ANNUAL FINANCIAL STATEMENTS

Transcription

1 ANNUAL FINANCIAL STATEMENTS CONTENTS 107 Directors approval of annual financial statements 107 Certificate by Company Secretary 108 Independent auditor s report 109 Directors statutory report 111 Audit Committee report 114 Statement of profit or loss and other comprehensive income 115 Statement of financial position 116 Statement of changes in equity 118 Statement of cash flow 119 Notes to the financial statements 176 Share ownership analysis 177 Share price performance 177 Shareholders diary 178 Notice of Annual General Meeting INCLUDED Form of proxy INSIDE BACK COVER Corporate information PREPARER OF THE ANNUAL FINANCIAL STATEMENTS In compliance with the disclosure requirement of the Companies Act, 71 of 2008, as amended, the annual financial statements have been prepared under the supervision of Mr MW Godfrey CA(SA), Group Financial Director, on behalf of The SPAR Group Ltd. 106

2 DIRECTORS APPROVAL OF THE ANNUAL FINANCIAL STATEMENTS The directors of the company are responsible for the maintenance of adequate accounting records and the preparation and integrity of the financial statements and related information. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Companies Act of South Africa. The group s independent external auditors, Deloitte & Touche, have audited the financial statements and their unmodified report is enclosed. The directors are also responsible for the systems of internal control. These controls are designed to provide reasonable but not absolute assurance as to the reliability of the financial statements, and to adequately safeguard, verify and maintain accountability of the assets, to record all liabilities, and to prevent and detect material misstatement and loss. The systems are implemented and monitored by suitably trained personnel with appropriate segregation of authority and duties. Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. In preparing the financial statements, the company and group have used appropriate accounting policies, supported by reasonable judgements and estimates, and have complied with all applicable accounting standards. The directors are of the opinion that the financial statements fairly present the financial position of the company and the group as at 30 September 2016 and the results of their operations and cash flows for the year under review. The annual financial statements are prepared on the going concern basis. Nothing has come to the attention of the directors to indicate that the company or the group will not remain a going concern for the foreseeable future. The annual financial statements were approved by the board of directors on 15 November 2016 and are signed on its behalf by: MJ Hankinson Chairman 15 November 2016 GO O Connor Chief Executive Officer CERTIFICATE BY COMPANY SECRETARY In terms of section 88(2)(e) of the Companies Act, 71 of 2008, as amended, I certify that, to the best of my knowledge and belief, the company has lodged with the Registrar of Companies, for the financial year ended 30 September 2016, all such returns and notices as are required of a public company in terms of the Companies Act and that all such returns are true, correct and up to date. MJ Hogan Company Secretary 15 November 2016 THE SPAR GROUP LTD INTEGRATED REPORT

3 INDEPENDENT AUDITOR S REPORT TO THE SHAREHOLDERS OF THE SPAR GROUP LTD We have audited the consolidated and separate financial statements of The SPAR Group Ltd, set out on pages 114 to 175 which comprise the statements of financial position as at 30 September 2016, and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows for the year then ended, and the notes, comprising a summary of significant accounting policies and other explanatory information. DIRECTORS RESPONSIBILITY FOR THE CONSOLIDATED FINANCIAL STATEMENTS The company s directors are responsible for the preparation and fair presentation of these 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. AUDITOR S RESPONSIBILITY Our responsibility is to express an opinion on these consolidated and separate financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements 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 entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. OPINION In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of The SPAR Group Ltd as at 30 September 2016, 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. OTHER REPORTS REQUIRED BY THE COMPANIES ACT As part of our audit of the consolidated and separate financial statements for the year ended 30 September 2016, we have read the Directors statutory report, the Audit Committee s report and the Company Secretary s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated and separate financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited consolidated and separate financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS In terms of the Independent Regulatory Board for Auditors (IRBA) Rule published in Government Gazette Number dated 04 December 2015, we report that Deloitte & Touche has been the auditor of The SPAR Group Ltd for 49 years. Deloitte & Touche Registered Auditors Per Gavin Kruger CA(SA), RA Partner 15 November

4 DIRECTORS STATUTORY REPORT PRINCIPAL ACTIVITY OF THE COMPANY The principal activity of the group is as a wholesaler and distributor of goods and services to SPAR grocery stores, Build it builders merchandise outlets, TOPS at SPAR liquor stores and multiple other branded group retail outlets in Southern Africa, Switzerland, Ireland and South West England. The group operates 10 main distribution centres which are strategically located close to the major metropolitan areas. FINANCIAL RESULTS The net profit attributable to ordinary shareholders for the year ended 30 September 2016 amounted to R million (2015: R million). This translates into headline earnings per share of cents (2015: cents) and normalised headline earnings per share of cents (2015: cents), based on the weighted average number of shares (net of treasury shares) in issue during the year. Normalised headline earnings represent headline earnings excluding business-defined exceptional items. STATED CAPITAL Details of the authorised and issued stated capital of the company are set out in note 25. In April 2016, R2.1 billion was raised through the issue of new ordinary shares through an accelerated bookbuild offering. R725.0 million (CHF44.5 million) of the proceeds were used to settle the purchase of 60% of SPAR Switzerland. Details of the SPAR Switzerland acquisition are included in note 33. During the current financial year (2015: ) redeemable convertible preference shares converted into (2015: ) ordinary shares. These related to the death participants in both BBBEE trusts. TREASURY SHARES During the year, The SPAR Group Ltd Employee Share Trust (2004) purchased (2015: ) shares in The SPAR Group Ltd for R227.3 million (2015: R228.9 million). A total of (2015: ) shares were reissued to option holders who exercised their option rights. At year-end, (2015: ) shares in the company were held by the trust. At the 2016 annual general meeting (AGM), a general authority was granted by shareholders to allow the company to acquire its own shares in terms of the Companies Act. The directors consider it will be advantageous for the company for this general authority to continue. Such authority will be used if the directors consider that it is in the best interests of the company and shareholders to effect such share purchases having regard to prevailing circumstances and the cash resources of the company at the time. Shareholders will be asked to consider a similar special resolution to this effect at the forthcoming annual general meeting. DIVIDENDS A final dividend of cents in respect of 2015 was declared on 10 November 2015 and paid on 7 December An interim dividend of cents per share was declared on 17 May 2016 and paid on 13 June A final dividend of cents per share was declared on 15 November 2016, payable on 12 December The salient dates for the payment of the final dividend are: Last day to trade cum-dividend Tuesday, 6 December 2016 Shares to commence trading ex-dividend Wednesday, 7 December 2016 Record date Friday, 9 December 2016 Payment of dividend Monday, 12 December 2016 Shareholders will not be permitted to dematerialise or rematerialise their share certificates between Wednesday, 7 December 2016 and Friday, 9 December 2016, both days inclusive. SPECIAL RESOLUTIONS The company passed the following special resolutions at the annual general meeting held on 9 February 2016: special resolution number 1 amendment of Memorandum of Incorporation (removal of preference shares from authorised share capital); special resolution number 2 financial assistance to related or inter-related companies; and special resolution number 3 non-executive directors fees. THE SPAR GROUP LTD INTEGRATED REPORT

5 DIRECTORS STATUTORY REPORT (CONTINUED) DIRECTORATE Details of the directors of the company at the date of this report are disclosed on pages 86 to 87. In terms of the company s Memorandum of Incorporation, one third of the non-executive directors retire annually by rotation at the annual general meeting. Accordingly, Messrs MJ Hankinson, RJ Hutchison and PK Hughes retired at the AGM held on 9 February 2016 and Mr MJ Hankinson offered himself for re-appointment and Messrs RJ Hutchison and PK Hughes did not offer themselves for re-election. At 30 September 2016, the directors beneficially held (2015: ) shares in the company and unexercised options to acquire a total of (2015: ) ordinary shares in the company (refer notes 36 and 37). AUDIT COMMITTEE The Audit Committee, a statutory committee of the board, addresses matters requiring specialist attention. The committee s responsibility includes, but is not limited to, the examination of internal control processes, reviewing and approving the internal audit plan, assessing the reports of the internal and external auditors and confirming that the company will remain a going concern. The external and internal auditors have unrestricted access to the Audit Committee, and attend meetings to report on their findings and to discuss accounting, auditing, internal control and financial reporting matters. During the year the independence of the auditors was tested and confirmed. RISK MANAGEMENT The company has in place a Risk Committee, which operates as a sub-committee of the board. The committee is responsible for monitoring the management of risks that may affect the company s operations. The group has identified the top 20 major strategic risks and the numerous operational risks that may have an effect on the operations of the company. Regular risk management audits are conducted in conjunction with appropriate risk management consultants, where necessary. Identified risks are reviewed and action plans to minimise the possibility of a loss occurring are in place. Risks are considered to be adequately covered, and self-insurance programmes are in operation covering primary levels of risk. Assets are insured at current replacement values. The group s practice regarding insurance includes an annual assessment, in conjunction with the group s insurance brokers, of the risk exposure relative to assets and possible liabilities arising from business transactions. In addition, the group s insurance programme is monitored by the Risk Committee. SUBSIDIARIES The interest of the company in the aggregate net profit after taxation of subsidiaries was R369.0 million (2015: R191.7 million). Details of the company s principal subsidiaries are set out in note 14. Material subsidiaries acquired by the group during 2016: SPAR Holding AG ( SPAR Switzerland ). An effective 60% interest is held in this convenience retail company. GCL 2016 Ltd ( Gilletts ). An effective 100% interest is held in this convenience retail company. COMPETITION TRIBUNAL The Competition Commission commenced its enquiry into the grocery retail sector in July The company filed its submissions in response to the Commissions Terms of Reference in August The investigation is ongoing and the company continues to co-operate fully with the Commission. The company along with other food retailers is defending an application filed in the Competition Tribunal. The outcome of this application will in all likelihood be made known in the latter part of EVENTS AFTER THE REPORTING DATE The directors are not aware of any matters or circumstances arising since the end of the financial year which have or may significantly affect the financial position of the group or the results of its operations. 110

6 AUDIT COMMITTEE REPORT This is the report of the Audit Committee of The SPAR Group Ltd. The Audit Committee is constituted as a statutory committee of the company in compliance with the Companies Act, King III and the JSE Listings Requirements and as a committee of the board. MEMBERSHIP Members of the committee and its chairman are appointed by shareholders, on the recommendation of the Nominations Committee. Ms M Mashologu was appointed to the committee by shareholders on 9 February 2016 in place of Mr PK Hughes, who retired at the 2016 AGM. Shareholders will again be requested to approve the appointment of the committee for the 2017 financial year at the AGM to be held on 7 February The Nominations Committee have nominated for re-election at the 2017 AGM, Mr CF Wells (Chairman), Ms M Mashologu and Mr HK Mehta as members of the committee. The committee comprises three independent non-executive directors, who have been selected with the aim of providing the range of financial and commercial expertise necessary to meet its responsibilities in a robust and independent manner. ROLE AND RESPONSIBILITIES The committee acts independently, but is accountable to both the board and shareholders. The committee does not assume the functions of management, which remain the responsibility of the executive directors, officers and other members of senior management. The committee s role is to monitor and review the group s financial reporting arrangements, the effectiveness of its internal controls, the internal and external audit processes and the group s whistleblowing procedures. The committee performed the following duties and responsibilities during the year, according to its terms of reference: INTEGRATED REPORTING The committee considered: the interim report for the period ended 31 March 2016, including all summarised information; the integrated report for the period ended 30 September 2016, including all summarised information; all other summarised information issued during the year to ensure that a balanced view was provided; the accounting practices and the effectiveness of internal financial controls; the going concern of the company; the disclosure of sustainability issues in the integrated report to ensure that it is reliable and does not conflict with the financial information; whether or not to engage with external assurance providers on material sustainability issues; and whether the external auditor should perform assurance procedures on the interim results. The committee assessed the completeness, clarity and transparency of the financial statements and related disclosures. At its meeting held on 14 November 2016, the committee recommended the integrated report to the board for approval and publication. A committee process was established to receive and deal with any concerns or complaints appropriately, whether from within or outside the company, relating to the accounting practices and internal audit of the company, the content or auditing of the company s financial statements, the internal financial controls of the company and related matters. No matters of significance were raised during the year. INTERNAL ASSURANCE Evaluation of the expertise and experience of the Group Financial Director and finance function The committee satisfied itself that the Group Financial Director, Mr MW Godfrey, has the appropriate expertise and experience to act in this capacity. The committee considered, and satisfied itself of the appropriateness of the expertise and adequacy of resources of the finance function and experience of the senior members of management responsible for the group financial function. THE SPAR GROUP LTD INTEGRATED REPORT

7 AUDIT COMMITTEE REPORT (CONTINUED) Internal audit The committee is responsible for ensuring that the company s internal audit function is independent and has the necessary resources, standing and authority within the company to enable it to discharge its duties. Furthermore, the committee oversees co-operation between the internal and external auditors, and serves as a link between the board of directors and these functions. The internal audit function reports centrally and is responsible for reviewing and providing assurance on the adequacy of the internal control environment across all the company s operations. The group internal audit manager, Mr S Naidoo, is responsible for reporting the findings of the internal audit work against the agreed internal audit plan to the committee on a regular basis and has direct access to the committee, primarily through its chairman. The committee is also responsible for the performance assessment of the group internal auditor and the internal audit function. During the year, the committee: Satisfied itself that the company s internal audit function met its objectives and that adequate procedures are in place to ensure that the group complies with its legal, regulatory and other responsibilities. Reviewed and approved the internal audit plan and the internal audit charter. Met with the external auditor and with the group internal auditor without management being present. The committee oversaw a process by which internal audit performed a written assessment of the effectiveness of the company s system of internal control and risk management, including internal financial controls. This written assessment by internal audit formed the basis for the committee s recommendation to the board, for the board to report thereon. Risk management The board has assigned oversight of the company s risk management function to the Risk Committee. The chairman of the Audit Committee is the chairman of the Risk Committee and ensures that information relevant to the Risk Committee is transferred and shared regularly with that committee. The committee fulfils an overview role regarding financial reporting risks, internal financial controls, fraud risk as it relates to financial reporting risks, information technology risks, taxation risks, and compliance and regulatory risk as it relates to financial reporting, and are satisfied that these areas have been appropriately addressed. EXTERNAL ASSURANCE Appointment and independence of external auditor The committee has primary responsibility for overseeing the relationship with, and the performance of, the external auditor, Deloitte & Touche ( Deloitte ). This includes making recommendations on their reappointment and assessing their independence, as set out in section 94(8) of the Companies Act. Requisite assurance was sought and provided by Deloitte that internal governance processes within the audit firm support and demonstrate its claim to independence. The committee ensured that the appointment of the external auditor complied with the Companies Act, and any other legislation relating to the appointment of auditors and in consultation with executive management, agreed to the terms of the engagement letter, audit plan and budgeted audit fees for the 2016 financial year. There is a formal procedure that governs the process whereby Deloitte is considered for non-audit services. The committee approved the terms of a master service agreement for the provision of non-audit services by Deloitte, and approved the nature and extent of non-audit services that Deloitte, the firm, may provide in terms of the agreed pre-approval policy. The committee is satisfied with the quality and effectiveness of Deloitte s audit process and that Deloitte and the designated audit partner, Mr G Kruger are accredited as such on the JSE list of auditors and their advisors. Accordingly, it recommends and has nominated, for election at the AGM, Deloitte & Touche as the external audit firm, and Mr G Kruger as the designated audit partner responsible for performing the functions of auditor for the 2017 financial year. Deloitte are required to rotate the designated audit partner every five years and, as a result, the current lead audit partner, Mr G Kruger, replaced outgoing partner Mr B Botes, in the current year and he in turn will be required to change in The committee provided the JSE with comment on the announcement by the Independent Regulatory Board for Auditors on the mandatory rotation of audit firms and await the outcome thereof. 112

8 TERMS OF REFERENCE The committee operates in accordance with its formal terms of reference and annual work plan that complies with the requirements of King III. During the year, the board reviewed and approved the committee s terms of reference and annual work plan and were satisfied that the committee fulfilled its responsibilities in compliance with its terms of reference. In anticipation of King IV, no changes were made to the terms of reference. An in-depth overview of the committee s responsibilities is contained in its terms of reference, which is available online. MEETINGS The committee meets formally three times a year. The Chief Executive Officer (CEO), Group Financial Director, Internal Audit Manager and External Auditors are required to attend committee meetings. The group s internal audit manager and external auditor have unrestricted access to members of the committee and the CEO. Members of the group s executive management team attend meetings as required, while the chairman of the board attends meetings by invitation. Attendance Member Status 9 Nov May Aug 2016 CF Wells (Chairman) Independent non-executive PK Hughes r Independent non-executive n/a n/a M Mashologu a Independent non-executive n/a HK Mehta Independent non-executive A r Retired 9 February 2016 a Appointed 9 February 2016 A Apology EVALUATION OF COMMITTEE The committee conducted an annual self-evaluation process to measure its performance and no concerns were raised with the effectiveness of the meetings and efficiency and competence of the members. Thanks go to the members of the committee, internal audit and external auditors for their dedicated, professional and constructive contributions to the functioning of the committee. CF Wells Chairman 15 November 2016 THE SPAR GROUP LTD INTEGRATED REPORT

9 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 SEPTEMBER 2016 GROUP COMPANY Rmillion Notes Revenue Turnover Cost of sales ( ) ( ) ( ) ( ) Gross profit Other income Net operating expenses 3 ( ) ( ) ( ) ( ) Warehousing and distribution expenses ( ) ( ) ( ) ( ) Marketing and selling expenses ( ) ( ) ( ) (817.0) Administration and information technology expenses ( ) ( ) (838.5) (800.0) Trading profit BBBEE transactions 4 (20.9) (13.4) (20.9) (13.4) Operating profit Other non-operating items 5 (24.5) (131.4) (2.4) (93.8) Interest income Interest expense 6 (110.4) (121.6) (42.0) (37.5) Finance costs including foreign exchange gains and losses 6 (106.5) (108.1) (94.6) (108.1) Share of equity accounted associate income/(losses) (4.1) Profit before taxation Income tax expense 7 (624.2) (537.3) (557.5) (497.5) Profit for the year attributable to ordinary shareholders Other comprehensive income Items that will not be reclassified subsequently to profit or loss: Actuarial loss on post-retirement medical aid 27.2 (7.9) (4.2) (7.9) (4.2) Deferred tax relating to actuarial loss on post-retirement medical aid Actuarial loss on retirement funds 27.1 (220.1) (13.3) Deferred tax relating to actuarial loss on retirement funds Items that may be reclassified subsequently to profit or loss: Loss on cash flow hedge (39.2) (39.2) Tax relating to loss on cash flow hedge Exchange differences from translation of foreign operations (29.4) 20.7 Total comprehensive income Earnings per share (cents) 8 Basic Diluted

10 STATEMENT OF FINANCIAL POSITION AS AT 30 SEPTEMBER 2016 GROUP COMPANY Rmillion Notes ASSETS Non-current assets Property, plant and equipment Goodwill and intangible assets Investment in subsidiaries Investment in associates Other investments Operating lease receivables Loans Deferred taxation asset Current assets Inventories Trade and other receivables Prepayments Operating lease receivables Loans Income tax recoverable Cash and cash equivalents SPAR Cash and cash equivalents Guilds and trusts Assets held for sale Total assets EQUITY AND LIABILITIES Capital and reserves Stated capital Treasury shares 26 (18.7) (26.9) Currency translation reserve Share-based payment reserve Equity reserve (713.0) (545.7) (545.7) (545.7) Hedging reserve (28.2) (28.2) Retained earnings Non-current liabilities Deferred taxation liability Post-employment benefit obligations Financial liabilities Long-term borrowings Operating lease payables Long-term provisions Current liabilities Trade and other payables Current portion of long-term borrowings Operating lease payables Provisions Income tax liability Bank overdrafts Liabilities directly associated with assets held for sale Total equity and liabilities THE SPAR GROUP LTD INTEGRATED REPORT

11 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 SEPTEMBER 2016 Rmillion Notes Stated Capital Treasury shares GROUP Capital and reserves at 30 September (48.2) Total comprehensive income for the year Actuarial loss on post retirement medical aid 27 Actuarial loss on retirement funds 27 Recognition of share-based payments Take-up of share options Transfer arising from take-up of share options Share repurchases 26 (228.9) Dividends paid 10 Recognition of BBBEE transaction 4 Capital and reserves at 30 September (26.9) Total comprehensive income for the year Actuarial loss on post retirement medical aid 27 Actuarial loss on retirement funds 27 Recognition of share-based payments 3 Take-up of share options Transfer arising from take-up of share options Transfer arising from closure of BBBEE transaction Share repurchases 26 (227.3) Dividends paid 10 Issue of shares Recognition of BBBEE transaction 4 Non-controlling interest arising on business acquisition 33 Purchase obligation of non-controlling interest 39 Exchange rate translation Capital and reserves at 30 September (18.7) COMPANY Capital and reserves at 30 September Total comprehensive income for the year Actuarial loss on post-retirement medical aid 27 Recognition of share-based payments Contribution to Employee Share Trust Transfer arising from take-up of share options Dividends paid 10 Recognition of BBBEE transaction 4 Capital and reserves at 30 September Total comprehensive income for the year Actuarial loss on post-retirement medical aid 27 Recognition of share-based payments 3 Contribution to Employee Share Trust Transfer arising from take-up of share options Transfer arising from closure of BBBEE transaction Dividends paid 10 Issue of shares Recognition of BBBEE transaction 4 Capital and reserves at 30 September

12 Currency translation reserve Sharebased payment reserve Retained earnings Equity reserve Hedging reserve Noncontrolling interest Attributable to ordinary shareholders (545.7) (3.1) (3.1) (11.6) (11.6) (172.2) (172.2) (228.9) ( ) ( ) (545.7) (29.4) (28.2) (5.7) (5.7) (189.4) (189.4) (152.5) (152.5) (216.5) (227.3) ( ) ( ) (180.3) (384.8) (565.1) (713.0) (28.2) (545.7) (3.1) (3.1) (172.2) (172.2) (172.2) ( ) ( ) (545.7) (28.2) (5.7) (5.7) (152.5) (152.5) (152.5) (216.5) ( ) ( ) (545.7) (28.2) THE SPAR GROUP LTD INTEGRATED REPORT

13 STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30 SEPTEMBER 2016 GROUP COMPANY Rmillion Notes CASHFLOWS FROM OPERATING ACTIVITIES Cash generated from operations Interest received Interest paid (110.0) (145.0) (42.0) (37.5) Taxation paid 22 (529.3) (555.5) (510.1) (532.5) Dividends paid 10 ( ) ( ) ( ) ( ) CASHFLOWS FROM INVESTING ACTIVITIES ( ) (978.5) ( ) (565.3) Acquisition of businesses/subsidiaries 33.2 (757.5) (452.0) (786.5) (135.0) Proceeds from disposal of businesses Proceeds on disposal of assets held for sale Investment to expand operations (441.9) (422.1) (229.8) (206.0) Investment to maintain operations (346.8) (103.4) (94.3) (89.7) Replacement of property, plant and equipment (372.6) (111.8) (100.6) (94.0) Proceeds on disposal of property, plant and equipment Net movement in loans and investments 32.1 (120.9) (30.0) (241.8) (139.6) CASHFLOWS FROM FINANCING ACTIVITIES Proceeds from issue of shares Proceeds from exercise of share options (Repayments)/proceeds from borrowings (353.0) Share repurchases 26 (227.3) (228.9) Net movement in cash and cash equivalents Net overdraft at beginning of year (37.8) (543.4) (610.1) (849.7) Exchange rate translation (29.7) 52.5 Net cash balances/(overdrafts) at end of year (37.8) (610.1) 118

14 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 SEPTEMBER ACCOUNTING POLICIES 1.1 STATEMENT OF COMPLIANCE The consolidated annual financial statements are stated in South African rand and are prepared in accordance with International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) in issue and effective for the group at 30 September 2016, and the SAICA Financial Reporting Guides, as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council and the Companies Act of South Africa, 71 of 2008, as amended. 1.2 BASIS OF PREPARATION The financial statements have been prepared on the historical cost basis except for the revaluation of financial instruments, the valuation of share-based payments and the post-retirement obligations. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies are consistent with those of the previous year. The group has considered and adopted all new standards, interpretations and amendments to existing standards that are effective as at year-end. These amendments had no material impact on the financial statements. The following new standards or amendments, which are not yet effective, have not yet been adopted by the directors. The directors will assess the impact thereof. New standards Description Effective for annual periods beginning on or after IFRS 9 Financial Instruments 1 January 2018 IFRS 14 Regulatory Deferral Accounts 1 January 2016 IFRS 15 Revenue from contracts with customers 1 January 2018 IFRS 16 Leases 1 January 2019 Amendments to existing standards IAS 1 Amendments arising under the disclosure initiative 1 January 2016 IAS 7 Amendments arising under the disclosure initiative 1 January 2017 IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses 1 January 2017 IAS 27 Equity Method in Separate Financial Statements 1 January 2016 IAS 16 and IAS 38 Clarification of acceptable methods of depreciation and amortisation 1 January 2016 IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception 1 January 2016 IFRS 11 Accounting for Acquisitions of Interests in Joint Operations 1 January 2016 Various (IAS 19, IAS 34, IFRS 1, Annual Improvements cycle IFRS 5 and IFRS 7) 1 January BASIS OF CONSOLIDATION The group consolidated financial statements incorporate the results and financial position of the company and all its subsidiaries, which are defined as entities over which the group has the ability to exercise control so as to obtain benefits from their activities. The results of subsidiaries are included from the effective dates of acquisition and up to the effective dates of disposal. All intercompany transactions and balances between group companies are eliminated. Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies in line with those used by the group. The company has effective control of The SPAR Guild of Southern Africa and The Build it Guild of Southern Africa and the assets and liabilities of these entities are consolidated with those of the company. As the company acts as an agent of these Guilds, the income and the expenditure of the Guilds has been offset and not consolidated. Investments acquired with the intention of disposal within 12 months are not consolidated. THE SPAR GROUP LTD INTEGRATED REPORT

15 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER ACCOUNTING POLICIES (continued) 1.3 BASIS OF CONSOLIDATION (continued) Business combinations The acquisition of business is accounted for under the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of the exchange of assets given, liabilities incurred or assumed, and equity instruments issued by the group in exchange for control of the acquiree. Acquisition related costs are generally recognised in profit or loss as incurred. The acquiree s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations, are recognised at their fair values at acquisition date, except for the following: i) deferred tax assets or liabilities, and assets or liabilities related to employee benefit arrangements are recognised and measured in accordance with IAS 12 Income taxes and IAS 19 Employee Benefits respectively; ii) liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based payment arrangements of the group entered into to replace share-based payment arrangements of the acquiree are measured in accordance with IFRS 2 Share-based Payment at the acquisition date; and iii) and assets (or disposal groups) that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations are measured in accordance with that standard. Goodwill arising on acquisition is initially recognised at cost. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation may be initially measured either at fair value, or at the non-controlling interests proportionate share of the recognised amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction by transaction basis. When the consideration transferred by the group in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the purchase consideration in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date. The subsequent accounting for changes in fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is remeasured at subsequent reporting dates in accordance with IAS 39 Financial Instruments, Recognition and Measurement, or IAS 37 Provisions, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognised in profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the group reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities that are recognised, to reflect new information obtained about facts and circumstances that existed at the acquisition date that if known, would have affected the amounts recognised at that date. Arrangements to acquire non-controlling interests at future dates are recognised as financial liabilities at the present value of the expected payment. Changes in the measurement of the financial liability due to unwinding of the discount, changes in the expected future payment or foreign exchange translation are recognised in profit or loss. The effect of translating the closing balance of financial liabilities to the reporting currency is reported in other comprehensive income. In such cases, The SPAR Group Ltd consolidates 100% of the subsidiary s results. The company s investments in ordinary shares of its subsidiaries are carried at cost less accumulated impairment and if denominated in foreign currencies, are translated at historical rates. 120

16 1.3.2 Investment in associates and joint arrangements 1.4 GOODWILL Associates are those companies, which are not subsidiaries, over which the group exercises significant influence. 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 these decisions. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. 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 all parties sharing control. The results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial statements using the equity method of accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with IFRS 5 Non-current Assets held for Sale. Under the equity method, an investment in an associate or joint venture is initially recognised in the consolidated statement of financial position at cost and adjusted thereafter to recognise the group s share of the profit or loss and other comprehensive income of the associate or joint venture. When the group s share of losses of an associate or a joint venture exceeds the group s interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the group s net investment in the associate or joint venture), the group discontinues recognising its share of further losses. Additional losses are recognised only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. An investment in an associate or joint venture is accounted for using the equity method from the date on which the investee becomes an associate or a joint venture. On acquisition of the investment in an associate or a joint venture, any excess of the cost of the investment over the group s share of the net fair value of the identifiable assets and liabilities of the investee is recognised as goodwill, which is included within the carrying amount of the investment. Any excess of the group s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is recognised immediately in profit or loss in the period in which the investment is acquired. The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the group s investment in an associate or joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognised forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases. When a group entity transacts with an associate or a joint venture of the group, profits and losses resulting from the transactions with the associate or joint venture are recognised in the group s consolidated financial statements only to the extent of interests in associates or joint ventures that are not related to the group. The company s investments in ordinary shares of its associates and joint arrangements are carried at cost less accumulated impairment. Goodwill arising on the acquisition of entities represents the excess of the cost of acquisition over the group s interest in the fair value of the identifiable assets, liabilities and contingent liabilities of the entities recognised at the date of acquisition. Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the group s cash-generating units. Cash-generating units to which goodwill has been allocated are tested annually for impairment or more frequently when there is an indication that the cash-generating unit may be impaired. Any impairment loss is recognised directly to profit and loss. An impairment loss recognised for goodwill is not reversed in a subsequent period. On disposal of an entity, attributable goodwill is included in the determination of the profit and loss on disposal. The group s policy for goodwill arising on the acquisition of an associate and a joint venture is described in note 1.3 above. THE SPAR GROUP LTD INTEGRATED REPORT

17 NOTES TO THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 SEPTEMBER ACCOUNTING POLICIES (continued) 1.5 FOREIGN CURRENCIES Transactions in currencies other than in rands are initially recorded at the rates of exchange ruling on the dates of the transactions. All assets and liabilities denominated in such currencies are translated at the rates ruling at period-end. Exchange differences arising on the settlement of monetary items or on reporting the group s monetary items at rates different from those at which they were initially recorded, are recognised to profit or loss in the period in which they arise. The individual financial statements of each group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity is expressed in rands, which is the functional currency of the company, and the presentation currency for the consolidated financial statements. For the purpose of presenting consolidated financial statements, the assets and liabilities of the group s foreign operations (including comparatives) are expressed in rands using exchange rates prevailing at period-end. Income and expense items (including comparatives) are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. All resulting translational differences are recognised in other comprehensive income and presented as a separate component of equity in the currency translation reserve. Goodwill and fair value adjustments to identifiable assets acquired and liabilities assumed through acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the rate of exchange prevailing at the end of each reporting period. Exchange differences arising are recognised in other comprehensive income. 1.6 PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment is stated at cost less accumulated depreciation and any accumulated impairment losses. Land is stated at cost and not depreciated as it has an unlimited useful life. Land and buildings are held for use in the supply of goods. Owner-occupied buildings are stated at cost and depreciated at 0% to 2% per annum on a straight-line basis to their estimated residual value. Improvements to leasehold properties are shown at cost and written off over the remaining period of the lease and the item s useful life. The cost less residual values of plant and equipment is depreciated over their estimated useful lives on a straight-line basis. The useful lives and residual values of all assets are reviewed annually and are adjusted should any changes arise. The following depreciation rates apply: Vehicles Plant and equipment Furniture and fittings Computer equipment 10% to 25% per annum 8.3% to 33.3% per annum 4% to 33.3% per annum 10% to 33.3% per annum Where assets are identified as being impaired, that is when the recoverable amount has declined below the carrying amount, the carrying amount is reduced to reflect the decline in value. Profit and loss on disposal of property, plant and equipment is recognised in profit or loss in the year of disposal. Property, plant and equipment subject to finance lease agreements is capitalised at the cash cost equivalent and the corresponding liabilities raised. Lease finance charges are charged to operating profit as they fall due. These assets are depreciated over their expected useful lives on the same basis as owned assets, or, where shorter, the term of the lease. 122