STRIVING FOR OPTIMUM PERFORMANCE MARSHALL MONTEAGLE PLC 2012 Marshall Monteagle
Contents Page Directors 2 Results in Brief, Analysis of Assets and Financial Calendar 3 Business Review 4 Consolidated Statement of Comprehensive Income 6 Consolidated Statement of Changes in Equity 7 Consolidated Statement of Financial Position 8 Consolidated Statement of Cash Flow 9 Notes to the Consolidated Financial Statements 10 Report of the Directors 33 Corporate Governance and Directors Responsibilities 36 Independent Auditor s Report 41 Addresses 42 Notice of Annual General Meeting 43 King III Checklist 45 Proxy Form enclosed 1
Directors J.M. ROBOTHAM, OBE, FCA, MSI, Non-executive Chairman, age 79 * Michael Robotham has been a Director and Non-executive Chairman of Marshall Monteagle PLC since 2009. He resides in the United Kingdom and is a Chartered Accountant. He is a non-executive director of Halogen Holdings P.L.C., London Finance & Investment Group P.L.C. and Western Selection P.L.C. D.C. MARSHALL, Chief Executive, age 68 David Marshall has been a Director and Chief Executive of Marshall Monteagle PLC since 2009. He resides in South Africa, where he has extensive interests in listed trading, financial and property companies. In recent years he has taken a leading role in the reorganisation and development of medium sized listed companies in the U.K. and overseas. He is also a director of a number of listed English companies, being chairman of London Finance & Investment Group P.L.C. and Western Selection P.L.C. and a non-executive director of Creston plc, Finsbury Food Group Plc and Northbridge Industrial Services PLC. He is chairman of Halogen Holdings P.L.C. L. H. MARSHALL, Finance Director, age 41 Lloyd Marshall was appointed a Director of Marshall Monteagle PLC in 2010. He has extensive investment portfolio and property management experience and is a director of various Group subsidiary companies in Europe, U.S.A. and South Africa. He is also a non-executive director of London Finance & Investment Group P.L.C., Halogen Holdings P.L.C. and Hartim Limited. R.C. KERR, Non-executive Director, age 63 * Rory Kerr was appointed a Director of Marshall Monteagle PLC in 2010. He resides in Dublin and is qualified as a South African attorney, notary and conveyancer, as well as an English and an Irish solicitor. He is a Partner in the Legal Services Division of the Maitland Group. He serves on the boards of some publicly listed investment funds and of several family group holding companies with extensive investment and trading interests. In addition, he acts as a trustee, in his personal capacity and as a director of Trustee companies in the Maitland Group, of several Employee Share Incentive Plans of certain publicly listed companies and as a protector or member of the advisory boards in relation to a number of family trusts. M.A. PESCO, Non-executive Director, age 43 Mark Pesco is the Managing Director of First Names Group in Jersey and has been a Director of Marshall Monteagle PLC since 2009. He qualified as a Chartered Accountant with PricewaterhouseCoopers ( PwC ) and was a Director with PwC prior to joining First Names (Jersey) Limited, initially as a Client Services Director. He has significant experience in the administration of trusts and corporate structures in both a personal capacity and as a Director of First Names (Jersey) Limited, as well as being a professional trustee to high net worth individuals and families across many different trusts with wide ranging commercial interests and with beneficiaries with different circumstances and requirements. E.J. BEALE, Non-executive Director, age 52 Edward Beale was appointed to the Board on 27th February 2013. He is a Chartered Accountant and is the chief executive of City Group P.L.C., the Company s secretaries and administrators. He is also a member of the Accounting Council of the Financial Reporting Council (the UK s accounting standards setter) and a member, previously chairman, of the Corporate Governance Committee of the Quoted Companies Alliance. He is a non-executive director of Finsbury Food Group Plc, Western Selection P.L.C., Halogen Holdings P.L.C., and Hartim Limited. Member of the Audit Committee * Member of the Remuneration Committee 2
Results in Brief, Analysis of Assets and Financial Calendar RESULTS IN BRIEF Group 2012 2011 Restated US$000 US$000 Revenue 210,183 196,391 Operating profit 8,650 10,703 Profit before tax and non-controlling interests 9,263 10,145 Profit after tax and non-controlling interests 5,055 5,450 US cents US cents Basic earnings per share 14.1 15.2 Headline earnings per share (see Note 7) 12.7 12.7 Net assets per share attributable to shareholders US$1.81 US$1.68 Interim dividend (paid in July 2012) US 1.60c US 1.50c Final dividend (to be paid in March 2013) US 1.70c US 1.60c US 3.30c US 3.10c ANALYSIS OF ASSETS, NET OF CURRENT LIABILITIES AND DEFERRED TAX before long term finance and non-controlling interests 2012 2011 Restated US$m US$m South Africa 50.1 48.2 Europe 23.4 16.8 United States 12.1 13.0 Australia 4.0 3.9 89.6 81.9 100.0 2012 2011 2010 2009 2008 Restated US$m US$m US$m US$m US$m Financed by: Shareholders equity 64.9 60.1 57.7 56.4 54.1 Non-controlling interests 10.9 10.3 11.8 10.2 13.2 Long term finance 13.8 11.5 10.5 11.6 11.1 89.6 81.9 80.0 78.2 78.4 FINANCIAL CALENDAR Financial year-end 30th September 2012 Preliminary announcement of results 20th December 2012 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 SHARE INFORMATION The Company has 35,857,512 shares in issue which are listed on the JSE and the share price at 22nd February 2012, the latest practical date, was R6.65. 3 2012 2011 2010 2009 2008 South Africa Europe United States Australia
Business Review for the year ended 30th September 2012 Introduction The Directors report mixed results by the Group s diverse operations and investments, with asset values appreciating and the consumer environment in the countries in which the Group operates remaining challenging. Marshall Monteagle s objective is to achieve capital growth internationally and pay a steadily progressive dividend over the long term from a diversified range of investments. The Group holds portfolios of leading investments in the U.K., Europe, U.S.A. and the Far East as well as commercial properties in the U.S.A and South Africa. The Group s import and distribution businesses operate internationally and in South Africa it has interests in food processing and logistics. Results Group revenue for the twelve months to 30th September 2012 is up 7% to US$210,183,000 compared to US$196,391,000. Had currencies remained constant sales would have increased by 20%. Operating profit is lower at US$8,650,000 from US$10,703,000, a decrease of 19%. Gain of US$1,090,000 on the date of disposal of equity portfolio owned by South African subsidiary. Group profit before tax decreased to US$9,263,000 from US$10,145,000. The Directors are proposing a final dividend of 1.7 US cents, (2011 1.6 US cents) making a total of 3.3 US cents (2011 3.1 US cents) for the year. Net assets attributable to shareholders increased by 8% to US$1.81 per share from US$1.68 (restated) at 30th September 2011. US$0.75 of net assets per share 42% (2011 43%) are held in Europe and U.S.A. The remaining assets, equivalent to US$1.06 per share 58% (2011 57%) are held predominantly in South Africa. Import and Distribution Our import and distribution business in food and household consumer products achieved a similar level of trade during the financial year. This has been achieved in an extremely challenging economic environment with volatile raw material pricing, inconsistent availability of certain product lines and significant currency movements. This division continues to provide procurement, supply chain and risk management services to multiple retailers, wholesalers and manufacturers in Southern and Central Africa, Indian Ocean Islands and Australia. We remain committed to working with suppliers of quality raw materials, skilled technologists and first world production facilities. Our partnerships with key producers are paramount to the success of our business and we continue to further develop our international network. The review of our supply-chain is on-going to ensure that we provide the most efficient and cost effective channel from factory to shelf for the benefit of our customers. With the many financial and economic imbalances currently being experienced internationally we anticipate continued volatility during the year ahead, but we are well positioned to operate under these conditions. Our coffee business performed well with turnover and profits both up on the prior year. Unfortunately one of the key customers will be roasting their own coffee from March 2013, but management are looking strategically at ways of substituting this volume. The business continues to market its products to multiple retailers and the hospitality sector in South Africa. Our tool and machinery import and distribution businesses had another tough year and despite a small increase in turnover, pressure on margins resulted in lower profits. The company has made a promising start to the new financial year and management are cautiously optimistic that the business will make a better contribution to the Group during the year. 4
Property Portfolio Rental income from our large multi-tenanted industrial property in San Diego decreased slightly during the year. The commercial and industrial property market in Southern California remains challenging, but rents appeared to have stabilised and our property is currently fully let. We remain a long term holder of this quality asset. The Group s South African commercial and light industrial property portfolio had another satisfactory year. Vacancy levels remain below national averages and the value of the portfolio appreciated during the year. Investment Portfolio Despite relatively weak corporate earnings, quantitative easing by central banks provided a boost for equity markets during the year and our portfolios appreciated materially, particularly during the first half of the year. During March 2012 a decision was taken to dispose of the portfolio owned by our South African subsidiary which resulted in a gain of US$1,090,000 at the time of disposal. After paying local taxes and sundry costs, an amount in excess of US$3,000,000 was distributed to the parent company pending reinvestment. The Group continues to hold a diverse portfolio of quality equities in first world markets and has a healthy cash balance for future buying opportunities. Halogen Holdings P.L.C. (unlisted associate) Halogen Holdings owns 78% of the total issued share capital of Heartstone Inns, a developing UK group of country pubs specialising in quality food. Heartstone currently owns and manages five rural pubs. It also manages a further four pubs which are held by a separate investment company which is looking at acquiring further units. Despite the losses incurred to date, Heartstone is cash positive and in April 2012 management successfully completed an extension to the company s largest pub. Deferred Tax The Group has opted for the early adoption of the amendments to IAS12 Income Taxes. In previous years the provision for deferred tax on investment properties was on the value in use basis. The amendment to IAS12 requires the liability to be calculated on the basis that the carrying value will be recovered entirely through sale. We have restated prior year comparatives for the additional liability of US$1,291,000 arising. In addition, we have early adopted the amendments to IAS1 Presentation of Financial Statements, from the Annual Improvements to IFRSs 2009-2011 cycle. This restricts the restatement to the 2011 comparatives. Group Personnel These results could not have been achieved without the hard work of all our employees and the Board thank them most sincerely for their efforts and contribution during the year. Michael Robotham has decided not to seek re-election at the next AGM and Edward Beale has been appointed as a Director and will take over as Chairman after the AGM. Michael has been involved with the Group for almost 40 years, including the last 17 years as Chairman. The Group has undergone major change under his leadership and we have all learnt greatly from him, particularly in his role as Chairman. We would like to thank him for his dedication over the years and wish him all the best in his retirement. Prospects Given the slow and bumpy global recovery and the failure of US and Euro-zone policy makers to tackle their fiscal woes, the Board are cautious about the year ahead. However, our conservative policies and diversity within the Group give us confidence that we can continue to enhance shareholder value in the long term. D.C. Marshall, Chief Executive 26th February 2013 L.H. Marshall, Finance Director 5
Consolidated Statement of Total Comprehensive Income for the year ended 30th September 2012 2011 Restated Notes US$000 US$000 Comprehensive Income: Group revenue 3 210,183 196,391 Operating costs (201,533) (185,688) Operating profit 4 8,650 10,703 Share of associated companies results (196) (287) Income from other investments dividends 518 532 interest 835 976 Interest paid (2,533) (2,820) Exchange (losses)/gains (276) 218 Other income 5 2,265 823 Profit before tax 3 9,263 10,145 Taxation 6 (2,671) (2,792) Profit after tax 6,592 7,353 Profit attributable to owners of the parent 5,055 5,450 Profit attributable to non-controlling interests 1,537 1,903 Basic and fully diluted earnings per share (US cents) 7 14.1c 15.2c Other Comprehensive Income/(Expense): Exchange differences on translation into US Dollars of the financial statements of foreign entities 22(b) (1,363) (5,274) Unrealised gain on revaluation of available for sale investments 14 2,502 165 Reclassification of previously recognised (profits)/losses on disposal of available for sale investments 14 (721) 75 Commercial property fair value adjustments 10 394 (351) Total Comprehensive Income 7,404 1,968 Total Comprehensive Income attributable to owners of the parent 5,908 813 Total Comprehensive Income attributable to non-controlling interests 1,496 1,155 The notes on pages 10 to 32 form part of these Financial Statements. 6
Consolidated Statement of Changes in Equity for the year ended 30th September Ordinary Nonshare Share Other Retained Total controlling Group capital premium Reserves earnings shareholders interests total US$000 US$000 US$000 US$000 US$000 US$000 US$000 Year ended 30th September 2011: Balance at start of year as previously reported 26,893 4,905 7,468 19,659 58,925 11,816 70,741 Prior year adjustment (note 2k) (1,211) (1,211) (1,211) As restated 26,893 4,905 6,257 19,659 57,714 11,816 69,530 Transactions with shareholders Dividends paid (1,074) (1,074) (817) (1,891) Shares cancelled on reorganisation (26,893) (4,905) (31,798) (31,798) Shares issued 8,964 23,606 32,570 32,570 Acquired from non-controlling interests (438) 2,307 1,869 (1,869) Total comprehensive income (4,717) 5,530 813 1,155 1,968 Balances at end of year as restated 8,964 23,606 1,102 26,422 60,094 10,285 70,379 Year ended 30th September 2012 Balance at start of year as previously reported 8,964 23,606 2,393 26,422 61,385 10,285 71,670 Prior year adjustment (note 2 k) (1,291) (1,291) (1,291) As restated 8,964 23,606 1,102 26,422 60,094 10,285 70,379 Transactions with shareholders Dividends paid (note 8) (1,148) (1,148) (923) (2,071) Total comprehensive income (note 22) 2,323 3,585 5,908 1,496 7,404 Balances at end of year 8,964 23,606 3,425 28,859 64,854 10,858 75,712 The notes on pages 10 to 32 form part of these Financial Statements. 7
Consolidated Statement of Financial Position at 30th September 2012 2011 Restated Notes US$000 US$000 Assets Non current assets Investment property 9 29,925 29,065 Property, plant and equipment 10 9,926 9,912 Goodwill 11 286 525 Deferred taxation 19 920 412 Investment in associated company 12 1,679 1,511 Investment in joint venture 13 173 Investments 14 14,653 16,252 57,562 57,677 Current assets Inventories 15 28,249 25,521 Accounts receivable 16 40,838 30,570 Other financial assets 27 121 1,341 Tax recoverable 484 294 Cash and bank balances 24 15,859 14,406 85,551 72,132 Current liabilities Accounts payable 17 (47,519) (42,781) Other financial liabilities 27 (85) Tax payable (225) (599) Net current assets 37,722 28,752 Total assets less current liabilities 95,284 86,429 Non current liabilities Accounts payable 18 (13,811) (11,531) Deferred taxation 19 (5,761) (4,519) 75,712 70,379 Capital and reserves Called up share capital 20 8,964 8,964 Share premium account 21 23,606 23,606 Other reserves 22 3,425 1,102 Retained earnings of the company 28,859 26,422 Equity attributable to owners of the parent 64,854 60,094 Non-controlling interests 10,858 10,285 75,712 70,379 Approved and authorised for issue by the Board on 26th February 2013 D.C. Marshall Chief Executive L.H. Marshall Finance Director The notes on pages 10 to 32 form part of these Financial Statements. 8
Consolidated Statement of Cash Flow for the year ended 30th September 2012 2011 Notes US$000 US$000 Revenue 210,183 196,391 Operating costs (201,533) (185,688) Operating activities Operating profit 8,650 10,703 Adjustment: Depreciation 10 887 715 Changes in working capital: Increase in inventories (3,026) (1,695) Increase in debtors (9,345) (4,793) Increase in creditors 3,923 7,359 Cash generated by operations 1,089 12,289 Interest paid (2,533) (2,820) Taxation paid (2,503) (2,988) Cash (outflow)/inflow from operating activities (3,947) 6,481 Investment activities Purchase of and improvements to tangible non-current assets 9 & 10 (797) (2,023) Proceeds of disposal of tangible assets 117 116 Acquisition of investments 14 (877) (4,015) Investment in associate (365) Investment in joint venture (173) Proceeds of disposal of investments 5,230 3,275 Dividends received 518 532 Interest received 835 976 Cash inflow/(outflow) from investment activities 4,488 (1,139) Cash inflow before financing 541 5,342 Financing activities Increase in long term debt 2,281 1,078 Cost of non-controlling interests acquired (1,439) Cost of delisting subsidiary (14) Dividends paid Group shareholders 8 (1,148) (1,074) Dividends paid non-controlling interests of subsidiaries (923) (817) Cash inflow/(outflow) from financing activities 196 (2,252) Increase in cash and cash equivalents 24 737 3,090 Cash and cash equivalents at 1st October 11,538 8,587 Effect of foreign exchange rate changes (102) (139) Cash and cash equivalents at 30th September 24 12,173 11,538 The notes on pages 10 to 32 form part of these Financial Statements. 9
Notes to the Consolidated Financial Statements for the year ended 30th September 2012 1. General The Company is incorporated as a public limited company in Jersey, Channel Islands. In view of the international nature of the Group s operations, and as permitted by Jersey law, the amounts shown in these Consolidated Financial Statements are presented in United States dollars (US$), which is the functional currency of the Group. Marshall Monteagle PLC has been part of a JSE Limited pro-active monitoring exercise which identified the need for the Company to expand on its accounting policy relating to the reorganisation of the holding company that occurred during the 2011 financial year. A SENS announcement was made advising shareholders of the expanded accounting policy, included in these financial statements as the final paragraph in note 2 (b) Basis of Consolidation. 2. Accounting Policies (a) Statement of compliance and basis of preparation These Consolidated Financial Statements have been prepared in accordance with International Financial Reporting Standards (IFRS), issued by the International Accounting Standards Board (IASB), JSE Listing Requirements and in accordance with Article 105 of the Companies (Jersey) Law, 1991. The preparation of Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The most significant estimates and assumptions relate to the residual value and lives of tangible assets; recognition of deferred tax assets based on recoverability; and any possible impairment of assets. The estimates and underlying assumptions are reviewed on a regular basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and in future periods if applicable. The most significant techniques for estimation are described in the accounting policies below. At the date of authorisation of these Consolidated Financial Statements the IASB and the International Financial Reporting Interpretations Committee (IFRIC) have issued new standards and interpretations and amended or revised standards, as set out in note 29, which do not apply to the reporting period covered by these financial statements. The Group has not opted for early adoption of any of these pronouncements, other than IAS12 and IAS1 from the Annual Improvements to IFRSs 2009-2011 cycle, as detailed in note 2(k). The Directors do not expect that the adoption of these other pronouncements, where applicable, would have a material impact, other than on presentation, on the Consolidated Financial Statements in the period of initial application. None of the new standards, amendments and interpretations are expected to be significant to the Group s Consolidated Financial Statements. The relevant revised standards will be adopted in the Group s financial statements for the year beginning 1st October 2012. The principal accounting policies of the Group, which are set out below, comply with IFRS in all respects and with Jersey legal requirements. These policies, with the exception of that relating to deferred taxation noted below, have been consistently applied. (b) Basis of consolidation The Consolidated Financial Statements, which have been prepared on the Historical Cost basis except for the revaluation of certain non-current assets and financial instruments, incorporate the Financial Statements of the Company and its subsidiary undertakings (all of which are companies), being those companies in which the Group, directly or indirectly, has an interest and is able to exercise control over the operations. Separate disclosure is made of non-controlling interests. The results of subsidiaries acquired during the year are included from the date of acquisition and for those subsidiaries disposed of during the year up to the date of disposal. On acquisition, the purchase consideration is allocated over the fair values of net tangible assets. Gains on bargain purchases arising on consolidation are recognised on acquisition. Such gains arise when an entity is acquired for a consideration that is below the fair value of the entity being acquired. 10
2. Accounting Policies (continued) (b) Basis of consolidation (continued) All inter-group transactions and balances are eliminated on consolidation. During the financial period ending on 30 September 2011 the Marshall Monteagle Group underwent a reorganisation. The assets and liabilities of the previous holding company of the Group, Marshall Monteagle Holdings S.A. (MMH) were transferred to the Company for an issue of shares. The Company issued 35,857,499 new shares at 25 US cents per share to MMH in consideration for this transfer. The assets and liabilities of MMH were valued on acquisition by the Company at their carrying value in the accounts of MMH immediately prior to their transfer and the difference between this value and the par value of the shares issued has been taken to share premium. MMH was placed into voluntary liquidation and the Company, based in Jersey, assumed the position of the holding company of the Group. On liquidation MMH had no liabilities and its only assets were shares in the Company. These shares were distributed to MMH s shareholders as a liquidation dividend. (c) Associated companies An associated company is one in which the Group s interest is substantial and which the Group does not control but over which it is able to exercise a significant influence, having due regard to the disposition of the other shareholdings. The Consolidated Statement of Comprehensive Income includes the Group s share of the results of associates (equity accounting). The results of associates acquired during the year are included from the date of acquisition. The results of associates disposed of during the year are included up to the date of disposal. The carrying value of associates in the Consolidated Statement of Financial Position is cost plus share of undistributed reserves. After application of the equity method, including recognising the associate s results, the Group applies IAS 39 Financial Instruments: Recognition and Measurement to determine whether it is necessary to recognise any additional impairment loss with respect to its net investment in the associate or joint venture. The entity also applies IAS 39 to determine whether any additional impairment loss is recognised with respect to its interest in the associate or joint venture that does not constitute part of the net investment and the amount of that impairment loss. (d) Joint ventures A joint venture is one in which the Group has joint control and is entitled to a share of the ventures results. The group accounts for its interests in joint ventures on an equity accounting basis. (e) Revenue Revenue comprises the value receivable for the sale of goods (such as tools and non-perishable foodstuffs) and property income. Revenue is stated after eliminating sales within the Group. Rental income on properties is recognised on a straight line basis over the lease term. Revenue is recognised when, in respect of goods, the significant risks and rewards of ownership have passed to the buyer, and in respect of services at the stage of completion at the reporting date, when the outcome can be measured reliably. Revenue is included when it and the related costs can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group. (f) Interest and dividends Interest is recognised using the effective interest rate method. Dividends are recognised when the shareholder s right to receive payment has been established. 11
Notes to the Consolidated Financial Statements (continued) for the year ended 30th September 2012 2. Accounting Policies (continued) (g) Impairment, depreciation and revaluation (i) Impairment The carrying amounts of the Group s and Company s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If there is any indication that an asset may be impaired, its recoverable amount is estimated and any impairment loss recognised immediately. The recoverable amount is the higher of its net selling price and its value in use. (ii) Investment properties Investment properties are those held to earn rental income and/or for capital growth. These properties are initially recognised at cost and subsequently at fair value. These properties are independently valued on an open market basis on a regular basis. Changes in fair value are included as part of profit and loss and subsequently transferred from retained income to fair value reserve as non-distributable. These properties are not depreciated; all maintenance and running costs are charged in operating costs in the year that they occur. (iii) Commercial property These are properties which are held for use in the production and supply of goods or services and/or for administrative purposes. They are carried at revalued amounts, less any subsequent depreciation or subsequent impairment losses. They are revalued on a regular basis. Any surplus on revaluation in excess of any deficit previously written off in respect of that property is taken to other comprehensive income. Any excess of deficits arising over existing related other reserves are taken to other comprehensive income. On disposal of revalued assets, amounts in other reserves relating to that asset are transferred to retained earnings. (iv) Plant and equipment Plant and equipment, vehicles and furniture are carried at cost less depreciation calculated on the straight line method at the following annual rates: Plant 10% Equipment 20% 50% Vehicles 20% Commercial property 10% 20% Depreciation has been calculated on the straight line basis to write off the cost, less any expected residual value, of non-current assets over their useful lives. These are reviewed annually. On disposal, gains or losses are included in profit and loss. (h) Investments Listed shares held by the Group that are traded in an active market are classified as being available for sale and are stated at fair value. Gains and losses on disposal of investments are included in profit and loss, and changes in fair value are included as Other Comprehensive Income, in the Consolidated Statement of Total Comprehensive Income. On disposal previously recognised fair value adjustments are reclassified from Other Comprehensive Income to profit and loss. (i) Goodwill Goodwill recognised on the acquisition of an enterprise is reviewed annually for impairment on fair value less costs to sell. (j) Inventories Inventories (primarily tools and non-perishable foodstuffs) are stated at the lower of cost and net realisable value. Cost is determined on the first-in, first-out method or the average cost method for raw materials. Net realisable value is the estimated selling price in the ordinary course of business, less completion and selling costs. Obsolete, redundant and slow moving inventories are identified on a regular basis and are written down to their estimated realisable values. 12
2. Accounting Policies (continued) (k) Taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss. Except to the extent it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively. Current Income tax Current tax is the expected tax payable for the year, using tax rates enacted or substantively enacted at the reporting date in the countries where the Company and its subsidiaries, joint ventures and associates operate and generate taxable income, and any adjustment to tax payable in respect of previous years. Management periodically evaluates positions taken with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred tax Deferred tax is recognised using the liability method, providing for temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements for financial reporting purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of an asset or liability in a transaction (other than a business combination) that at the time of the transaction affects neither accounting nor taxable profit or loss, and differences relating to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at tax rates (and laws) that have been enacted or substantively enacted at the reporting date and are expected to apply to temporary differences when they reverse. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity. Deferred tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures except for deferred tax liabilities where the timing of the reversal of the temporary differences is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognised for unused tax losses of deductible temporary differences only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax assets are reviewed at each exporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Change in accounting policy The Group has opted for the early adoption of the provisions of IAS12 and provided for deferred taxation on investment properties on the estimated realisable value, in place of the value in use basis used in prior years. Prior year restatements are shown in the Statements of Financial Position and the related notes. The aggregate effect of the change in accounting policy on the financial statements for the year ended 30 September 2012 is: US$000 Statement of financial position Increase in deferred tax liability (1,340) Decrease in other reserves (1,340) Decrease in current year profit or loss (49) Statement of comprehensive income Increase in deferred tax provision (49) 13
Notes to the Consolidated Financial Statements (continued) for the year ended 30th September 2012 2. Accounting Policies (continued) (l) Leases Where the substance of a lease transfers substantially all of the risks and rewards incidental to ownership, it is a finance lease. If a lease is not a finance lease it is classified as an operating lease. The Group as a finance lessor lease income is recognised on a straight line basis, based on a pattern reflecting a constant periodic rate of return on the net investment in the lease. Finance lease receivables are recognised in the Statement of Financial Position. The Group as a finance lessee the costs of leasing other assets (the finance charge element of the lease payment) are allocated to each period of the lease to produce a constant periodic rate on the remaining balance of the liability. The leased assets and lease liabilities are recognised in the Consolidated Statement of Financial Position. The Group as an operating lessor lease income is recognised on a straight line basis over the term of the lease. The difference between amounts recognised and contractual income is recognised as an operating lease asset. The Group as an operating lessee the costs of leasing other assets are charged to income on a straight line basis over the term of the lease. The difference between amounts recognised and contractual income is recognised as an operating lease liability. (m) Employee costs The costs of short term employee benefits are recognised in the period in which the service is rendered. The policy of the Group is to provide retirement benefits through defined contribution schemes, for which the Group has no further liability. Current contributions to pension funds are charged in operating costs as incurred. (n) Foreign currencies All exchange gains and losses on settlement of foreign currency transactions or the translation of monetary assets and liabilities at reporting date exchange rates are included in the income statement of the relevant Group company. On consolidation, total comprehensive income statements of companies expressed in a currency other than US Dollar are translated at average monthly rates of exchange for the year, which are deemed to reflect with reasonable accuracy the changes in exchange rates over the year. Assets and liabilities denominated in foreign currencies at the reporting date are translated at the rates of exchange at the reporting date. Differences on translation arising in changes in the US Dollar value of overseas net assets held at the beginning of the accounting period to that at the end of the period are included in the Other Comprehensive Income. The exchange loss or profit arising from the difference in the average monthly rates used for the Consolidated Statement of Total Comprehensive Income and the rates at the reporting date used in the Consolidated Statement of Financial Position purposes is shown in Other Comprehensive Income. The rates used are: Statement of Total Statement of Comprehensive Income Financial Position 2012 2011 2012 2011 US$ US$ US$ US$ Australia Aus$1 = 1.037 1.031 1.040 1.0289 South Africa ZAR1 = 0.124 0.144 0.121 0.124 Europe 1 = 1.300 1.398 1.287 1.342 United Kingdom 1 = 1.584 1.608 1.615 1.558 14
2. Accounting Policies (continued) (o) Cash and cash equivalents For the purposes of the Consolidated Statement of Cash Flow, cash and cash equivalents comprise cash in hand, deposits held at call with banks, and investments in money market instruments net of bank overdrafts. In the Statement of Financial Position bank overdrafts are included in accounts payable. Where a right of offset exists account balances are aggregated. (p) Provisions Provisions are recognised when the Company has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of these cash flows. Provisions of a short-term nature are not discounted. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. (q) Financial instruments Financial Assets Regular purchases and sales of financial assets are recognised on the date on which the Group commits to purchase or sell the asset. Financial assets are derecognised when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownerships. The principal financial assets are the portfolio investments and the investments in associates, cash and bank balances and the accounts receivable. The listed investments are stated at fair value; cash and bank balances are recorded at amortised cost; accounts receivable are initially valued at cost and subsequently valued at amortised cost, using the effective interest method. Financial Liabilities Financial liabilities are classified according to the substance of the contractual agreements entered into. The principal financial liabilities are bank loans and accounts payable, which are initially valued at cost, and subsequently at amortised cost, using the effective interest method. Derivative financial instruments Derivative financial instruments, which are not designated as hedging instruments, consisting of foreign exchange contracts and interest rate swaps, are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Derivatives are classified as financial assets at fair value through profit and loss. Fair value is determined by market value quotes received from independent financial institutions. Changes in the fair value of derivative financial instruments are recognised in profit and loss as they arise. (r) Segmental reporting Operating segments are reported in a manner consistent with internal reporting provided to the Group Board which is responsible for allocating resources and assessing performance of the operating segments. Details of the attribution to segments of income, assets and liabilities are set out in note 3. (s) Going concern The Directors have established that there have been no events not in the ordinary course of business since the reporting date; all borrowing facilities are still in place; the substantial liquid resources held in the share portfolios are still available; and that there have been no major capital expenditure nor acquisitions since the reporting date. The Directors therefore believe that the going concern basis is appropriate for the Group. 15
Notes to the Consolidated Financial Statements (continued) for the year ended 30th September 2012 3. Segmental Reporting Primary reporting format business segments For management purposes the Group is organised on a worldwide basis into the following main business segments: Import and distribution Property Other activities Trade in tools, food and household consumer products, primarily imports to, and exports from, South Africa. Investment properties in U.S.A. and South Africa. Mainly transactions relating to the share portfolios, profits on disposals of tangible and intangible non-current assets and local head office costs. There are no sales between business segments. Segment assets consist of property, plant and equipment, inventories and receivables and exclude cash balances. Segment liabilities are operating liabilities and exclude items such as taxation and borrowings. Unallocated assets and liabilities are cash balances, taxation and borrowings. Capital expenditure comprises additions to property, plant and equipment. 2012 2011 Segmental analysis of results US$000 US$000 Revenue Result Revenue Result Import and distribution * 205,641 7,913 191,548 9,240 Property 4,526 1,664 4,833 1,730 Other activities ** 16 150 10 1,460 210,183 9,727 196,391 12,430 Share of associates loss (196) (287) Interest paid and similar charges (2,533) (2,821) 6,998 9,322 Other income 2,265 823 Profit before tax 9,263 10,145 * Includes sales to the Group s major customers representing 10% or more Group revenue: Company A 109,658 83,928 Company B 33,443 35,193 ** Revenue of Other activities excludes dividend income and the proceeds of sales of investments and tangible assets, the profits of which are included in Other income. Net assets/ Capital Depreciation Assets Liabilities (liabilities) expenditure charge US$000 US$000 US$000 US$000 US$000 Segmental analysis of net assets 30th September 2012 Import and distribution 76,589 (46,143) 30,446 673 679 Property 33,685 (1,240) 32,445 124 194 Associate other 1,679 1,679 Other activities (including investments) 15,275 (223) 15,052 Unallocated (including cash, tax and debt) 15,885 (19,795) (3,910) 14 Consolidated total 143,113 (67,401) 75,712 797 887 16
3. Segmental Reporting (continued) Net assets/ Capital Depreciation Assets Liabilities (liabilities) expenditure charge US$000 US$000 US$000 US$000 US$000 Segmental analysis of net assets 30th September 2011 (restated) Import and distribution 64,379 (37,900) 26,479 1,887 651 Property 32,066 (984) 31,082 136 50 Associate other 1,510 1,510 Other activities (including investments) 16,643 (1,078) 15,565 14 Unallocated (including cash, tax and debt) 15,211 (19,468) (4,257) Consolidated total 129,809 (59,430) 70,379 2,023 715 Secondary reporting format geographical segments The Group operates in the following geographic areas. Europe Location of part of the Group s import and distribution business, the non-trading parent company and most of the Group s investment portfolio. Australia Location for part of the Group s import and distribution business. United States Part of the Group s property portfolio and some of the Group s investment portfolio are located here. South Africa Location of the bulk of the Group s import and distribution business and part of the Group s property portfolio. 2012 2011 Group Total Capital Group Total Capital revenue net assets expenditure revenue net assets expenditure US$000 US$000 US$000 US$000 US$000 US$000 Europe 37,099 20,740 31,939 16,779 Australia 2,353 3,790 29 2,483 3,724 105 United States 951 6,384 1,011 7,145 Total outside South Africa 40,403 30,914 29 35,433 27,648 105 South Africa 169,780 44,798 768 160,958 42,731 1,918 Total 210,183 75,712 797 196,391 70,379 2,023 Total assets (before non-controlling interests) and capital expenditure are shown by the geographical area in which the assets are located. 4. Operating Profit 2012 2011 Restated US$000 US$000 Operating profit of US$8,650,000 (2011- US$10,703,000) is stated after deducting: Depreciation 887 715 Operating lease costs Premises 908 883 Plant, equipment and vehicles 56 14 Employee benefits 12,455 12,955 Including contributions to post employment plans of US$435,000 (2011 US$581,000) Auditors fees of the Company and its subsidiaries Audit related 425 400 Other 3 11 17
Notes to the Consolidated Financial Statements (continued) for the year ended 30th September 2012 5. Other Income 2012 2011 Restated US$000 US$000 Income Investment property revaluations 1,214 918 Fair value adjustments on derivative instruments 14 12 Profit on disposal of investments 1,052 24 Total income 2,280 954 Expense Reorganisation costs (15) (18) Loss on disposal of non-current tangible assets (113) (15) (131) Net income 2,265 823 6. Taxation Corporate tax current year 1,710 2,015 Withholding tax 459 790 Deferred taxation (note 19) 502 (13) 2,671 2,792 Reconciliation of the expected tax charge of Group companies to the actual tax charge is as follows: Expected tax charge at standard statutory rates * 2,375 2,486 Withholding taxes 459 790 Effect of non-standard rates of tax ** (104) (443) Losses (utilised)/unrelieved *** (59) 106 Under provisions in prior years (139) Other differences (8) 2,671 2,792 * The expected tax charge is the aggregate of that in each national jurisdiction. There have been no significant changes in the tax rates in any of the jurisdictions in which the Group operates. ** Differing rates of tax arise when certain items of profits are subject to lower rates or exemptions from the basic statutory rates. ***Tax losses which are probably not recoverable and cannot be transferred between the various areas of operation are not recognised. 7. Earnings Per Share 2012 2011 Restated Headline earnings per share, based on headline earnings and the weighted average number of shares in issue 12.7c 12.7c Reconciliation between basic and headline earnings US$000 US$000 Basic earnings 5,055 5,450 Adjusted for: Investment property revaluations (1,214) (918) Reclassification of previously recognised losses on disposal of available for sale investments 721 (75) Loss on disposal of non-current tangible assets 113 Headline earnings 4,562 4,570 18
8. Dividends 2012 2011 Restated US$000 US$000 Interim/Second interim, dividend 1.6 US cents per share (2011 US 1.5c) 574 537 Final dividend in respect of prior year 1.6 US cents per share (2011 nil) 574 First interim dividend * (In lieu of 2010 final) 1.5 US cents per share 537 Total dividends paid in the year 3.2 US cents (2011 * 3.0 US cents) 1,148 1,074 * Following the liquidation of Marshall Monteagle Holdings S.A. ( MMHSA ), a first interim dividend was declared by the Company in lieu of what would have been a final dividend paid by MMHSA of 1.50 US cents per share for the year ended 30th September 2010. 9. Investment Properties Brought forward 1st October: At fair value 29,065 30,824 Translation adjustment (note 2 (n)) (442) (2,664) 28,623 28,160 Fair value adjustments 1,214 918 Lease smoothing adjustment (25) (137) Improvement expenditure 113 124 Balances carried forward 30th September at fair value 29,925 29,065 Analysis of net book value: United States 9,130 8,985 South Africa 20,795 20,080 29,925 29,065 The investment properties were valued at 30th September 2012 in the United States by D. Asaro, Senior Vice President of C.B. Richard Ellis in San Diego and in South Africa by Roger Hunting MRICS DIP T.P. MIV(SA) and S. Wolffs MIV(SA) of C.B. Richard Ellis in Durban, all suitably independent valuers, at current market values, on an open market basis. A deduction from the valuation amounts is made for the amortised lease receivables recognised in the statement of financial position in terms of IAS17 (leases). All properties were rent producing, and operating costs of US$2,862,000 (2011 US$3,103,000) are recognised in profit and loss. Certain investment properties were mortgaged at 30th September 2012 to secure long term finance (see note 18). 19
Notes to the Consolidated Financial Statements (continued) for the year ended 30th September 2012 10. Property, Plant and Equipment Commercial 2012 Plant Equipment Vehicles property Total Year ended 30 September 2012 US$000 US$000 US$000 US$000 US$000 At cost or valuation Brought forward 1st October: At cost or valuation 1,554 2,673 1,622 6,546 12,395 Translation adjustment (note 2 (n)) (16) (41) (16) (106) (179) 1,538 2,632 1,606 6,440 12,216 Revaluations * 500 500 Impairments Acquisitions Additions 217 176 281 10 684 Disposals (29) (41) (105) (175) Balances carried forward 30th September 1,726 2,767 1,782 6,950 13,225 Depreciation Brought forward 1st October 676 1,308 499 2,483 Translation adjustment (note 2 (n)) 11 (27) (2) (18) 687 1,281 497 2,465 Charge for the year 295 192 226 174 887 Translation adjustment (note 2 (n)) (7) (5) (5) (5) (22) Disposals (13) (18) (31) Balances carried forward 30th September 975 1,455 700 169 3,299 Net book value 30th September 2012 751 1,312 1,082 6,781 9,926 Commercial 2011 Plant Equipment Vehicles property Total Year ended 30 September 2011 US$000 US$000 US$000 US$000 US$000 At cost or valuation Brought forward 1st October: At cost or valuation 1,279 2,786 1,026 7,808 12,899 Translation adjustment (note 2 (n)) (119) (292) (106) (896) (1,413) 1,160 2,494 920 6,912 11,486 Revaluations * (390) (390) Impairments (260) (260) Acquisitions Additions 654 457 764 24 1,899 Disposals (278) (62) (340) Balances carried forward 30th September 1,554 2,673 1,622 6,546 12,395 Depreciation Brought forward 1st October 573 1,103 410 2,086 Translation adjustment (note 2 (n)) (37) (64) (36) (137) 536 1,039 374 1,949 Charge for the year 185 329 201 715 Translation adjustment (note 2 (n)) (45) (2) (23) (70) Disposals (58) (53) (111) Balances carried forward 30th September 676 1,308 499 2,483 Net book value 30th September 2011 878 1,365 1,123 6,546 9,912 20