Assets with a market value of R4,1 billion

Transcription

1 Assets with a market value of R4,1 billion were released to shareholders in Wooltru which, at that date, had a residual market value of R135,2 million. Not only did the unbundling unlock the discount inherent in the Wooltru share price in relation to the underlying value of the Massmart, Truworths and Woolworths shares held, but also enabled shareholders to assess the value of the remaining assets of Wooltru.

2 CHAIRMAN S review Assets with a market value of R4,1 billion were released to shareholders in Wooltru which, at that date, had a residual market value of R135,2 million. Not only did the unbundling unlock the discount inherent in the Wooltru share price in relation to the underlying value of the Massmart, Truworths and Woolworths shares held, but also enabled shareholders to assess the value of the remaining assets of Wooltru. UNBUNDLING In September 2000, the board resolved to unbundle Wooltru s listed investments in specie to its shareholders, dispose of its non-listed investments and wind up the company. The listed investments consisted of shares in Massmart Holdings Limited ( Massmart ), Truworths International Limited ( Truworths ) and Woolworths Holdings Limited ( Woolworths ). The unlisted investments consisted of the CNA group, Topics, an extensive portfolio of investment and development properties, loans to be recovered from the Wooltru 1982 Executive Share Purchase Trust ( Share Purchase Trust ), inthebag, an online internet shopping company selling Woolworths foods, Wooltru Insurance Brokers and a 33 1 / 3% holding in Affinity Logic, a company supplying IT systems and services to group companies. The unbundling process has turned out to be extremely complex and has taken longer than originally anticipated. By November 2000 it became apparent that this was not going to be a technical exercise. The severing of inter-group relationships that had been created over many years proved difficult and time consuming. In particular, certain property lease guarantees, with a face value of close to R2 billion, had to be unwound before the unbundling of the listed investments could be contemplated. Another factor critical to the unbundling proved to be the post-unbundling liquidity of Wooltru, especially its ability to fund its on-going commitments until final voluntary liquidation. Group borrowings, which peaked at R550 million in February 2001, had to be covered through the disposal of non-listed investments, without having to resort to the sale of any listed investments. This has generated R750 million in the process. Within the unbundling period, the introduction of Capital Gains Tax from 1 October 2001 brought additional challenges, particularly in relation to the unbundling process, which created uncertainty that influenced the timing of the unbundling. However, all of these hurdles were eventually negotiated so that at a combined general meeting of Ordinary shareholders, N Ordinary shareholders and cumulative preference shareholders of Wooltru held on 10 June 2002, a special resolution was adopted whereby a distribution in specie of Wooltru s entire holding in Massmart shares, Truworths shares and Woolworths shares to the company s Ordinary and N Ordinary shareholders was agreed. This distribution duly took place on 26 June With this distribution, the principal objective of the Wooltru unbundling was successfully concluded. Assets with a market value of R4,1 billion were released to shareholders in Wooltru which, at that date, had a residual market value of R135,2 million. Not only did the unbundling unlock the discount inherent in the Wooltru share price in relation to the underlying value of the Massmart, Truworths and Woolworths shares held, but also enabled shareholders to assess the value of the remaining assets of Wooltru. 2

3 INVESTMENT UPDATE Shareholders are again reminded that the value of Wooltru is no longer primarily related to its earnings potential but is a function of the net realisable value of its remaining assets. The board accordingly considers it more relevant to shareholders for the focus of this report to be on the value of the remaining assets in Wooltru and the anticipated costs to be incurred, and liabilities to be settled, before Wooltru can finally be wound up. Wooltru s remaining assets comprise properties, shares and loans related to the Share Purchase Trust, cash and amounts due to Wooltru relating to the sale of CNA, Wooltru s position in relation to which is explained more fully below. PROPERTY Property holdings, as at 26 August 2002, were valued by the directors at R22,0 million. Of this amount, signed sales agreements for R18,4 million have been entered into and the properties in question are at various stages in the transfer process. All transfers are expected to be completed, and payments received, by 31 December The unsold properties consist of prime office land in Bellville, Cape, and the office building in Cape Town being used as the Wooltru head office. The sale of both properties is currently under discussion with potential buyers. SHARE PURCHASE TRUST Although the Share Purchase Trust was scheduled to continue until 2010, in order to facilitate the Wooltru unbundling, agreements have been concluded with all participants that will enable the Trust to be terminated at the end of September The Share Purchase Trust has three components to it: (i) Staff held shares: This represents shares sold to participants at market values on various dates where there are commensurate loans due to the Share Purchase Trust in payment for those shares. The agreement in place with this class of participants is that they will repay to the Trust the lower of loan value outstanding or market price of the shares held by them under the share scheme as at the date of surrender which date shall not be later than 30 September This arrangement is consistent with past practice. It is expected that the Share Purchase Trust will recover R24,1 million from this component based on weighted average prices of Wooltru, Wooltru N, Massmart, Truworths and Woolworths shares as at 26 August This will result in an under-recovery of R0,2 million in relation to the loan value. (ii) Shares held under option: This represents shares that are the subject of options at predetermined prices, corresponding to the market prices of the shares at the date the options were granted. This component will realise the lower of the exercise price or share price, which at 26 August, is expected to contribute R14,1 million to the Share Purchase Trust. (iii)trust held shares: These are surplus shares held in the Share Purchase Trust where members have left the employ of Wooltru or have surrendered their entitlements to the Trust for whatever reason. Value of this component, as at 26 August, was estimated to be R33,4 million. 3

4 CHAIRMAN S review continued In summary, the value of the Share Purchase Trust in its entirety as at the ruling prices on 26 August 2002, totals R71,6 million. In order to assist shareholders in valuing this major Wooltru investment in relation to market movement of the share prices, the three components are tabled hereunder: Loan value/ Current Number of shares exercise market price value Wooltru Wooltru Massmart Truworths Woolworths (Rands) (Rands) Ordinary N Ordinary Staff held shares and shares held under option (i) and (ii) on page Trust held shares (iii) on page 3 Nil CASH BALANCES As at 26 August 2002, cash balances on hand amounted to R140,1 million. The value of Wooltru s remaining assets being property sold and to be sold, the claims against the Share Purchase Trust and cash balances on hand at 26 August 2002, therefore total R233,7 million. ESTIMATED CASH OUTFLOWS Estimated outflows to the date of the final winding up, or voluntary liquidation, of Wooltru, which is expected to be by 31 December 2003, are budgeted at R77,9 million. Some of these will be offset by interest that will be earned on cash balances and which has not been accounted for. Should the cash on hand be invested until the final voluntary 4

5 liquidation of Wooltru, in December 2003, interest of approximately R27,0 million could be earned. The key components for which cash outflows have been budgeted are as follows: Property related 11,9 Jet Park lease guarantee unwind 19,5 Capital Gains Taxation 20,7 Post-retirement benefits 5,0 Advisors 7,1 Employment costs (1) 15,5 Administration costs (2) 6,0 Tax refund (9,3) Preference share redemption 1,5 Total 77,9 (1) This figure includes a residual amount of R9,4 million for unbundling payments due to Executive Directors. (2) This figure includes listing costs, audit fees, tax consulting, travel, communication and VAT. CNA It is common knowledge that the main operating companies in the CNA group have been placed in provisional liquidation. Wooltru is still owed R73,8 million from the sale, in February 2001, of Consolidated News Agencies Holdings (Pty) Limited ( CNA Holdings ) to Gordon Kay & Associates (Pty) Limited ( GKA ). This amount was due at the end of May 2002 and remains outstanding. It has been secured by a pledge of 51% of the shares in CNA Holdings, together with a similar pledge of shares in Consolidated News Agencies (Pty) Limited and Central News Agency (Pty) Limited, the two main trading companies. An amount of R20 million has, in addition, been personally guaranteed by Messrs Tony Kay and Mark Gordon. The recoverability of the outstanding claim for R73,8 million depends on the final result of the liquidation. No recovery value has been attributed to the Wooltru claim in the Investment update reflected earlier in this report. Wooltru s claim will, however, be pursued with the liquidators. There has been considerable speculation in the media surrounding the structure of the financing by GKA of the purchase of CNA. The board believes that the sale transaction, from Wooltru s perspective, was with the assistance of its legal and other advisors validly structured. An enquiry in terms of the Companies Act has been requested by a CNA creditor to probe the transaction and subsequent events. Certain Wooltru executives have been asked to give evidence at this enquiry. GROUP RESULTS The results of the group are not easily compared with the results of prior years. In the current year the results of CNA, Wooltru Insurance Brokers and inthebag are not included, whilst Topics is included until 31 March 2002 and Affinity Logic until 31 May In addition, the rental base of the property portfolio has been reduced through the realisation of properties and the proceeds from these realisations have been added to the group cash balance. The contribution to group headline earnings from Massmart, Truworths and Woolworths increased by 51,7% to R486,6 million, in line with the strong performance by each of these companies. The other discontinuing operations (Topics, Affinity Logic, Properties, inthebag, Wooltru Insurance Brokers and CNA) net loss has reduced from R192,7 million to R11,0 million. The losses attributable to Wooltru Limited increased from R40,1 million to R44,7 million. 5

6 CHAIRMAN S review continued BOARD CHANGES Once the decision was taken by shareholders to approve the distribution by Wooltru of its remaining investments in Massmart, Truworths and Woolworths, Messrs Mark Lamberti, Michael Mark and Simon Susman resigned from the board of Wooltru Limited. Their experience and counsel has been of immense value over many years and the board extends its appreciation to them for their loyal contribution to the activities of the group. PROSPECTS It is not possible to predict what impact the issues surrounding CNA may have on the timing of the proposed voluntary liquidation of Wooltru itself. Should the liquidation of the CNA companies proceed to finalisation without any calls upon Wooltru, it is expected that the Wooltru group will be finally wound up within the next sixteen months. Once certainty has been reached, the board will consider whether to declare any further interim dividends. On the winding up of Wooltru the preference shares will be redeemed and all remaining cash will be distributed to shareholders. WOOLTRU STAFF The circumstances facing Wooltru since September 2000 have been unique. Every component of the asset or liability, both intrinsic and peripheral, had to be recognized and addressed. Many big and small issues vied for attention. The steady professional hand of John Rabb, the managing director, was, and is, the influence that made an extremely complex potpourri of urgencies capable of rational solution. On behalf of the board of directors I would like to thank him and his team for the excellent manner in which they have acquitted themselves in achieving the unbundling and distribution of Wooltru s listed assets. This distribution would not have been possible without the realisation of the non-listed assets which created the liquidity in Wooltru that allowed the distribution of the listed assets to take place. The final stage of the unbundling will see the conversion to cash of the remaining non-listed assets followed by a distribution to shareholders. The managing director has committed himself to oversee this final stage. 6

7 CORPORATE governance INTRODUCTION Wooltru Limited subscribes to the Code of Corporate Practices and Conduct contained in the 1994 Report on Corporate Governance of the King Committee. The board of directors is satisfied that the company has applied the principles set out in the Code in all material respects throughout the period under review. The board has ensured to the extent appropriate that its subsidiaries and other investments have also adhered to the Code, satisfied itself that appropriate structures were in place in these entities and that they are functioning effectively. BOARD STRUCTURE AND RESPONSIBILITIES The company has a unitary board. The board s primary responsibilities are to review the group s strategic direction, to make material investment and disinvestment decisions, to appoint the managing director and to review the financial performance and risk management initiatives of the group. The board also oversees all matters of corporate governance and communication with shareholders. BOARD COMPOSITION The board of the company comprises three nonexecutive directors (two of whom are independent) and two executive directors. The non-executive directors are recognised in South Africa s business community for the diverse and individual contributions they are able to make to the board s deliberations. The roles of chairman and chief executive officer are separate. Messrs Mark Lamberti, Michael Mark and Simon Susman resigned from the board after the decision was taken by shareholders to approve the distribution of all the remaining shares that Wooltru held in the listed companies. Annually one third of the directors are required, in terms of the company s articles of association, to retire at the annual meeting of shareholders, but the retiring directors may offer themselves for reelection. BOARD FUNCTIONING Eight board meetings were held during the period under review, convened timeously by formal notice incorporating a detailed agenda supported by relevant written proposals and detailed reports. Between such meetings a number of decisions were taken by written resolution as provided for in the company s articles of association. Further, executive management regularly consulted with non-executive directors on matters of importance as they arose during the period. Board members have ready and direct access to the company secretary in relation to the affairs of the company and are entitled to obtain independent professional advice regarding company matters at the company s expense. On request, board members have access to company information, records, documents and property. BOARD COMMITTEES The board has constituted the following committees and delegated to them specific responsibilities in terms of written charters. 7

8 CORPORATE governance continued CORPORATE GOVERNANCE COMMITTEE The committee s primary objective is to assist the board in discharging its responsibilities to: determine the moral and ethical climate of the group s business, assist with the formulation of group policies on matters involving ethics and governance and to ensure compliance by the group with relevant legislation, regulation and codes of conduct in the spheres of ethics and governance. The committee consists of Mrs Louise Tager (a non-executive director who is the committee s chairman), Mr David Lubner and Dr Johannes van der Horst (non-executive directors). The company secretary acts as secretary of the committee. During the period under review the committee met on two occasions. AUDIT COMMITTEE This committee consists of Dr Johannes van der Horst (a non-executive director who is the committee s chairman), Mr Jon Lavies (retired former financial director of the company) and Mr David Lubner (a non-executive director). The company secretary acts as secretary. This committee s primary objective is to assist the board with discharging its responsibilities to: maintain adequate accounting records and functionally effective financial reporting and internal control systems, ensure compliance of published financial reports with relevant legislation, regulation, accounting practice and good corporate governance and safeguard group assets. The committee met twice during the period under review. Wooltru Limited s managing director, its finance director and the external auditors submitted written reports to the committee and attended the meetings to elaborate on any issues raised by the committee. REMUNERATION COMMITTEE The committee s primary objective is to assist the board in discharging its responsibilities to ensure that the group s senior executives and nonexecutive directors are rewarded in accordance with the company s compensation objectives. The committee s objectives were influenced by the events of September 2000 when the leadership of the company was changed. Responsibility was taken for the conclusion of an agreement with the newly appointed managing director. In so doing, scope was given to the new incumbent to recruit and/or retain staff and services and to implement appropriate remuneration structures to ensure the effective completion of the unbundling process. The committee consists of Mrs Louise Tager (a non-executive director who is the committee s chairman), Mr David Lubner and Dr Johannes van der Horst (non-executive directors). During the period under review the committee met on a number of formal and informal occasions. BOARD COMPENSATION AND SERVICE CONTRACTS The compensation of the executive directors and managers is determined annually by the remuneration committee. Due to the changing nature of the company s business, the committee has focused on the need to retain and motivate key members of staff. None of the non-executive directors have a service contract with the company. The executive directors 8

9 have indefinite period employment contracts with the subsidiary Wooltru Finance (Pty) Limited providing for notice periods not exceeding three months and benefits usually applicable to contracts of this nature, other than the payments referred to above relating specifically to the unbundling. Statutory disclosure of payments to directors is on page 31 of this report. STAKEHOLDER COMMUNICATION The company strives in its communications with stakeholders, particularly the investment community, to present a balanced and understandable assessment of the company s position. Consequently in its financial reporting, formal announcements, media releases, annual meetings, presentations and dialogue with analysts and institutional shareholders, the company s objectives are to be clear, open, prompt and balanced, and to communicate in substance rather than in form. INTERNAL CONTROL AND INTERNAL AUDIT The group strives to maintain internal controls of a standard aimed at ensuring that the systems of financial reporting contain complete, accurate and reliable information and safeguard the company s assets. The external auditors, who report to the audit committee and have ready access to the chairman of that committee and the managing director, monitor the effectiveness of the internal controls. RESPONSIBILITIES REGARDING FINANCIAL REPORTING The directors are responsible for preparing the annual financial statements so that they fairly present the financial position of the company and the group at 30 June 2002 and the results of their operations and cash flows for the period then ended in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the South African Companies Act. The responsibility of the external auditors is to carry out an independent audit of the annual financial statements in accordance with South African auditing standards and to express an opinion as to whether such financial statements do provide such fair presentation. The directors are of the view that the annual financial statements incorporate appropriate accounting policies, which have been consistently applied and are supported by reasonable and prudent judgements and estimates. Nothing has come to the attention of the directors to suggest that the accounting records and systems of internal control were not appropriate or satisfactory, neither has any material loss, exposure or misstatement arising from a material breakdown in the functioning of the systems of internal control or accounting been reported to the directors in respect of the period under review. GOING CONCERN The annual financial statements contained in this annual report have been prepared on the going concern basis as the directors have every reason to believe that the company and the group have adequate resources to continue in operation for the year ahead. 9

10 CORPORATE governance continued DEALINGS IN COMPANY SHARES The group has a written policy in terms of which dealings in the company s shares by directors and employees are prohibited during closed periods which commence on 15 June and 15 December and end 24 hours after the public announcement of the year s or half-year s financial results. At least twice annually the company informs its directors and employees about the provisions of the Insider Trading Act and the prohibitions contained therein regarding dealing, or encouraging dealing by others, whilst in possession of non-public, price sensitive information, or disclosing such information to others. Dealings by directors in the company s shares are notified to the JSE Securities Exchange South Africa in accordance with its requirements. VALUES AND ETHICS The company has formally committed itself to adopting the Constitution of the Republic of South Africa and putting into practice the values and ethics that are inherent therein. 10

11 FIVE YEAR review June 2002 Restated Restated Pro-forma Operating results (Rm) Revenue Net profit before exceptional items Net profit attributable to ordinary shareholders excluding exceptional items Balance sheet (Rm) Total assets Borrowings Ordinary shareholders interest Per share performance Earnings (cents) 19 (15) Headline earnings (cents) Dividend (cents) (Note 5) Dividend cover (times) (Note 5) 6,0 n/a 1,5 1,5 2,0 Net asset value (cents) Profitability and gearing ratios (%) Return on capital employed (Note 2 and 4) Return on ordinary shareholders interest (Note 4) Liabilities to shareholders interest Borrowings to shareholders interest Cash flow (Rm) Generated by trading, after interest, investment income and taxation Working capital movement (97) (99) (318) (36) (194) Dividends (107) (64) (68) (77) (37) Net investment in businesses and subsidiaries (1) (84) (811) (500) Loans and investments 115 (42) 1 (152) 8 Net other investment activities (71) (64) Net cash flow before financing activities (15) (565) (425) Stock exchange information Shares traded (millions) 285,2 239,7 169,0 194,2 116,5 Percentage of shares traded (%) 59,9 50,8 37,3 44,8 28,6 Share price (cents) (Note 3, 7 and 8) High Note 3 Low Note 3 Closing Notes: 1. The Pro-forma 1998 figures reflect the information for that year as if the distribution made at that time of Woolworths Holdings Limited ( Woolworths ) and Truworths International Limited shares and the purchase by Woolworths of its properties from Wooltru Property Group (Pty) Limited had taken place on 30 June 1996 and as if Woolworths had been accounted for as an associate from that date. 2. The group s share of the associate companies and joint venture s retained profit has been grossed up by its taxation and added to profit before exceptional items. 3. The distribution of the Woolworths and Truworths International shares during 1998 distorts the high, low and closing share price in 1998 and therefore it is not comparable. The share prices disclosed have not been adjusted for the items mentioned in note The return on capital employed and ordinary shareholders interest has been calculated using equity immediately prior to the distribution of Wooltru s listed investments in June This return excludes exceptional items. 5. Dividends include cash and scrip, except in the cash flow information. The dividend cover from the actual dividends has been used in calculating the dividend for the adjusted 1998 figures. 6. Shares traded include Ordinary and N Ordinary shares. 7. The share price information is in respect of Ordinary shares. 8. The share prices in the 2002 year are not easily comparable due to the unbundling distribution prior to year end. 11

12 CONTENTS Approval of annual financial statements 13 Certificate by the company secretary 13 Report of the independent auditors 14 Directors report 15 Income statements 18 Balance sheets 19 Cash flow statements 20 Statement of changes in ordinary shareholders interest 21 Notes to the annual financial statements 22 Annexure 1 49 subsidiaries associates and joint venture Group company analysis 52 Registered shareholding 54 Directorate 55 Administration 55

13 APPROVAL OF annual financial statements as at 30 June 2002 The annual financial statements were approved by the board of directors on 27 August 2002 and signed on their behalf by: JB Rabb Managing Director JD Newton Finance Director CERTIFICATE BY company secretary I certify that in respect of the period under review, the company has lodged with the Registrar of Companies all returns required of a public company in terms of the Companies Act, and that all such returns are true, correct and up to date. RJ McWilliams Company Secretary 27 August

14 REPORT OF THE independent auditors TO THE MEMBERS OF WOOLTRU LIMITED We have audited the annual financial statements and group annual financial statements of Wooltru Limited as set out on pages 15 to 53 for the year ended 30 June These financial statements are the responsibility of the company s directors. Our responsibility is to express an opinion on these financial statements based on our audit. SCOPE We conducted our audit in accordance with statements of South African Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes: examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements; assessing the accounting principles used and significant estimates made by management; and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. AUDIT OPINION In our opinion, the financial statements fairly present, in all material respects, the financial position of the company and the group at 30 June 2002, and the results of their operations and cash flows for the year then ended in accordance with South African Statements of Generally Accepted Accounting Practice and in the manner required by the Companies Act in South Africa. Ernst & Young Chartered Accountants (SA) Cape Town 27 August

15 DIRECTORS report UNBUNDLING All listed shares were distributed to shareholders with effect from 26 June 2002 and the majority of the unlisted investments have been disposed of. The directors propose to distribute the remaining cash to shareholders as and when appropriate. NATURE OF BUSINESS The company has distributed and disposed of almost all of its assets. The remaining business of the company will be to realise its remaining assets, settle its liabilities, redeem the preference shares and distribute the remaining cash to shareholders. DIRECTORS RESPONSIBILITIES The directors acknowledge responsibility for the preparation of the annual financial statements, which, in their opinion, fairly present the results and cash flows for the financial year and the state of affairs of the company and group at the end of the financial year. The external auditors are responsible for reporting on the fair presentation of these financial statements. The directors are satisfied that the company and its subsidiaries have maintained adequate accounting records and an effective system of internal controls to substantially ensure the integrity of the underlying information. Appropriate accounting policies, supported by sound and prudent managerial judgements and estimates, have been consistently applied. The audit committee of the board reviews the financial information presented and ensures that there has been adherence to South African Statements of Generally Accepted Accounting Practice. GROUP FINANCIAL RESULTS The financial results of the group for the year are set out in the income statements on page 18 and include the results of the distributed companies for the full year. The financial position of the group is set out in the balance sheets on page 19. PLACEMENT OF SHARES FOR CASH No shares were issued for cash in the current financial year. Over the past three financial years the company has not issued any shares for cash. No shares or options were offered to any employees during the period under review, in terms of the Wooltru 1982 Executive Share Incentive Scheme. SHARE CAPITAL AND SHARE PREMIUM There were no shares issued by the company during the year under review. The distribution in specie of the listed shares was concluded via a reduction in share premium. DIVIDENDS On 6 March 2001 the board stated that it was committed to a process of complete unbundling and had resolved to declare no further dividends, other than those that will be paid out of the net proceeds received from the realisation of assets, as part of this process. The dividend reflected in the financial statements is in respect of a special dividend declared on 4 March 2002, which was due to dividends being received from the listed investments. GOING CONCERN The directors are committed to a process of complete realisation of all assets and the distribution of the remaining cash to the shareholders. The directors intention hereafter is to place the company into voluntary liquidation. The annual financial statements have been prepared on the going concern basis. DIRECTORATE, SECRETARY AND AUDITORS The present directors and secretary of the company are shown on page 55. The following directors resigned on 10 June 2002, Messrs M J Lamberti, M S Mark and S N Susman. In accordance with the provisions of the company s articles of association, Mr J B Rabb and Dr J C van der Horst retire by rotation at the Annual General Meeting. Mr J B Rabb and Dr J C van der Horst have offered themselves for re-election. No directors retiring from office have any service contracts in respect of any specified period. Nkonki Sizwe Ntsaluba resigned as joint auditors with effect from 28 June

16 DIRECTORS report continued Directors interests The interests of directors in the Ordinary, N Ordinary and 6,0% and 6,75% cumulative preference shares of the company at 30 June were as follows: JD Newton JB Rabb LA Tager DM Lubner JC v/d Horst MJ Lamberti MS Mark SN Susman Executive Executive Non-executive Non-executive Non-executive Non-executive Executive Non-executive Beneficial Beneficial Beneficial Beneficial Beneficial Beneficial Direct Indirect Direct Indirect Direct Direct Direct Indirect Holdings at 1 July 2001 In own right Wooltru Ordinary shares Wooltru N Ordinary shares % and 6,75% cumulative preference shares 225 Held as part of share scheme Wooltru options Wooltru Ordinary shares Wooltru N Ordinary shares Average price of shares (prior to the distribution) held as part of share scheme 8,30 8,47 6,01 10,00 7,41 Granted during the year Purchased from scheme during the year Average prices of shares (prior to the distribution) held as part of share scheme 6.08 Resignations during the year Date of resignation 10/06/ /06/ /06/2002 Holdings at Not Not Not 30 June 2002 applicable applicable applicable In own right Wooltru Ordinary shares Wooltru N Ordinary shares % and 6,75% cumulative preference shares 225 Held as part of share scheme Wooltru options Wooltru Ordinary shares Wooltru N Ordinary shares Average prices of shares (prior to the distribution) held as part of share scheme 8,30 8,47 6,00 There have been no changes subsequent to the year-end. As part of the unbundling exercise the Wooltru Share Scheme will cease at 30 September

17 SUBSIDIARIES, ASSOCIATES AND JOINT VENTURE Details of the company s interests in subsidiaries are set out in Annexure 1 on page 49. In July 2001 inthebag (Pty) Limited was sold to Woolworths for R25,9 million. In July 2001 Wooltru Insurance Brokers (Pty) Limited was disposed of to a trust representing the interests of the trading companies within the group. A final dividend of R1,0 million was received before the disposal. During the period Wooltru Properties group disposed of investment properties for R214,5 million and property developments for R53,9 million. In April 2002 the Topics (Pty) Limited group was disposed of for R15 million. In June 2002 Affinity Logic Holdings (Pty) Limited was disposed of for R41,7 million. In June 2002 the shares in Massmart Holdings Limited, Truworths International Limited and Woolworths Holdings Limited were distributed in specie to shareholders. As is fully set out in the chairman s review, subsequent to the disposal of Consolidated News Agencies Holdings (Pty) Limited effective 1 March 2001, the final sale instalment was not received when due on 31 May The purchaser had pledged to Wooltru Limited 51% of the shares in the restructured CNA group as surety for payment of the final instalment. In the event of Wooltru exercising the pledge, such control of CNA would be intended to be temporary and thus CNA has not been treated as a subsidiary for purposes of Generally Accepted Accounting Practice. BORROWING POWERS In terms of the articles of association, the borrowing powers of the company are unlimited. EMPLOYMENT EQUITY Wooltru Limited, as a company, does not have any employees. In addition, as the group is in the final stages of unbundling, an employment equity report has not been prepared. SPECIAL RESOLUTIONS A full list of special resolutions passed by the company and its subsidiaries during the year will be made available to shareholders on request. EVENTS SUBSEQUENT TO THE YEAR END As more fully set out in the chairman s review, subsequent to the year-end the main operating companies in the CNA group have been placed under provisional liquidation. The amount due by Gordon Kay and Associates (Pty) Limited remains outstanding but is secured by a pledge of 51% of the shares in Consolidated News Agencies Holdings (Pty) Limited, together with a similar pledge of shares in Consolidated News Agencies (Pty) Limited and Central News Agency (Pty) Limited, the two main trading companies. 17

18 INCOME statements for the year ended 30 June GROUP COMPANY Restated Notes Rm Rm Rm Rm Revenue , ,1 288,7 244,3 Continuing operations 22,5 37,9 Discontinuing operations , ,2 Cost of sales (1 099,7) (1 334,2) Continuing operations Discontinuing operations (1 099,7) (1 334,2) Gross profit 1 297, ,9 288,7 244,3 Continuing operations 22,5 37,9 Discontinuing operations 1 274, ,0 Depreciation and amortisation (65,4) (86,8) Occupancy costs (193,1) (266,1) Employment costs (370,1) (494,7) (0,6) (0,7) Other operating costs (232,1) (560,6) (1,7) (1,3) Profit from operations 3 436,5 144,7 286,4 242,3 Continuing operations (29,7) (2,3) Discontinuing operations 466,2 147,0 Finance costs (19,8) (75,2) Continuing operations (19,6) (58,8) Discontinuing operations (0,2) (16,4) Share of associates and joint venture profit 4 323,2 207,7 Continuing operations Discontinuing operations ,2 207,7 Net profit before exceptional items 739,9 277,2 286,4 242,3 Continuing operations (49,3) (61,1) Discontinuing operations 789,2 338,3 Exceptional items 5 (325,4) (167,3) (108,1) (1 062,8) Continuing operations (118,9) (108,7) Discontinuing operations 11 (206,5) (58,6) Net profit/(loss) before taxation 414,5 109,9 178,3 (820,5) Continuing operations (168,2) (169,8) Discontinuing operations ,7 279,7 Taxation 6 (189,1) (72,8) (20,8) Continuing operations (22,6) (0,4) Discontinuing operations 11 (166,5) (72,4) Net profit/(loss) after taxation 225,4 37,1 157,5 (820,5) Continuing operations (190,8) (170,2) Discontinuing operations 416,2 207,3 Minority interests (133,6) (108,7) Continuing operations Discontinuing operations 11 (133,6) (108,7) Preference dividends (0,1) (0,1) (0,1) (0,1) Net profit/(loss) attributable to ordinary shareholders 91,7 (71,7) 157,4 (820,6) Continuing operations (190,9) (170,3) Discontinuing operations ,6 98,6 Earnings/(loss) per share 9 19,3 c (15,2)c Diluted earnings/(loss) per share 9 17,9 c (15,9)c Headline earnings per share 9 90,5 c 18,6 c Headline loss per share from continuing operations 9 (9,4)c (8,5)c Dividend per share 15,0 c c The 2002 dividend is in respect of the special dividend of 15 cents per share declared on 4 March

19 BALANCE sheets as at 30 June GROUP COMPANY Restated Notes Rm Rm Rm Rm ASSETS Non-current assets 5, ,4 160,0 791,0 Property, plant and equipment 12 5,0 344,9 Interests in subsidiaries ,0 224,6 Investment in associates ,2 566,4 Other investments 15 57,7 Loans 16 0,4 340,6 Deferred tax 17 3,0 Current assets 262, ,1 5,6 144,0 Inventories 18 16,5 255,1 Trade and other receivables 1,7 811,3 139,3 Share incentive scheme trust 16 67,2 Prepayments 0,1 30,2 Taxation 12,4 10,7 5,6 4,7 Bank balances and cash equivalents 164,9 361,8 Total assets 268, ,5 165,6 935,0 EQUITY AND LIABILITIES Capital and reserves 168, ,0 143,2 707,8 Ordinary share capital 19 10,1 10,1 10,1 10,1 Share premium , ,8 621, ,8 Non-distributable reserves 21 8,1 703,9 0,2 26,4 Accumulated (loss)/profit (470,5) 373,2 (488,3) (600,5) Preference share capital 22 1,5 1,5 1,5 1,5 Minority interests* 415,0 Total equity 170, ,5 144,7 709,3 Non-current liabilities 0,1 168,0 Long-term liabilities: interest free 23 14,9 Retirement benefit obligations 24 30,0 Deferred tax 17 0,1 123,1 Current liabilities 97,7 775,0 20,9 225,7 Short-term liabilities: interest-bearing 1,5 282,5 Trade and other payables 50,7 356,1 0,1 0,2 Provisions 25 24,2 11,3 225,5 Taxation 21,3 65,7 20,8 Amounts owing to associates and joint venture 59,4 Total equity and liabilities 268, ,5 165,6 935,0 * Refer to group company analysis on pages 52 and 53 for details. 19

20 CASH FLOW statements for the year ended 30 June GROUP COMPANY Restated Notes Rm Rm Rm Rm Cash flow from operating activities Cash flow from trading ,3 121,6 (58,9) (1,3) Working capital movements 32.2 (96,8) (98,7) Cash generated by/(utilised in) operating activities 250,5 22,9 (58,9) (1,3) Interest received 108,2 116,6 0,7 Interest paid (22,3) (77,7) Income from investments 112,8 85,8 287,4 151,9 Taxation paid (195,6) (101,3) (0,3) Cash generated by operations 253,6 46,3 228,2 151,3 Dividends paid, including to minority shareholders (106,6) (64,3) (71,5) (43,7) Net cash inflow/(outflow) from operations 147,0 (18,0) 156,7 107,6 Cash flow from investing activities Investment to maintain operations 32.3 (21,9) (48,7) Investment to expand operations 32.4 (227,2) (112,7) Proceeds on sale of property, plant and equipment 216,2 155,7 Increased investment in subsidiaries (1,4) (0,4) (1,4) (152,7) Net outflow on disposal of subsidiaries 32.5 (157,9) (10,7) 8,7 16,0 Loans and other investments 114,8 (41,9) (10,6) 15,0 Proceeds from the sale of CNA 94,8 94,8 Payment to Affinity Logic on behalf of CNA (20,0) (20,0) Net proceeds from the disposal of Affinity Logic 40,3 40,3 Proceeds from discontinued operation Sportsgirl 5,3 15,0 Proceeds on restructuring of profit guarantees 60,0 60,0 Proceeds on disposal of investments 2,2 0,7 Net cash inflow/(outflow) from investing activities 43,0 18,5 111,8 (61,0) Cash flow from financing activities Shares issued by Wooltru Limited 40,5 40,5 Subsidiary shares issued to minorities 20,3 4,5 Shares repurchased (66,8) Long-term borrowings repaid (325,2) Net cash (outflow)/inflow from financing activities (46,5) (280,2) 40,5 Net increase/(decrease) in cash and cash equivalents 143,5 (279,7) 268,5 87,1 Net cash of associate no longer consolidated ,7 Cash and cash equivalents at beginning of period 19,9 215,9 234,3 Impairment of cash and cash equivalents (157,4) (321,4) Cash and cash equivalents at end of period ,4 19,9 111,1 20

21 STATEMENT OF CHANGES in ordinary shareholders interest for the year ended 30 June GROUP COMPANY Notes Rm Rm Rm Rm Ordinary shareholders interest as previously reported 2 559,6 Changes in accounting policies 8 (37,1) Restated ordinary shareholders interest at beginning of period 2 359, ,5 707, ,4 Movements for the period: Share capital and share premium 19, 20 (650,6) 40,6 (650,6) 40,6 Share purchase scheme 40,5 40,5 Distribution in specie (650,6) (650,6) Capitalisation issue 0,1 0,1 Recognised gains and losses Accumulated (loss)/profit (843,7) (187,5) 86,0 (864,2) Change in accounting policy 8 43,3 Net profit/(loss) attributable to ordinary shareholders 91,7 (71,7) 157,4 (820,6) Distribution to ordinary shareholders 7 (1 659,7) (43,6) (71,4) (43,6) Net unrealised gains on hedging instruments 7,1 Transfer from/(to) non-distributable reserves 673,9 (72,2) Non-distributable reserves 21 (695,8) (16,6) Change in accounting policy 8 (43,3) Exchange difference on translation of foreign entities 39,9 9,1 Revaluation of land and buildings (18,0) Revaluation of trademark (15,5) Disposal of subsidiary (3,0) Sale of land and buildings (79,9) Transfer (to)/from accumulated profit. Arising from: Deferred taxation charged to profits on trademarks (2,2) (8,8) (Repurchase) and issue of shares by subsidiaries and associates (10,1) 102,5 Distribution in specie of shares in subsidiary and associates (660,6) Foreign currency translation reserve (0,8) (5,1) Deferred taxation on trademarks due to change in shareholding (0,2) (16,4) Ordinary shareholders interest at end of period 168, ,0 143,2 707,8 21

22 NOTES TO THE annual financial statements 1. Accounting policies The annual financial statements are prepared on the historical cost basis, adjusted by the revaluation of certain freehold land and buildings, lease premiums and leasehold improvements. The group s and company s significant accounting policies conform with South African Statements of Generally Accepted Accounting Practice. These policies are consistent with those applied in the previous year except for the changes described in note 8. All significant accounting policies have been consistently applied throughout the group. ASSOCIATES AND JOINT VENTURES An associate is a company in which the group has a longterm interest and over which it has the power to exercise significant influence. A joint venture is an entity in which the group has a long-term interest and has joint control. The post-acquisition results of associate companies and joint ventures are incorporated in the financial statements, using the equity method. Unrealised profits arising from transactions within the group have been eliminated. BASIS OF CONSOLIDATION The group annual financial statements incorporate those of the company and all significant subsidiaries, joint ventures and associates. The results of any subsidiaries acquired or disposed of during the year are included from the dates effective control was acquired and up to the dates effective control ceased. The identifiable assets and liabilities of companies acquired are assessed and included in the balance sheet at their fair values as at the date of acquisition. The company carries its investments in subsidiaries at cost less accumulated impairment losses. Unrealised profits arising from transactions within the group and inter-company balances and transactions have been eliminated. BANK BALANCES Overdrafts and bank balances reflect bank statement balances. BORROWING AND OTHER FINANCE COSTS Borrowing and other finance costs are recognised on a time proportion basis. Borrowing costs in respect of property developments in progress are capitalised during the period of construction. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise bank balances, shortterm interest bearing liabilities and amounts due to associates and joint ventures. DEFERRED TAXATION Deferred taxation is provided for all temporary differences arising between the tax bases of assets and liabilities and their carrying amounts on the balance sheet. Deferred taxation assets relating to assessed losses carried forward are recognised to the extent that it is probable that future taxable profits will be available against which the tax losses can be utilised. DISCONTINUING OPERATIONS Discontinuing operations result from the sale or abandonment of an operation that represents a separate, major line of business and of which the assets, net profit or loss and activities can be distinguished physically, operationally and for financial reporting purposes. The gain or loss on sale or abandonment of a discontinuing operation is the difference between the assets and liabilities of the operation at the date of sale or closure, as if the operation was a going concern, and any proceeds received. EARNINGS PER SHARE The calculation of earnings per share is based on net profit attributable to ordinary shareholders and on the weighted average number of Ordinary and N Ordinary shares in issue during the year. Headline earnings per share are calculated in accordance with the accounting guideline AC306. EXPORT PARTNERSHIPS Participation in export partnerships is recorded at the group s cost of original participation and its share of the gross profit less its share of the subsequent net amounts received as partner in the partnerships. A corresponding deferred taxation 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 ASSETS AND LIABILITIES If a legally enforceable right exists to set off recognised amounts of financial assets and liabilities and the group 22

23 NOTES TO THE annual financial statements continued properties are shown at valuation or at cost. Valuations are conducted regularly by independent professional valuers and/or by the directors. Property, plant and equipment other than lease premiums and leasehold improvements are shown at their original cost or valuation less accumulated depreciation. Lease premiums and leasehold improvements are written off over the lease periods or such shorter periods as may be appropriate. Software is capitalised where expenditure incurred will lead to future benefits accruing to the group. Depreciation is provided on the straight-line basis over the following estimated useful lives of the assets. Land and buildings 20 to 25 years Lease premiums and leasehold improvements 3 to 10 years Furniture, fittings and equipment 4 to 15 years Computers and software 2 to 5 years Motor vehicles 4 to 5 years PROPERTY DEVELOPMENTS Property developments in progress include all direct and related indirect expenditure. PROVISIONS Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. RETIREMENT BENEFITS Current contributions to retirement benefit plans are charged to income as incurred. The group has an obligation to provide certain postretirement medical aid benefits to its eligible employees and pensioners. The entitlement to these benefits is dependent upon the employee remaining in service until retirement age and completing a minimum service period. The costs incurred in respect of post-retirement medical aid benefits are charged against income as incurred, as current service costs. The present value of the future medical aid subsidies for past service costs is actuarially determined on an annual basis in accordance with South African Statement of Generally Accepted Accounting Practice AC116 Employee Benefits. The group recognises this liability at the balance sheet date. Any curtailment or settlement amounts are recognised in income as incurred. Any actuarial gains or losses are recognised using the corridor approach. Actuarial gains and losses are recognised as income or expense when the cumulative unrecognised gains and losses exceed the greater of 10% of the obligation or the fair value of the plan assets. These gains or losses are recognised over the expected average remaining working lives of the employees participating in the plan. REVENUE RECOGNITION Sales are recognised when the significant risks and rewards of ownership are transferred to the purchaser. Sales of the group comprise net merchandise sales and, in respect of buying organisations, gross transactions with members. Value added tax is excluded. Royalties and franchise fees receivable are recognised when the sales which give rise to the royalties and franchise fees take place. Interest, investment income and rental is recognised on a time proportion basis. Dividends are not recognised before the last date to register for the dividend has passed. Sales of property developments are recognised when the risks and rewards of ownership are transferred to the purchaser. COMPARATIVES Where necessary, comparative figures have been adjusted to take effect of changes in presentation in the current year and the changes in accounting policies set out in note 8. 24