests Profit for the year 1, ,342.1 Earnings per share (cents) 12 Basic EPS Diluted basic EPS

2 MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2014 Group Statement Of Other Comprehensive Income December 2014 December 2013 Rm Notes 52 weeks 53 weeks Profit for the year 1, ,342.1 Items that will not subsequently be re-classified to the Income Statement (8.9) 5.7 Post-retirement medical aid actuarial (loss)/gain 25 (8.9) 5.7 Items that will subsequently be re-classified to the Income Statement (55.6) 55.8 Foreign currency translation reserve 23 (53.7) 47.2 Cash flow hedges effective portion of changes in fair value Less Income tax relating to the cash flow hedges 18 (0.4) (1.9) Fair value movement on available-for-sale financial assets 16 (3.7) 4.7 Less Income tax relating to the available-for-sale financial assets (1.2) Total other comprehensive (loss)/income for the year, net of tax (64.5) 61.5 Total comprehensive income for the year 1, ,403.6 Total comprehensive income attributable to: - Owners of the parent 1, , Non-controlling interests Total comprehensive income for the year 1, ,403.6

3 MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2014 Group Statement Of Financial Position Rm Notes December 2014 December 2013 ASSETS Non-current assets 11, ,111.8 Property, plant and equipment 13 7, ,988.1 Goodwill 14 2, ,532.0 Intangibles assets Investments Other financial assets Deferred taxation Current assets 17, ,036.1 Other current financial assets Inventories 19 11, ,115.5 Trade and other receivables 20 4, ,712.5 Taxation Cash on hand and bank balances , ,196.1 Non-current assets classified as held for sale Total assets 28, ,147.9 EQUITY AND LIABILITIES Equity attributable to owners of the parent 5, ,173.0 Share capital Share premium Other reserves Retained profit 4, ,909.9 Non-controlling interests Total equity 5, ,369.6 Non-current liabilities 3, ,206.4 Non-current liabilities: - Interest-bearing 24 2, , Interest-free Non-current provisions Deferred taxation Current liabilities 20, ,571.9 Trade and other payables 26 18, ,774.2 Current provisions and other Taxation Other current liabilities Bank overdrafts Total equity and liabilities 28, ,147.9

4 MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2014 Group Statement Of Cash Flows December 2014 December 2013 Rm Notes 52 weeks 53 weeks CASH FLOWS FROM OPERATING ACTIVITIES Cash inflow from trading activities , ,984.0 Working capital movements 38.2 (295.1) Cash generated from operations 2, ,736.6 Interest paid (386.8) (283.8) Interest received Investment income Taxation paid 38.3 (683.4) (732.8) Dividends paid (914.0) (913.4) Net cash inflow from operating activities ,914.5 CASH FLOWS FROM INVESTING ACTIVITIES Investment to maintain operations 38.4 (857.4) (780.2) Investment to expand operations 38.5 (1,322.1) (1,306.8) Proceeds on disposal of property, plant and equipment Proceeds on disposal of assets classified as held for sale Investment in business combinations 38.8 (14.4) - Other investing activities (247.4) Net cash outflow from investing activities (2,146.5) (2,306.3) CASH FLOWS FROM FINANCING ACTIVITIES Increase in non-current liabilities Increase/(decrease) in current liabilities (68.1) Non-controlling interests acquired (38.6) (0.6) Net acquisition of treasury shares (27.4) (121.8) Net cash inflow from financing activities 1, Net decrease in cash and cash equivalents (51.2) (98.8) Foreign exchange movements 23 (53.7) 47.2 Cash and cash equivalents at the beginning of the year 1, ,639.9 Cash and cash equivalents at the end of the year , ,588.3

5 MASSMART GROUP ANNUAL FINANCIAL STATEMENTS 2014 Group Statement Of Changes In Equity Rm Share capital Share premium Other reserves Retained profit Equity attributable to owners of the parent Non-controlling interests Total Balance as at December , , ,915.3 Total comprehensive income , , , Profit for the year , , , Other comprehensive income for the year Dividends declared (note 11) (913.4) (913.4) - (913.4) Net changes in non-controlling 2 interests Distribution to non-controlling 3 interests Share-based payment expense (note 23) Share trust net consideration (note 29) Treasury shares (notes 22 and 23) (7.2) (3.4) (30.9) (30.9) (121.8) (121.8) - (121.8) - (8.8) - - (8.8) - (8.8) Balance as at December , , ,369.6 Total comprehensive income - - (64.5) 1, , , Profit for the year , , , Other comprehensive income for the year - - (64.5) - (64.5) - (64.5) Dividends declared (note 11) (914.0) (914.0) - (914.0) Acquisitions of non-controlling 2 interests Distribution to non-controlling 3 interests Share-based payment expense (note 23) Share trust net consideration (note 29) Treasury shares (notes 22 and 23) - - (27.6) - (27.6) (11.0) (38.6) (50.4) (50.4) (27.4) (27.4) - (27.4) - (9.9) (0.1) - (10.0) - (10.0) Balance as at December , , , The non-controlling interests at year end comprise store managers holdings in the Masscash division. 2 Acquisitions of non-controlling interests comprise the acquisition of the remaining 49% non-controlling interest of Makro Logistics Services by Masswarehouse for R28.1 million. The remaining acquisitions occurred within the Masscash division. In the prior year net changes in non-controlling interests represent the acquisitions of non-controlling interest by the Masscash division. 3 Distribution to non-controlling interests comprise dividends paid to non-controlling shareholders during the year.

6 MASSMART COMPANY ANNUAL FINANCIAL STATEMENTS 2014 Notes to the Annual Group Financial Statements Accounting policies General These consolidated financial statements comprise Massmart Holdings Limited (the Company ) and its subsidiaries (collectively the Group ). The Group operates retail stores in nine formats in sub-saharan Africa, aggregated into four reportable segments, focused on high-volume, low-margin, low-cost distribution of mainly branded consumer goods for cash. The principal offering for each segment is as follows: Massdiscounters general merchandise discounter and food retailer Masswarehouse warehouse club Massbuild home improvement retailer and building materials supplier Masscash food wholesaler, retailer and buying association. The Group s four divisions operate in two principal geographical areas, South Africa and the rest of Africa, and the Group s geographic segments are reported on this basis. Basis of accounting The financial statements have been prepared on the historical cost basis, except for non-current assets held-for-sale and financial instruments. These financial statements have been prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), Interpretations Issued by the International Accounting Standards Board, the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards Council, the JSE Listing Requirements and the requirements of the Companies Act, 71 of 2008 of South Africa. The accounting policies are consistent with that of the previous financial year as none of the amendments coming into effect in the current financial year have had an impact on the financial reporting of the Group. The principal accounting policies adopted are set out below. Basis of consolidation The Group annual financial statements incorporate the annual financial statements of the Company and the entities it controls as at 28 December Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The Group considers all relevant facts and circumstances in assessing whether it has power over an investee and re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. A change in the ownership interest of a subsidiary, without a loss of, is accounted for as an equity transaction. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year, are included in the Statement of Comprehensive Income, Statement of Financial Position and the Statement of Cash Flows, from the date the Group gains control until the date the Group ceases to control the subsidiary. All inter-company transactions and balances, income and expenses are eliminated in full on consolidation. The financial statements of the subsidiaries are prepared for the same reporting year as the parent company, using consistent accounting policies. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used in line with those used by the Group. Separate disclosure is made of non-controlling interests where the Group s investment is less than 100%. Non-controlling interests consist of the amount of those interests at the date of the original business combination and the allocated share of changes in equity since the date of the combination. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if it results in a deficit balance. The Group applies a policy of treating transactions with non-controlling interest holders as transactions with equity holders of the Group. Disposals to non-controlling interest holders that do not result in the loss of control, result in gains and losses for the Group that are recorded directly in the Statement of Changes in Equity. The difference between any consideration paid and the relevant share of the net asset value acquired from non-controlling interests is recorded directly in the Statement of Changes in Equity. Fair value measurement The Group measures financial instruments, such as, derivatives and certain investments at fair value at each reporting date. The fair values of financial instruments measured at amortised cost are disclosed should it be determined that the carrying value of these instruments does not reasonably approximate their fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

7 Level 1 Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between the Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting year. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. Business combinations The acquisition of subsidiaries is accounted for using the acquisition method. The cost of an acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree. Acquisition related costs are expensed as incurred and included in Other operating costs in the Income Statement. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree s net fair value of the identifiable net assets. Any contingent consideration forming part of the purchase price is recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with changes in fair value recognised either in the Income Statement or as a charge to other comprehensive income. If the contingent consideration is not within this scope, it is measured in accordance with the appropriate IFRS. Contingent consideration that is classified as equity is not remeasured and subsequent settlement is accounted for within equity. Goodwill Goodwill arising on consolidation of a subsidiary represents the excess of the fair value of the consideration transferred, the recognised amount of the non-controlling interests in the acquiree, and if the business combination is achieved in stages, the fair value of the existing equity interest in the acquiree, over the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (i.e. discount on acquisition) is credited to the Income Statement as a gain on bargain purchase in the year of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Group s cash-generating units (CGU s) (or group of CGU s) expected to benefit from the synergies of the combination, and represent the lowest level within the Group at which management monitors goodwill. CGU s to which goodwill have been allocated are tested for impairment annually, or more frequently when there is an indication that the units may be impaired. If the recoverable amount of the CGU is less than the carrying amount of the units, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the units and then to the other assets of the units pro-rata on the basis of the carrying amount of each asset in the units. An impairment loss recognised for goodwill is not reversed in a subsequent year. On disposal of a subsidiary, the attributable amount of goodwill is included in the determination of the profit or loss on disposal. Non-current assets held for sale Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets previous carrying amount and fair value less costs to sell, other than financial assets and deferred tax assets which continue to be measured in accordance with their relevant accounting standards. Property, plant and equipment and intangible assets are not depreciated or amortised once classified as held for sale. Property, plant and equipment Property, plant and equipment are initially recognised at acquisition cost, including any costs directly attributable to bringing the assets to the location and condition necessary for it to be capable of operating in the manner intended by the Group s management. Other than freehold land, which is subsequently carried at cost less accumulated impairment losses, property, plant and equipment are subsequently carried at cost less accumulated depreciation, reduced by any accumulated impairment losses. The cost of property meeting the definition of a qualifying asset in terms of IAS 23 Borrowing Costs includes borrowing costs capitalised in terms of the Group s borrowing cost policy. Where expenditure incurred on property, plant and equipment will lead to future economic benefits accruing to the Group, these costs are capitalised. Repairs and maintenance not meeting this criterion are expensed as and when incurred. Depreciation commences when the asset is ready for its intended use and is charged so as to write down the cost of the assets, other than land, to their residual values, over their useful lives, using the straight-line method, recognised in profit and loss on the following bases: Buildings Fixtures, fittings, plant, equipment and motor vehicles Computer hardware Leasehold improvements 50 years 4 to 15 years 3 to 8 years shorter of lease period or useful life Useful life and residual value is reviewed annually, at each reporting year-end and the prospective depreciation is adjusted accordingly if necessary. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease. If there is an option to purchase the leased asset and it is virtually certain that this option will be exercised, the leased asset is depreciated over the leased asset s expected useful life.

8 The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the Income Statement. Intangible assets Intangible assets comprise trademarks and computer software and are measured initially at purchased cost. Right of use assets are measured at cost, which is calculated based on the site negotiation agreement. Internally generated intangible assets are not capitalised but rather expensed in the Income Statement in the year in which the expenditure is incurred. Intangible assets are measured at cost less accumulated amortisation, and reduced by any accumulated impairment losses. The useful lives of intangible assets are assessed as either finite or indefinite. The Group has no intangible assets with indefinite useful lives other than goodwill which is detailed separately. For intangible assets with finite useful lives, amortisation is charged so as to write off the asset over the estimated useful life, to its residual value, using the straight-line method, on the following basis: Trademarks Right of use Computer software 10 years 10 years 3 to 8 years Useful life is reviewed annually, at each reporting year-end and the prospective amortisation is adjusted accordingly if necessary. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the intangible asset and is recognised in the Income Statement. Impairment of non-financial assets At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets (excluding goodwill) to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. The recoverable amount is the higher of fair value less costs of disposal and 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. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately in the Income Statement. An assessment is made at each reporting date to determine whether there is an indication that previously recognised impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset s or CGU s recoverable amount. Where an impairment loss subsequently reverses, the carrying amount of an asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount. This is done so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in the Income Statement. Goodwill is tested at least annually for impairment as indicated above. However, impairment losses relating to goodwill cannot be reversed in future years. Revenue recognition Revenue of the Group comprises net sales, royalties and franchise fees, investment income, finance charges, property rentals, management and administration fees, commissions and fees, dividends, distribution income, income from insurance premium contributions and excludes value-added tax. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured, regardless of when payment is being made. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts, volume rebates, returns and sales-related taxes. Payment is usually received via cash, debit card or credit card. Related card transaction costs are recognised in the Income Statement as other operating expenses. Revenue is also reduced by an appropriate provision for product warranties. The Group assesses its revenue arrangements against specific criteria to determine if it is acting as principal or agent. The specific recognition criteria described below must also be met before revenue is recognised. Sales of goods Revenue is recognised when the significant risks and rewards of ownership have passed to the buyer, usually when the goods are delivered and title has passed. Revenue from the sale of gift cards is recognised when they are redeemed by customers in exchange for products supplied by the Group. Rendering of services Revenue is earned from delivering goods to customers and goods to stores and distribution centres. Revenue is recognised by reference to stage of completion. Interest income Revenue is accrued on a time apportionment basis, by reference to the principal outstanding and the effective interest rate. Dividend income Revenue is recognised when the shareholders right to receive payment has been established, which is generally when shareholders approve the dividend. Property rental Property rental receivable under operating leases is credited to profit or loss on a straight-line basis over the term of the relevant lease. Other revenue is recognised on the accrual basis in accordance with the substance of the relevant agreements and measured at fair value of the consideration receivable. Where the Group enters into sales transactions involving a range of the Group s products and services, the Group applies the revenue recognition criteria set out above to each separately identifiable component of the sales transaction. The consideration received from these multiple-component transactions is allocated to each separately identifiable component in proportion to its relative fair value. Leasing The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfilment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets,

9 even if that right is not explicitly specified in an arrangement. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are capitalised at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor, net of finance charges, is included in the Statement of Financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to the income statement. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Rentals payable under operating leases are charged to the Income Statement on a straight-line basis over the term of the relevant lease. Contingent rental costs are expensed when incurred. Foreign currencies The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (i.e. its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in the functional currency of the Group, which is the presentation currency for the consolidated financial statements (South African Rand). Transactions and balances Transactions denominated in foreign currencies are initially recorded at their functional currency spot rates on the dates of the transactions. At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are translated using functional currency spot rates on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are translated using functional currency spot rates on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the functional currency spot rates at the date of the initial transactions. Exchange differences arising on the settlement and translation of monetary items are included in the Income Statement for the year. Exchange differences arising on the translation of non-monetary items carried at fair value are included in the Income Statement for the year. However, where fair value adjustments of non-monetary items are recognised in other comprehensive income, exchange differences arising on the translation of these non-monetary items are also recognised in other comprehensive income. Group companies On consolidation, the assets and liabilities of the Group s foreign operations (including comparatives) are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at exchange rates prevailing at the dates of the transactions where possible, or at the average exchange rates for the year. Exchange differences are recognised in other comprehensive income and transferred to the Group s foreign currency translation reserve. Such translation differences are recycled in the Income Statement in the year in which the foreign operation is disposed of, and is recognised as part of the gain or loss on disposal of the foreign operation. Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the spot rate on the reporting date. Retirement benefit costs Group companies operate various pension schemes. The schemes are funded through payments to trustee-administered funds in accordance with the plan terms. A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior years. The Group s contributions to defined-contribution plans in respect of services rendered in a particular year are recognised as an expense in that year. Additional contributions are recognised as an expense in the year during which the associated services are rendered by employees. Post-retirement healthcare benefits Group companies operate various pension schemes. The schemes are funded through payments to trustee-administered funds in accordance with the plan terms. A defined-contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. The Group s contributions to defined-contribution plans in respect of services rendered in a particular year are recognised as an expense in that year. Additional contributions are recognised as an expense in the year during which the associated services are rendered by employees. The Group provides for post-retirement medical benefits, to qualifying employees and pensioners in certain companies within the Group. The expected costs of these benefits are accrued over the period of employment based on past services and charged to the Statement of Comprehensive Income as employee benefits. This post-retirement medical benefit obligation is measured at present value by discounting the estimated future cash outflows using interest rates of government bonds that are denominated in the currency in which the benefits will be paid and that have the terms to maturity approximating the terms of the related post-employment liability. The future cash outflows are estimated using amongst others the following assumptions: health-care cost inflation; discount rates; salary inflation and promotions and experience increases; expected mortality rates; expected retirement age; and continuation at retirement. Valuations of this obligation are carried out annually by independent qualified actuaries in respect of past-service liabilities using the projected unit credit method. Actuarial gains or losses and settlement premiums, when they occur, are recognised immediately in other comprehensive income and as employee benefits in profit or loss respectively. Short-term benefits The cost of all short-term employee benefits is recognised as an expense during the period in which the employee renders the related service. Liabilities for employee entitlements to wages, salaries and leave represent the amount that the Group has as a present obligation, as a result of employee services provided to the reporting date, to the extent that such obligation can be reliably estimated. The accruals have been calculated at undiscounted amounts based on current wage and salary rates. Taxation Income tax expense represents the sum of the tax currently payable and deferred tax. Current income tax The tax charge payable is based on taxable profit for the year and any adjustment to tax payable/receivable relating to the prior year. Taxable profit differs from profit

10 as reported in the Income Statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates and tax laws that have been enacted or substantively enacted by the reporting date in the countries where the Group operates and generates taxable income. Current income tax is recognised in the Income Statement, except when it relates to items recognised directly in equity, in which case it is recognised in equity and not in the Income Statement. Where applicable tax regulations are subject to interpretation, management will raise the appropriate provisions. The recognition, measurement and classification of interest and tax-related penalties or damages are accounted for in terms of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and are recognised in profit or loss. Deferred tax Deferred tax is accounted for using the liability method in respect of temporary differences arising between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are recognised for all taxable temporary differences. Deferred tax assets are recognised for all deductible temporary differences, and the carry forward of unused tax credits and any unused tax losses to the extent that it is probable that taxable profit will be available against which these can be utilised. Deferred tax assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities, which affects neither the taxable profit nor the accounting profit at the time of the transaction. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax is calculated at the tax rates that are expected to apply to the year when the asset is realised or the liability settled, using tax rates and tax laws that have been enacted or substantively enacted by the reporting date. Deferred tax is recognised in the Income Statement, except when it relates to items credited or charged to other comprehensive income or directly to equity, in which case the deferred tax is recognised in either other comprehensive income or directly in equity. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Sales tax Income, expenses, assets and liabilities are recognised net of the amount of sales tax, except when the sales tax is not recoverable from, or payable to, the taxation authority, in which case it is recognised as part of the underlying item. The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the Statement of Financial Position. Any tax on capital gains is deferred if the proceeds of the sale of the assets are invested in similar assets, but the tax will ultimately become payable on sale of that similar asset. Inventories Inventories which consist of food, liquor, general merchandise and home improvement merchandise, are valued at the lower of cost and net realisable value. Cost is calculated on the weighted- average method. The cost of merchandise is the net of: invoice price of merchandise; insurance; freight; customs duties; an appropriate allocation of distribution costs; trade discounts; rebates and settlement discounts. Rebates and discounts received as a reduction in the purchase price of inventories are deducted from the cost of those inventories. Rebates earned on the sale of products based on advertising requirements are regarded as a reimbursement of costs already incurred in general (i.e. not linked to inventories) and is deducted from cost of sales. Obsolete, redundant and slow-moving items are identified on a regular basis and are written down to their estimated net realisable values. The amount of the write down is recognised as an expense in the Income Statement in the year in which it occurs. A new assessment is made of net realisable value in each subsequent year. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realisable value because of changed economic circumstances, the amount of the write down is reversed, so that the new carrying amount is the lower of the cost and the revised net realisable value. The reversal is recorded in the Income Statement. Financial instruments Financial assets and financial liabilities are recognised on the Group s Statement of Financial Position when the Group becomes a party to the contractual provisions of the instrument. Financial assets and liabilities are offset and the net amounts presented in the Statement of Financial Position when, and only when, the Group has a legal right to offset the amounts and intend either to settle on a net basis or to realise the asset and settle the liability simultaneously. Financial assets Financial assets are classified into the following specified categories: Fair value through profit or loss (FVTPL) These include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are covered separately and have their own accounting policy Derivative financial instruments and hedge accounting. Loans and receivables These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Held-to-maturity investments These are non-derivative financial assets with fixed or determinable payments and fixed maturities and the Group has the positive intention and ability to hold them to maturity. Available-for-sale investments These include equity investments and debt securities. Equity investments classified as available-for-sale are those that are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities are those that are intended to be held for an indefinite period of time and that may be sold for liquidity needs or in response to changes in market conditions. The Group holds no debt securities classified as available-for-sale. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All financial assets are initially recognised at fair value plus transaction costs, except for financial assets recorded at fair value through profit or loss which are measured at fair value. Financial assets are subsequently measured according to their category classification: Fair value through profit or loss (FVTPL) These are held at fair value and any adjustments to fair value are taken to the Income Statement. Loans and receivables

11 These are held at amortised cost using the effective interest rate method less any impairment losses recognised to reflect irrecoverable amounts. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation is recognised in finance income in the Income Statement. Impairment losses on loans and receivables are recognised in Other operating costs in the Income Statement. Held-to-maturity investments These are held at amortised cost using the effective interest rate method less any impairment losses recognised to reflect irrecoverable amounts. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation is recognised in finance income in the Income Statement. Impairment losses on loans and receivables are recognised in Other operating costs in the Income Statement. Available-for-sale investments These are held at fair value and any adjustment to fair value is recognised as other comprehensive income as a non-distributable reserve until the investment is derecognised, at which time the cumulative gain or loss is reclassified to the Income Statement and recognised in Other operating costs. Where the investment is determined to be impaired, the cumulative gain or loss is reclassified to the Income Statement. Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognised on the trade date, which is the date that the Group commits to purchase or sell the asset. De-recognition A financial asset is derecognised when the rights to receive cash flows have expired or the Group has transferred its right to receive cash flows from the asset, or has assumed an obligation to pay the received cash flows in full without material delay to the third party (where the Group has transferred the risk and rewards of the asset or has transferred control of the asset). Impairment At each reporting date, the Group reviews whether there is any objective evidence that a financial asset may be impaired as a result of one or more events that have occurred since the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset. Where objective evidence exists an impairment loss is calculated. Financial assets carried at amortised cost The impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows. The discount rate applied is the original effective interest rate and where a loan has a variable interest rate, the discount rate is the current effective interest rate. Impairment losses are reversed in subsequent periods when an increase in the investment s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised. The recovery is credited to the Income Statement. Trade receivables are recognised net of an allowance for impairment. An allowance for impairment of trade receivables 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. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The amount of the allowance is the difference between the carrying amount of the receivable and the recoverable amount, being the present value of the expected cash flows, discounted at the original effective interest rate. Any resulting impairment losses are included in other operating costs in the Income Statement. When a receivable is uncollectible, it is written off against the allowance for impairment for receivables. Subsequent recoveries of amounts previously written off are recognised in other operating costs in the Income Statement. Available-for-sale investment For available-for-sale financial assets, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Significant is evaluated against the original cost of the investment and prolonged against the period in which the fair value has been below its original cost. The impairment loss is measured as the difference between the acquisition cost and the current fair value, less any impairment loss previously recognised. Impairment losses on equity investments are not reversed through the Income Statement; increases in fair value of the instrument that can be objectively related to an event occurring after the recognition of the impairment, are recognised directly in other comprehensive income. Effective interest rate method This is a method of calculating the amortised cost of a financial asset or a financial liability, and of allocating interest income and finance costs, over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts and payments through the expected life of the financial asset or financial liability, or, where appropriate, a shorter period. Interest is recognised on an effective interest basis for financial instruments other than those financial assets designated as at fair value through profit or loss. Discounting of financial instruments carried at amortised cost is omitted where the impact of discounting is considered to be immaterial. Financial liabilities and equity Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. Financial liabilities are classified into the following specified categories: Fair value through profit or loss (FVTPL) These include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. Financial liabilities are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are covered separately and have their own accounting policy Derivative financial instruments and hedge accounting. Liabilities at amortised cost These are non-derivative financial liabilities with fixed or determinable payments that are not quoted in an active market. The classification depends on the nature and purpose of the financial liabilities and is determined at the time of initial recognition. All financial liabilities are initially recognised at fair value and, in the case of liabilities at amortised cost, net of directly attributable transaction costs. Financial liabilities are subsequently measured according to their category classification: Fair value through profit or loss (FVTPL) Fair value gains and losses on liabilities at fair value through profit or loss are recognised in the Income Statement. Liabilities at amortised cost These are held at amortised cost using the effective interest rate method. Amortised cost is calculated considering any discount or premium on acquisition and fees or costs that are an integral part of the effective interest rate. Amortisation costs are recognised in finance costs in the Income Statement in accordance with the Group s policy on borrowing costs. De-recognition A financial liability is derecognised when the obligation under the liability is discharged or cancelled, or expires. Gains or losses are recognised in the Income Statement when the liability is de-recognised. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability is substantially modified, such an exchange or modification is treated as the de-recognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognised in the Income Statement.