MULTICHOICE SOUTH AFRICA HOLDINGS PROPRIETARY LIMITED (Registration number 2006/015293/07) Group and company annual financial statements for the year

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1 Group and company annual financial statements for the year ended 31 March 2018

2 General Information Prominent Notice These annual financial statements have been audited by our external auditors PricewaterhouseCoopers Inc. in compliance with the applicable requirements of the Companies Act, No 71 of Rochelle Gabriels (Group Chief Financial Officer) supervised the preparation of the annual financial statements. Country of incorporation and domicile Nature of business and principal activities Directors Registered office South Africa Video-entertainment and internet subscriber platforms DG Eriksson FLN Letele JJ Volkwyn KB Sibiya KD Moroka S Dakile-Hlongwane SJZ Pacak B van Dijk E Masilela U Raman 144 Bram Fischer Drive Randburg 2194 Postal address P O Box 1502 Randburg 2125 Holding company Ultimate holding company Auditors Company secretary (Acting) MIH Holdings Proprietary Limited Naspers Limited PricewaterhouseCoopers Inc. RJ Gabriels 1

3 The reports and statements set out below comprise the group and company annual financial statements presented to the shareholders: Index Page (s) Audit Committee Report 3-4 Directors' Responsibilities and Approval 5 Directors' Report 6-7 Company Secretary s Certification 8 Independent Auditor's Report 9-12 Group Statement of Financial Position 13 Group Statement of Profit or Loss and Other Comprehensive Income 14 Group Statement of Changes in Equity 15 Group Statement of Cash Flows 16 Group and Company Accounting Policies Company Statement of Financial Position 93 Company Statement of Profit or Loss 94 Company Statement of Changes in Equity 95 Company Statement of Cash Flows 96 Notes to the Company Annual Financial Statements 97 2

4 Audit Committee Report 1. Members of the Audit Committee The members of the audit committee are all independent non-executive directors of the group and include: Name of committee member DG Eriksson S Dakile-Hlongwane E Masilela Qualifications Chartered Accountant (SA) Bachelor of Economics and Statistics Master of Development Economics Bachelor of Arts in Social Sciences (Economics and Statistics) The committee is satisfied that the members thereof have the required knowledge and experience as set out in Section 94(5) of the Companies Act 71 of 2008 and Regulation 42 of the Companies Regulation, Meetings held by the Audit Committee The audit committee performs the duties laid upon it by Section 94(7) of the Companies Act 71 of 2008 by holding meetings with the key role players on a regular basis and by the unrestricted access granted to the external auditors. The audit committee meets at least three times per annum in accordance with the charter. All members act independently as described in section 94 of the Companies Act. During the year under review, the following four meetings were held: Date of meeting Attendees 08 June 2017 All attended 18 September 2017 D Eriksson (chairman) and E Masilela attended 09 November 2017 All attended 29 November 2017 All attended 30 November 2017 All attended 16 December 2017 All attended 19 January 2018 All attended 19 March 2018 D Eriksson (chairman) and E Masilela attended 3. External auditors The committee satisfied itself through enquiry that the external auditors are independent as defined by the Companies Act 71 of 2008 and as per the standards stipulated by the auditing profession. Requisite assurance was sought and provided by the Companies Act 71 of 2008 that internal governance processes within the firm support and demonstrate the claim to independence. The audit committee in consultation with executive management, agreed to the terms of the engagement. The audit fee for the external audit has been considered and approved taking into consideration such factors as the timing of the audit, the extent of the work required and the scope. 3

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7 Directors' Report The directors have pleasure in submitting their report on the group annual financial statements of MultiChoice South Africa Holdings Proprietary Limited and its subsidiaries, associates and joint ventures for the year ended 31 March Nature of operations MultiChoice South Africa Holdings Proprietary Limited ("MCSAH") was incorporated on 19 May 2006 under the laws of the Republic of South Africa. The principal activities of MCSAH and its operating subsidiaries, joint ventures and associated companies (collectively "the group") are the operation of video-entertainment and internet subscriber platforms. These activities are conducted primarily in South Africa. In June 2017, the assets and liabilities of Huntley Media Services Proprietary Limited (formerly MWEB Connect Proprietary Limited) were sold. There have been no further material changes to the nature of the company's business from the prior year. 2. Operating and financial review The group and company annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act 71 of The accounting policies have been applied consistently compared to the prior year. The Group recorded a net profit after tax for the year ended 31 March 2018 of R7 789 million. This represented an increase of 14.1% from the net profit after tax of the prior year of R6 828 million. Group revenue decreased by 1% from R million in the prior year to R million for the year ended 31 March Group cash flows from operating activities decreased by (18)% from R9 054 million in the prior year to R million for the year ended 31 March Share capital There have been no changes to the authorised or issued share capital during the year under review. 4. Directorate The directors in office at the date of this report are as follows: DG Eriksson FLN Letele JJ Volkwyn KB Sibiya KD Moroka S Dakile-Hlongwane SJZ Pacak B van Dijk E Masilela U Raman In terms of the Memorandum of Incorporation Mrs S Dakile-Hlongwane, Advocate KD Moroka and Mr. SJZ Pacak must retire by rotation at the upcoming annual general meeting on 31 August

8 Directors' Report 5. Property, plant and equipment There was no change in the nature of the property, plant and equipment of the group or in the policy regarding their use. At 31 March 2018 the group's investment in property, plant and equipment amounted to R million (2017: R million), of which R431 million (2017: R million) was added in the current year through additions. The group has commitments in respect of contracts placed for capital expenditure to the amount of R92.1 million (2017: R 60.3 million). These commitments have been approved by the board of the group. Refer to note 32 of the group and company annual financial statements for further details. 6. Dividends An ordinary dividend of R6.5 billion (2017: R 6.5 billion) was paid in the current year. The ordinary dividend paid was cents per share (2017: cents per share). The board recommends that an ordinary dividend of R6.6 billion ( cents per share) be declared for the next financial year. 7. Group MCSAH's principal shareholders are MIH Holdings Proprietary Limited, Phuthuma Nathi Investments (RF) Limited and Phuthuma Nathi Investments 2 (RF) Limited, who own 80%, 13.3% and 6.7% respectively. MCSAH's ultimate controlling party is Naspers Limited, a company listed on the JSE Securities Exchange of South Africa. All subsidiaries, joint ventures and associates share the same financial year-end as MCSAH. The name, country of incorporation and effective financial percentage interest in each of the group's principal subsidiaries, joint arrangements and associates are disclosed in notes 7, 8 & Auditors PricewaterhouseCoopers Inc. will continue in office as auditors for the group for the next financial year. At the AGM, the shareholders will be requested to reappoint PricewaterhouseCoopers Inc. as the independent external auditors of the company and to confirm Ms AM Motaung as the designated lead audit partner for the 2019 financial year. 9. Secretary On 19 March 2018, Mrs CC Koopman stepped down as company secretary for MultiChoice South Africa Holdings Proprietary Limited to take up a role in the MultiChoice Africa business. Mrs RJ Gabriels was subsequently appointed as acting company secretary on 20 March 2018, until such time as the board has appointed a permanent company secretary. 10. Borrowings The company has unlimited borrowing powers in terms of its Memorandum of Incorporation. 11. Events after the reporting date The directors are not aware of any other material event which occurred after the reporting date and up to the date of this report. 12. Going concern The directors are satisfied that the company is in sound financial position and that sufficient borrowing facilities and cash reserves are accessible in order to enable the company to meet their foreseeable commitment requirements. On this basis they have considered that the company has adequate resources to continue operating for the foreseeable future and therefore deem it adequate to adopt the going concern basis in preparing the financial statements for this reporting period. 7

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10 Independent auditor s report To the Shareholders of MultiChoice South Africa Holdings Proprietary Limited Our opinion In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of MultiChoice South Africa Holdings Proprietary Limited (the Company) and its subsidiaries (together the Group) as at 31 March 2018, and its consolidated and separate financial performance and its consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. What we have audited MultiChoice South Africa Holdings Proprietary Limited s consolidated and separate financial statements set out on pages 14 to 98 comprise: the group and company statements of financial position as at 31 March 2018; the group and company statements of profit or loss and other comprehensive income for the year then ended; the group and company statements of changes in equity for the year then ended; the group and company statements of cash flows for the year then ended; and the notes to the financial statements, which include a summary of significant accounting policies. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor s responsibilities for the audit of the consolidated and separate financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Independence We are independent of the Group in accordance with the Independent Regulatory Board for Auditors Code of Professional Conduct for Registered Auditors (IRBA Code) and other independence requirements applicable to performing audits of financial statements in South Africa. We have fulfilled our other ethical responsibilities in accordance with the IRBA Code and in accordance with other ethical requirements applicable to performing audits in South Africa. The IRBA Code is consistent with the International Ethics Standards Board for Accountants Code of Ethics for Professional Accountants (Parts A and B). PricewaterhouseCoopers Inc., 4 Lisbon Lane, Waterfall City, Jukskei View, 2090 Private Bag X36, Sunninghill, 2157, South Africa T: +27 (0) , F: +27 (0) , Chief Executive Officer: T D Shango Management Committee: S N Madikane, J S Masondo, P J Mothibe, C Richardson, F Tonelli, C Volschenk The Company's principal place of business is at 4 Lisbon Lane, Waterfall City, Jukskei View, where a list of directors' names is available for inspection. Reg. no. 1998/012055/21, VAT reg.no

11 Other information The directors are responsible for the other information. The other information obtained at the date of this auditor s report comprises the information included in the Group and company annual financial statements, which includes the Directors Report, the Audit Committee Report and the Group and Company Secretary s Certification as required by the Companies Act of South Africa. Other information does not include the consolidated and separate financial statements and our auditor s report thereon. Our opinion on the consolidated and separate financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the consolidated and separate financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated and separate financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the directors for the consolidated and separate financial statements The directors are responsible for the preparation and fair presentation of the consolidated and separate financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated and separate financial statements, the directors are responsible for assessing the Group and the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group and/or the Company or to cease operations, or have no realistic alternative but to do so. 10

12 Auditor s responsibilities for the audit of the consolidated and separate financial statements Our objectives are to obtain reasonable assurance about whether the consolidated and separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated and separate financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the consolidated and separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s and the Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. Conclude on the appropriateness of the directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group s and the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the consolidated and separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Group and / or Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated and separate financial statements, including the disclosures, and whether the consolidated and separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. 11

13 We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. PricewaterhouseCoopers Inc. Director: SN Madikane Registered Auditor Johannesburg 8 June

14 Group Statement of Financial Position as at 31 March 2018 Note(s) 2018 R' R'000 Assets Non-Current Assets Property, plant and equipment Goodwill Intangible assets Investments in associates 9 (38 006) (33 401) Investments in joint ventures Deferred tax Amounts due from related parties Other financial assets Derivative asset Programme and film rights Current Assets Inventories Programme and film rights Trade receivables Other receivables Amounts due from related parties Derivative assets Prepayments Cash and cash equivalents Assets of disposed group classified as held for sale Total Assets Equity and Liabilities Equity Share capital and share premium Reserves 21 ( ) ( ) Retained income Liabilities Non-Current Liabilities Finance lease obligation Share based payment liability Derivative liability Deferred tax liability Amounts due to related parties Current Liabilities Finance lease obligation Payable for programme and film rights Other payables Provisions Trade payables Share based payment liability Amounts due to related parties Derivative liability Current taxation payable Liabilities of disposal group classified as held for sale Total Liabilities Total Equity and Liabilities

15 Group Statement of Profit or Loss and Other Comprehensive Income Note(s) R '000 R '000 Revenue Cost of providing services and sale of goods ( ) ( ) Gross profit Other gains Selling, general and administration costs ( ) ( ) Operating profit Finance income Foreign exchange differences ( ) Impairment of equity-accounted investments 8&9 (201) (10 311) Share of equity-accounted investments' results 8&9 (96 767) (66 843) Profit on sale of business Finance costs 37 ( ) ( ) Profit before taxation Taxation 40 ( ) ( ) Net profit for the year Items of other comprehensive income that may be reclassified to profit or loss: Foreign currency translations Net loss, gross - (58) Changes in value of available-for-sale investments, up to and including the date of sale - Net losses in the changes in value of available-for-sale investment, gross (46 800) (18 000) Changes in value of cash flow hedges - Net losses in the changes in cash flow hedges, gross ( ) ( ) - Net losses in the changes in cash flow hedges, tax Total other comprehensive income for the year ( ) ( ) Total comprehensive income for the year Profit attributable to: Owners of the parent Total comprehensive income attributable to: Owners of the parent The notes on pages 17 to 92 are an integral part of the group and company annual financial statements. 14

16 Group Statement of Changes in Equity Share capital Share premium Total share Capital and premium Foreign currency translation reserve Hedging reserve Fair value reserve Share based payment reserve Existing control business combination reserve Retained earnings Total equity R '000 R '000 R '000 R '000 R '000 R '000 R '000 R '000 R '000 R '000 Balance at 01 April ( ) Profit for the year Other comprehensive income (58) ( ) (18 000) ( ) Total comprehensive income for the year (58) ( ) (18 000) Transfer between reserves (37 241) (80) Adjustment to AASL disposal ( ) Dividends (Refer to note 45) ( ) ( ) Total contributions by and distributions to owners of company recognised directly in equity ( ) ( ) ( ) Balance at 01 April ( ) ( ) Profit for the year Other comprehensive income ( ) (46 800) ( ) Total comprehensive income for the year ( ) (46 800) Transfer between reserves (17 940) Share based compensation movement (33 385) - - (33 385) Dividends (Refer to note 45) ( ) ( ) Total contributions by and distributions to owners of company recognised directly in equity (51 325) - ( ) ( ) Balance at 31 March ( ) ( ) Note(s) The notes on pages 17 to 92 are an integral part of the group and company annual financial statements. 15

17 Group Statement of Cash Flows Note(s) R '000 R '000 Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees ( ) ( ) Cash generated from operations Net interest paid 43 ( ) ( ) Dividends received from Phuthuma Nathi Investments 2 (RF) Limited (listed investments) Tax paid 42 ( ) ( ) Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment 44 ( ) ( ) Proceeds from disposal of property, plant and equipment Purchase of other intangible assets ( ) ( ) Proceeds from disposal of other intangible assets Acquisition of subsidiary 46 - (972) Disposal of subsidiary Disposal of joint venture - (2 485) Additional investment in associate 9 - (9 800) Loans granted to associate - (29 820) Prepayment of transponder - (50 151) Disposal of business Net cash used in investing activities ( ) ( ) Cash flows from financing activities Proceeds from long term loans Payments of long term borrowings 23 - ( ) Finance lease payments ( ) ( ) Dividends paid ( ) ( ) Related party funding ( ) ( ) Purchase of shares for share based compensation (29 078) (13 204) Net cash used in financing activities ( ) ( ) Total cash movement for the year ( ) Cash at the beginning of the year Effect of exchange rate movement on cash balances (73 966) ( ) Reclassification of cash to held for sale 747 (83 659) Total cash at end of the year The notes on pages 17 to 92 are an integral part of the group and company annual financial statements. 16

18 Group and Company Accounting Policies 1. Presentation of group and company annual financial statements The group and company annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), International Financial Reporting Interpretations Committee (IFRIC), interpretations issued and effective at the time of preparing these financial statements and the South African Companies Act 71 of 2008, as amended. The group and company annual financial statements have been prepared on the historical cost basis as modified by the revaluation of available-for-sale financial assets, financial assets and liabilities (including derivative instruments) held at fair value through profit and loss with the movements recognised in the statement of comprehensive income, and incorporate the principal accounting policies set out below. They are presented in South African Rands. The accounting policies have been applied consistently compared to the prior year, with the exception of new standards required to be adopted in terms of IFRS. For further details refer to note Consolidation Basis of consolidation The group annual financial statements incorporate the results of MultiChoice South Africa Holdings Proprietary Limited and its subsidiaries, associates and joint ventures. MultiChoice South Africa Holdings Proprietary Limited has control of an investee when it has power over the investee; it is exposed to or has rights to variable returns from involvement with the investee; and it has the ability to use its power over the investee to affect the amount of the investor's returns. Subsidiaries The results of subsidiaries are included in the group annual financial statements from the effective date of acquisition to the effective date of disposal. All intra-group transactions, balances and unrealised gains and losses are eliminated in full on consolidation. Profits and losses arising from inter-company transactions that are recognised in assets are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Transactions which result in changes in ownership levels, where MultiChoice South Africa Holdings Proprietary Limited has control of the subsidiary both before and after the transaction are regarded as equity transaction and are recognised directly in the statement of changes in equity in the existing control business combination reserve. The difference between the fair value of consideration paid or received and the movement in non-controlling interest for such transactions is recognised in equity attributable to the owners of the parent. Where a subsidiary is disposed of and a non-controlling shareholding is retained, the remaining investment is measured to fair value with the adjustment to fair value recognised in profit or loss as part of the gain or loss on disposal of the controlling interest. 17

19 Group and Company Accounting Policies 1.1 Consolidation (continued) Business combinations Business combinations are accounted for using the acquisition method. The consideration transferred in an acquisition of a business (acquiree) comprises the fair values of the assets transferred, the liabilities assumed, the equity interests issued by the group and the fair value of any contingent consideration arrangements. If the contingent consideration is classified as equity, it is not subsequently remeasured and settlement is accounted for within equity. Otherwise, subsequent changes to the fair value of contingent consideration are recognised in the income statement. For each business combination, the group measures the non-controlling interest in the acquiree at the non-controlling interest s proportionate share of the acquiree s identifiable net assets. Costs related to the acquisition, other than those associated with the issue of debt or equity securities, are expensed as incurred. Where a business combination is achieved in stages, the group s previously held equity interest in the acquiree is remeasured to fair value as at the acquisition date through the income statement. The fair value of the group s previously held equity interest forms part of the consideration transferred in the business combination at the acquisition date. When a selling shareholder is required to remain in the group s employment subsequent to a business combination, any retention option arrangements are recognised as employee benefit arrangements and dealt with in terms of the accounting policy for employee or equity compensation benefits. Goodwill Goodwill in a business combination is recognised at the acquisition date when the consideration transferred and the recognised amount of non-controlling interests exceeds the fair value of the net identifiable assets of the entity acquired. If the consideration transferred is lower than the fair value of the identifiable net assets of the acquiree (a bargain purchase), the difference is recognised in the income statement. The gain or loss on disposal of an entity is calculated after consideration of attributable goodwill. Disposals When the group ceases to have control (subsidiaries) or significant influence (associates), any retained interest in the entity is remeasured to its fair value, with the change in the carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequent accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. Common control transactions Business combinations in which all of the combining entities or businesses are ultimately controlled by the same party or parties both before and after the business combination (and where that control is not transitory), are referred to as common control transactions. The accounting policy for the acquiring entity would be to account for the transaction at book values in its consolidated financial statements. The book values of the acquired entity are the consolidated book values as reflected in the group annual financial statements of the selling entity. The excess of the cost of the transaction over the acquirer's proportionate share of the net asset value acquired in common control transactions, will be allocated to the existing business combination reserve in equity. Where comparative periods are presented, the financial statements and financial information are not restated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. Transactions with non-controlling shareholders Non-controlling shareholders are equity participants of the group and all transactions with non-controlling shareholders are therefore accounted for as equity transactions and included in the statement of changes in equity. In transactions with noncontrolling shareholders, any excess of the cost/proceeds of the transaction over the group s proportionate share of the net asset value acquired/disposed is allocated to the Existing control business combination reserve in equity. 18

20 Group and Company Accounting Policies 1.1 Consolidation (continued) Investment in associates An associate is an entity over which the group has significant influence and which is neither a subsidiary nor a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. An investment in associate is accounted for using the equity method, except when the investment is classified as held-forsale in accordance with IFRS 5 (Non-current assets held-for-sale and discontinued operations). Under the equity method, investments in associates are carried in the group statement of financial position at cost adjusted for post acquisition changes in the group's share of net assets of the associate, less any impairment losses. Losses in an associate in excess of the group's interest in that associate are recognised only to the extent that the group has incurred a legal or constructive obligation to make payments on behalf of the associate. Any goodwill on acquisition of an associate is included in the carrying amount of the investment, however, a gain on acquisition is recognised immediately in profit or loss. Profits or losses on transactions between the group and an associate are eliminated to the extent of the group's interest therein. When the group reduces its level of significant influence or loses significant influence, the group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal. The group applies the cost of each purchase method for step acquisitions of associates. With this method the cost of an associate acquired in stages is measured as the sum of the consideration paid for each purchase plus a share of the investee s profits and other equity movements. Any other comprehensive income recognised in prior periods in relation to the previously held stake in the acquired associate is reversed through equity and a share of profits and other equity movements is also recorded in equity. Any acquisition-related costs are treated as part of the investment in the associate. When the group increases its shareholding in an associate and continues to have significant influence, the group adds the cost of the additional investment to the carrying value of the associate. The goodwill arising is calculated based on the fair value information at the date the additional interest is acquired. The group's share of post-acquisition profit or loss is recognised in profit or loss and its share of post-acquisition movements in other comprehensive income, with a corresponding adjustment to the carrying amount of the investment. Where the group's share of losses in the associate equals or exceeds its interest in the associate, including any unsecured receivables, the group does not recognise further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. Dividends receivable from associates are recognised as a reduction in the carrying amount of the investment. The group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case, the group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount adjacent to 'share of profit / (loss) of associates' in the statement of profit or loss. Profits and losses resulting from upstream and downstream transactions between the group and its associates are recognised in the group's financial statements only to the extent of the unrelated investor's interests in the associates. Unrealised losses are eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency of the policies adopted by the group. Dilution gains and losses arising on disposal of investments in associates are recognised in the statement of profit or loss. 19

21 Group and Company Accounting Policies 1.1 Consolidation (continued) Joint ventures A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. An interest in a joint venture is accounted for using the equity method, except when the investment is classified as held-forsale in accordance with IFRS 5 (Non-current assets held-for-sale and discontinued operations). Under the equity method, interests in joint ventures are carried in the consolidated statement of financial position at cost adjusted for post acquisition changes in the company's share of net assets of the joint venture, less any impairment losses. Profits or losses on transactions between the company and a joint venture are eliminated to the extent of the company's interest therein. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. The group recognises the portion of gains or losses on the sale of assets by the group to the joint venture that is attributable to the other venturers. The group does not recognise its share of gains or losses from the joint venture that results from the purchase of assets by the group from the joint venture until it resells the assets to an independent third party. However, if a loss on the transaction provides evidence of a reduction in the net realisable value of current assets or an impairment loss, the loss is recognised immediately. When the company loses joint control, the group proportionately reclassifies the related items which were previously accumulated in equity through other comprehensive income to profit or loss as a reclassification adjustment. In such cases, if an investment remains, that investment is measured to fair value, with the fair value adjustment being recognised in profit or loss as part of the gain or loss on disposal. Where necessary, accounting policies for joint ventures have been changed to ensure consistency with the policies adopted by the group. 1.2 Investments in subsidiaries The cost of an investment in a subsidiary is the aggregate of: the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the company; plus any costs directly attributable to the purchase of the subsidiary. An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably. 1.3 Investments in associates An investment in an associate is carried at cost less any accumulated impairment. 20

22 Group and Company Accounting Policies 1.4 Financial instruments Financial assets The group classifies its investments in debt and equity securities into financial assets at fair value through profit or loss, available-for-sale financial assets and loans and receivables. The classification is dependent on the purpose for which the investments were acquired. Management determines the classification of its investments at the time of initial recognition and, where required, re-evaluates such designation on an annual basis. All financial assets at fair value through profit or loss are classified as held for trading and are derivative financial instruments. A financial asset is classified into this category at inception if acquired principally for the purpose of selling in the short term, if it forms part of a portfolio of financial assets in which there is evidence of short-term profit taking, or, if permitted to do so, designated by management. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Available-for-sale financial assets are non-derivative financial assets that are either designated in this category or not classified in any other financial instrument category. The group has classified equity investments that are not held for trading in this category. Financial assets are presented as non-current assets, except for those with maturities within 12 months from the statement of financial position date, which are classified as current assets. Purchases and sales of financial assets are recognised on the trade date, which is the date that the group commits to purchase or sell the asset. Financial assets are initially recognised at fair value plus, in the case of financial assets not carried at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. At fair value through profit or loss and available-for-sale financial assets are subsequently carried at fair value with changes in fair value recognised in the income statement and statement of comprehensive income, respectively. Refer to note 12 for the group s fair-value measurement methodology regarding financial assets. The group assesses, at each statement of financial position date, or earlier when such assessment is prompted, whether there is objective evidence that a financial asset or group of financial assets may be impaired. If any such evidence exists, the amount of any impairment loss is established as outlined below. For loans and receivables, the impairment loss is measured as the difference between the financial asset s carrying amount and the present value of its estimated future cash flows, discounted at the financial asset s original effective interest rate. The carrying amount of the financial asset is reduced directly through the income statement for impairment losses that can be attributed to an individual financial asset and via an allowance account for impairment losses relating to a group of financial assets. An impairment loss recognised on a financial asset in a previous reporting period is reversed through the income statement if the estimates used to calculate the recoverable amount have changed since the previous impairment loss was recognised. Where available-for-sale financial assets are impaired, the cumulative gains or losses previously recognised in other comprehensive income are reclassified to the income statement. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or where they have been transferred and the group has also transferred substantially all risks and rewards of ownership. Financial assets are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to realise the asset and settle a related financial liability simultaneously. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than twelve months after the end of the reporting period, which are classified as non-current assets. The group's loans and receivables comprise 'trade and other receivables', 'amounts due from related parties' and 'cash and cash equivalents' in the statement of financial position. Loans and receivables are carried at amortised cost after initial recognition using the effective interest method. 21

23 Group and Company Accounting Policies 1.4 Financial instruments (continued) Financial liabilities The group classifies its financial liabilities into financial liabilities at fair value through profit or loss, other financial liabilities and written put option liabilities. Financial liabilities are recognised when the group becomes party to the contractual provisions of the relevant instrument. All financial liabilities at fair value through profit or loss are derivative financial instruments and are accordingly classified as held for trading. Financial liabilities at fair value through profit or loss are initially recognised at fair value, excluding transactions costs, and are subsequently carried at fair value with changes in fair value recognised in the income statement. Other financial liabilities comprise trade and other payables and borrowings. Other financial liabilities are initially recognised at fair value, net of transaction costs, and are subsequently carried at amortised cost using the effective interest method. Financial liabilities are presented as current liabilities if payment is due or could be demanded within 12 months (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities. Financial liabilities are offset and the net amount reported in the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis. Financial liabilities are derecognised when the contractual obligation is discharged, cancelled or when it expires. Financial instruments used for hedge accounting The group uses derivative financial instruments (derivatives) to reduce exposure to fluctuations in foreign currency exchange rates and interest rates. These instruments mainly comprise forward exchange contracts and interest rate swap agreements. Forward exchange contracts protect the group from movements in exchange rates by fixing the rate at which a foreign currency asset or liability will be settled. Interest rate swap agreements protect the group from movements in interest rates. The group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The group also documents its assessment, both at hedge inception and on an on-going basis, of whether the derivatives that are used in hedging transactions are expected to be and have been highly effective in offsetting changes in fair values or cash flows of hedged items. The fair values of derivatives used for hedging purposes are disclosed in note 12. The method of recognising the resulting gain or loss arising on remeasurement of derivatives used for hedging is dependent on the nature of the item being hedged. The group designates a derivative as either a hedge of the fair value of a recognised asset, liability or firm commitment (fair value hedge), or a hedge of a forecast transaction or of the foreign currency risk of a firm commitment (cash flow hedge). Changes in the fair value of derivatives that are designated, and qualify, as fair value hedges are recorded in the income statement, along with changes in the fair value of the hedged asset or liability that is attributable to the hedged risk. Changes in the fair value of derivatives that are designated, and qualify, as cash flow hedges and that are highly effective are recognised in other comprehensive income and the ineffective part of the hedge is recognised in the income statement. Where the forecast transaction or firm commitment, of which the foreign currency risk is being hedged, results in the recognition of a non-financial asset or liability, the gains and losses previously deferred in other comprehensive income are transferred from other comprehensive income and included in the initial measurement of the cost of such asset or liability. Otherwise, amounts deferred in other comprehensive income are transferred to the income statement and classified as income or expense in the same periods during which the hedged transaction affects the income statement. Certain derivative transactions, while providing effective economic hedges under the group s risk management policies, do not qualify for hedge accounting. Changes in the fair value of derivatives that do not qualify for hedge accounting are recognised immediately in the income statement. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income and is recognised when the committed or forecast transaction ultimately is recognised in the income statement. When a committed or forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is immediately reclassified to the income statement. 22