Annual Financial Statements for the year ended 28 February 2010
General Information Country of incorporation and domicile Nature of business and principal activities Directors Registered office South Africa Investment in movable & immovable property M W Bouwer W S Visser D C Kemp 46 First Avenue Westdene Bloemfontein 9301 Postal address Suite 165 Postnet X01 Brandhof 9324 Bankers Auditors Secretary ABSA Bank PricewaterhouseCoopers Inc. Registered Auditor J Schoeman registration number 2004/031023/06 1
Index The reports and statements set out below comprise the group annual financial statements presented to the shareholders: Directors' Responsibilities and Approval 3 Independent Auditor's Report 4-5 Directors' Report 6 Statement of Financial Position 7 Statement of Comprehensive Income 8 Statement of Changes in Equity 9 Statement of Cash Flows 10 Page Accounting Policies 11-16 Notes to the Annual Financial Statements 17-28 The following supplementary information does not form part of the group annual financial statements and is unaudited: Detailed Income Statement 29-30 2
Directors' Report The directors submit their report for the year ended 28 February 2010. 1. Review of activities Main business and operations The group is engaged in investment in movable & immovable property and operates principally in South Africa. The operating results and state of affairs of the company are fully set out in the attached group annual financial statements and do not in our opinion require any further comment. Net profit of the group was R 2 036 017 (2009: profit R 656 171), after taxation of R 802 434 (2009: R (258 691)). 2. Authorised and issued share capital There were no changes in the authorised or issued share capital of the group during the year under review. 3. Dividends No dividends were declared or paid to shareholders during the year. 4. Directors The directors of the company during the year and to the date of this report are as follows: Name M W Bouwer W S Visser D C Kemp 5. Secretary The secretary of the company is J Schoeman. 6. Interest in subsidiaries The company obtained an 100% interest in its subsidiary, Friedshelf 370 (Pty) Ltd, on 13 December 2005 through the issue of 860 000 ordinary par value shares of R 1 each at a total share premium of R 3 360 000. Details of the company's investment in subsidiaries are set out in note 7. 7. Auditors PricewaterhouseCoopers Inc. will continue in office in accordance with section 270(2) of the Companies Act. 6
Statement of Financial Position 2010 2009 2010 2009 Notes R R R R Assets Non-Current Assets Investment property 4 24 080 000 21 137 354 - - Property, plant and equipment 5 68 465 38 192 - - Goodwill 6 995 877 995 877 - - Investments in subsidiaries 7 - - 4 200 000 4 200 000 Other financial assets 8 4 245 763 4 177 261 4 245 763 4 177 261 Deferred income tax 9 353 770 594 220 125 904 267 301 29 743 875 26 942 904 8 571 667 8 644 562 Current Assets Other financial assets 8 500 000 2 000 000 5 472 261 5 188 574 Current income tax receivable 1 985 5 413 - - Trade and other receivables 10 656 791 548 000 580 226 548 000 Cash and cash equivalents 11 14 279 5 635 559-1 173 055 2 559 048 6 053 046 5 736 574 Total Assets 30 916 930 29 501 952 14 624 713 14 381 136 Equity and Liabilities Equity Share capital 12 15 510 283 15 510 283 15 510 283 15 510 283 Accumulated loss 5 585 408 3 549 391 (1 153 773) (1 517 367) Liabilities 21 095 691 19 059 674 14 356 510 13 992 916 Non-Current Liabilities Mortgage bonds 13 4 274 790 5 710 522 - - Deferred income tax 9 4 072 961 3 510 977 - - 8 347 751 9 221 499 - - Current Liabilities Other financial liabilities 14 103 746 35 535 - - Mortgage bonds 13 801 255 582 049 - - Trade and other payables 15 568 487 603 178 268 203 388 203 Bank overdraft 11-17 - 17 1 473 488 1 220 779 268 203 388 220 Total Liabilities 9 821 239 10 442 278 268 203 388 220 Total Equity and Liabilities 30 916 930 29 501 952 14 624 713 14 381 136 The notes on pages 17 to 28 are an integral part of these financial statements. 7
Statement of Comprehensive Income 2010 2009 2010 2009 Notes R R R R Revenue 16 2 227 763 2 221 817 - - Other income 31 969 690 - - Operating expenses (1 429 081) (1 292 541) (63 513) (375 301) Operating profit (loss) 830 651 929 966 (63 513) (375 301) Investment revenue 18 568 513 851 893 568 504 851 687 Fair value adjustments 2 007 088 (332 646) - - Finance costs 19 (567 801) (1 051 733) - (109 652) Profit (loss) before taxation 2 838 451 397 480 504 991 366 734 Income tax expense 20 (802 434) 258 691 (141 397) 267 301 Profit (loss) for the year 2 036 017 656 171 363 594 634 035 Other comprehensive income - - - - Total comprehensive income (loss) 2 036 017 656 171 363 594 634 035 The notes on pages 17 to 28 are an integral part of these financial statements. 8
Statement of Changes in Equity Share capital Share Total share Accumulated Total equity premium capital loss R R R R R Balance at 01 March 2008 3 344 100 12 166 183 15 510 283 2 893 220 18 403 503 Changes in equity Total comprehensive income for the year - - - 656 171 656 171 Total changes - - - 656 171 656 171 Balance at 01 March 2009 3 344 100 12 166 183 15 510 283 3 549 391 19 059 674 Changes in equity Total comprehensive income for the year - - - 2 036 017 2 036 017 Total changes - - - 2 036 017 2 036 017 Balance at 28 February 2010 3 344 100 12 166 183 15 510 283 5 585 408 21 095 691 Note(s) 12 12 12 Balance at 01 March 2008 3 344 100 12 166 183 15 510 283 (2 151 402) 13 358 881 Changes in equity Total comprehensive income for the year - - - 634 035 634 035 Total changes - - - 634 035 634 035 Balance at 01 March 2009 3 344 100 12 166 183 15 510 283 (1 517 367) 13 992 916 Changes in equity Total comprehensive income for the year - - - 363 594 363 594 Total changes - - - 363 594 363 594 Balance at 28 February 2010 3 344 100 12 166 183 15 510 283 (1 153 773) 14 356 510 Notes 12 12 12 The notes on pages 17 to 28 are an integral part of these financial statements. 9
Statement of Cash Flows 2010 2009 2010 2009 Notes R R R R Cash flows from operating activities Cash receipts from customers 2 220 541 2 221 817 - - Cash paid to suppliers and employees (1 523 334) (798 294) (215 739) (1 672) Cash generated from (used in) operations 22 697 207 1 423 523 (215 739) (1 672) Interest income 568 513 851 893 568 504 851 687 Finance costs (567 801) (1 051 733) - (109 652) Tax received (paid) 23 3 428 (1 986) - - Net cash from operating activities 701 347 1 221 697 352 765 740 363 Cash flows from investing activities Purchase of property, plant and equipment 5 (40 310) - - - Purchase of investment property 4 (935 559) - - - Movement in loans 1 431 498 (79 390) (352 189) (5 385) Sale of other asset 3 - - - - Net cash from investing activities 455 629 (79 390) (352 189) (5 385) Cash flows from financing activities Movement in mortgage bonds (1 216 526) (479 242) - - Movement in other financial liabilities 68 211 (781 974) - (740 000) Net cash from financing activities (1 148 315) (1 261 216) - (740 000) Total cash, cash equivalents and bank overdrafts movement for the year Cash, cash equivalents and bank overdrafts at the beginning of the year Total cash, cash equivalents and bank overdrafts at end of the year 8 661 (118 909) 576 (5 022) 5 618 124 527 (17) 5 005 11 14 279 5 618 559 (17) The notes on pages 17 to 28 are an integral part of these financial statements. 10
Accounting Policies 1. Basis of preparation The group annual financial statements have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice, and the Companies Act of South Africa. The group annual financial statements have been prepared on the historical cost basis, except for the measurement of investment properties and certain financial instruments at fair value, and incorporate the principal accounting policies set out below. They are presented in South African Rands. These accounting policies are consistent with the previous period. 1.1 Consolidation Basis of consolidation The consolidated group annual financial statements incorporate the group annual financial statements of the company and all entities which are controlled by the company. Control exists when the company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are de-consolidated from the date that control ceases. The purchase method of accounting is used to account for the acquisition of subsidiaries by the group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the group s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group. The results of subsidiaries are included in the consolidated group annual financial statements from the effective date of acquisition to the effective date of disposal. All intra-group transactions, balances, income and expenses are eliminated in full on consolidation. 1.2 Significant judgements and sources of estimation uncertainty In preparing the group annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the group annual financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the group annual financial statements. Significant judgements include: Fair value estimation The fair value of investment property is determined annually by external valuers. They use estimated discounted cash flows projections to value the investment property. 11
Accounting Policies 1.3 Investment property The group owns property that is held to earn long-term rental income and for capital appreciation. This property is not occupied by the group. Investment property is recognised as an asset when, and only when, it is probable that the future economic benefits that are associated with the investment property will flow to the enterprise, and the cost of the investment property can be measured reliably. Investment property is initially recognised at cost. Transaction costs are included in the initial measurement. Costs include costs incurred initially and costs incurred subsequently to add to, or to replace a part of, or service a property. If a replacement part is recognised in the carrying amount of the investment property, the carrying amount of the replaced part is derecognised. Fair value Subsequent to initial measurement investment property is measured at fair value representing the open market value determined annually by external valuers. Fair value is based on active market prices, adjusted, if necessary, for any differences in the nature, location or condition of the specific asset. If this information is not available, the group uses alternative valuation methods such as recent prices on less active markets or discounted cash flow projections. These valuations are reviewed annually. A gain or loss arising from a change in fair value is included in net profit or loss for the period in which it arises. 1.4 Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when: it is probable that future economic benefits associated with the item will flow to the company; and the cost of the item can be measured reliably. Property, plant and equipment is initially measured at cost. Property, plant and equipment is carried at cost less accumulated depreciation and any impairment losses. The useful lives of items of property, plant and equipment have been assessed as follows: Equipment 6 years 1.5 Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the company s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Impairment losses on goodwill are not reversed. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. 1.6 Investments in subsidiaries group annual financial statements In the company s separate group annual financial statements, investments in subsidiaries are carried at cost less any accumulated impairment. The cost of an investment in a subsidiary is the aggregate of: the fair value, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the company; plus any costs directly attributable to the purchase of the subsidiary. 12
Accounting Policies 1.6 Investments in subsidiaries (continued) An adjustment to the cost of a business combination contingent on future events is included in the cost of the combination if the adjustment is probable and can be measured reliably. 1.7 Financial instruments Initial recognition and measurement Financial instruments are recognised initially when the group becomes a party to the contractual provisions of the instruments. The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are measured initially at fair value, except for equity investments for which a fair value is not determinable, which are measured at cost and are classified as available-for-sale financial assets. For financial instruments which are not at fair value through profit or loss, transaction costs are included in the initial measurement of the instrument. Regular way purchases of financial assets are accounted for at trade date. Subsequent measurement Loans and receivables are subsequently measured at amortised cost, using the effective interest method, less accumulated impairment losses. Financial liabilities at amortised cost are subsequently measured at amortised cost, using the effective interest method. Loans to (from) group companies These include loans to and from holding companies, fellow subsidiaries, subsidiaries, joint ventures and associates and are recognised initially at fair value plus direct transaction costs. Loans to group companies are classified as loans and receivables. Loans from group companies are classified as financial liabilities measured at amortised cost. Loans to shareholders, directors, managers and employees These financial assets are classified as loans and receivables. Trade and other receivables Trade receivables are measured at initial recognition at fair value, and are subsequently measured at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. The allowance recognised is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition. Trade and other receivables are classified as loans and receivables. 13
Accounting Policies 1.7 Financial instruments (continued) Trade and other payables Trade payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits, and other short-term highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. These are initially and subsequently recorded at fair value. Bank overdraft and borrowings Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the group s accounting policy for borrowing costs. 1.8 Income tax Current income tax assets and liabilities Current income tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current income tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax assets and liabilities Deferred income tax is recognised, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. A deferred income tax liability is recognised for all taxable temporary differences, except to the extent that the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction which at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). Deferred income tax assets are recognised only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. A deferred income tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised. A deferred income tax asset is not recognised when it arises from the initial recognition of an asset or liability in a transaction at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). 14
Accounting Policies 1.8 Income tax (continued) A deferred income tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. Income tax expenses Current and deferred income taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: a transaction or event which is recognised, in the same or a different period, to other comprehensive income, a transaction or event which is recognised, in the same or a different period, directly in equity, or a business combination. Current tax and deferred income taxes are charged or credited to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, to other comprehensive income. Current tax and deferred income taxes are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly in equity. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the company s subsidiaries and associates operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. 1.9 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership. Operating leases - lessor Operating lease income is recognised as an income at the invoice amount. Income for leases is disclosed under revenue. 1.10 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. 1.11 Revenue Revenue consists of rental income is measured at the fair value of the consideration received or receivable, net of value added tax. Interest is recognised, in profit or loss, using the effective interest rate method. 15
Accounting Policies 1.12 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset are capitalised as part of the cost of that asset until such time as the asset is ready for its intended use. The amount of borrowing costs eligible for capitalisation is determined as follows: Actual borrowing costs on funds specifically borrowed for the purpose of obtaining a qualifying asset less any temporary investment of those borrowings. Weighted average of the borrowing costs applicable to the entity on funds generally borrowed for the purpose of obtaining a qualifying asset. The borrowing costs capitalised do not exceed the total borrowing costs incurred. The capitalisation of borrowing costs commences when: expenditures for the asset have occurred; borrowing costs have been incurred, and activities that are necessary to prepare the asset for its intended use or sale are in progress. Capitalisation is suspended during extended periods in which active development is interrupted. Capitalisation ceases when substantially all the activities necessary to prepare the qualifying asset for its intended use or sale are complete. All other borrowing costs are recognised as an expense in the period in which they are incurred. 16
Notes to the Annual Financial Statements 2. New Standards and Interpretations 2.1 Standards and interpretations effective and adopted in the current year 2010 2009 2010 2009 R R R R In the current year, the group has adopted the following standards and interpretations that are effective for the current financial year and that are relevant to its operations: IAS 1 (AC 101) (Revised) Presentation of Financial Statements The main revisions to IAS 1 (AC 101): Require the presentation of non-owner changes in equity either in a single statement of comprehensive income or in an income statement and statement of comprehensive income. Require the presentation of a statement of financial position at the beginning of the earliest comparative period whenever a retrospective adjustment is made. This requirement includes related notes. Require the disclosure of income tax and reclassification adjustments relating to each component of other comprehensive income. The disclosures may be presented on the face of the statement of comprehensive income or in the notes. Allow dividend presentations to be made either in the statement of changes in equity or in the notes only. Have changed the titles to some of the financial statement components, where the balance sheet becomes the statement of financial position and the cash flow statement becomes the statement of cash flows. These new titles will be used in International Financial Reporting Standards, but are not mandatory for use in financial statements. The effective date of the standard is for years beginning on or after 01 January 2009. The group has adopted the standard for the first time in the 2010 group annual financial statements. The adoption of this standard has not had a material impact on the results of the company, but has resulted in more disclosure than would have previously been provided in the group annual financial statements. IAS 23 (AC 114) (Revised) Borrowing Costs The revision requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs has been removed. The effective date of the standard is for years beginning on or after 01 January 2009. The group has adopted the standard for the first time in the 2010 group annual financial statements. The impact of the standard is not material. May 2008 Annual Improvements to IFRS s: Amendments to IAS 23 (AC 114) Borrowing Costs (as revised in 2007) The description of specific components of borrowing costs has been replaced with a reference to the guidance in IAS 39 (AC 133) Financial Instruments: Recognition and Measurement on effective interest rate. The effective date of the amendment is for years beginning on or after 01 January 2009. The group has adopted the amendment for the first time in the 2010 group annual financial statements. The impact of the amendment is not material. 17
Notes to the Annual Financial Statements 2. New Standards and Interpretations (continued) May 2008 Annual Improvements to IFRS s: Amendments to IAS 27 (AC 132) Consolidated and Separate Financial Statements The amendment requires that investments in subsidiaries, jointly controlled entities and associates accounted for in accordance with IAS 39 (AC 133) Financial Instruments: Recognition and Measurement in the parent s separate financial statements should continue to be measured in accordance with IAS 39 (AC 133) when classified as held for sale (or included in a disposal group classified as held for sale), and not in accordance with IFRS 5 (AC 142) Non-current Assets held for Sale and Discontinued Operations. The effective date of the amendment is for years beginning on or after 01 January 2009. The group has adopted the amendment for the first time in the 2010 group annual financial statements. The impact of the amendment is not material. May 2008 Annual Improvements to IFRS s: Amendments to IAS 40 (AC 135) Investment Property and IAS 16 (AC 123) Property, Plant and Equipment Property being constructed for use as investment property is now classified as investment property and not property, plant and equipment (as previously required). Even if the entity accounts for investment property at fair value, such property may be measured at cost until the earlier of date fair value is determinable or construction is complete. Some terminology in the Standard has been amended to be consistent with other Standards and Interpretations. In determining the carrying amount of investment property held under a lease and accounted for using the fair value model, the amendment clarified that any lease liability should be added back to the valuation to arrive at the carrying amount, rather than the fair value of the investment property. The effective date of the amendment is for years beginning on or after 01 January 2009. The group has adopted the amendment for the first time in the 2010 group annual financial statements. The impact of the amendment is not material. Amendments to IFRS 7 (AC 144): Financial Instruments: Disclosures Improving Disclosures about Financial Instruments The amendment requires additional disclosures about fair value measurement, including separating fair value measures into a hierarchy. The amendments also require liquidity risk disclosure to be separated between nonderivative financial liabilities and derivative financial liabilities. The effective date of the amendment is for years beginning on or after 01 January 2009. The group has adopted the amendment for the first time in the 2010 group annual financial statements. The impact of the amendment is not material. 2.2 Standards and interpretations not yet effective The group has chosen not to early adopt the following standards and interpretations, which have been published and are mandatory for the group s accounting periods beginning on or after 01 March 2010 or later periods: 2009 Annual Improvements Project: Amendments to IAS 7 (AC 118) Statement of Cash Flows The amendment provides that expenditure may only be classified as cash flows from investing activities if it 18
Notes to the Annual Financial Statements 2. New Standards and Interpretations (continued) resulted in the recognition of an asset on the statement of financial position. The effective date of the amendment is for years beginning on or after 01 January 2010. The group expects to adopt the amendment for the first time in the 2011 group annual financial statements. It is unlikely that the amendment will have a material impact on the company's group annual financial statements. 2009 Annual Improvements Project: Amendments to IAS 17 (AC 105) Leases The amendment removes the guidance that leases of land, where title does not transfer, are operating leases. The amendment therefore requires that lease classification for land be assessed in the same manner as for all leases. The amendment is to be applied retrospectively, unless the information is not available. In these cases, existing leases shall be reconsidered based on facts and circumstances existing at the date of adoption of the amendment. The lease asset and lease liability shall, in these cases be recognised at their fair values on that date, with any difference in those fair values recognised in retained earnings. The effective date of the amendment is for years beginning on or after 01 January 2010. The group expects to adopt the amendment for the first time in the 2011 group annual financial statements. It is unlikely that the amendment will have a material impact on the company's group annual financial statements. 2009 Annual Improvements Project: Amendments to IAS 38 (AC 129) Intangible Assets The amendment provides guidance on the measurement of intangible assets acquired in a business combination. The effective date of the amendment is for years beginning on or after 01 July 2009. The group expects to adopt the amendment for the first time in the 2011 group annual financial statements. It is unlikely that the amendment will have a material impact on the company's group annual financial statements. 3. Risk management Capital risk management The group's objectives when managing capital are to safeguard the group's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital. The capital structure of the group consists of debt, which includes the borrowings (excluding derivative financial liabilities) disclosed in notes 14, 13, cash and cash equivalents disclosed in note 11, and equity as disclosed in the statement of financial position. In order to maintain or adjust the capital structure, the group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. Consistent with others in the industry, the group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the statement of financial position) less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the statement of financial position plus net debt. The group's strategy is to maintain a favourable gearing ratio. There are no externally imposed capital requirements. 19
Notes to the Annual Financial Statements 3. Risk management (continued) The gearing ratio at 2010 and 2009 respectively were as follows: 2010 2009 2010 2009 R R R R Total borrowings Other financial liabilities 14 103 746 35 535 - - Mortgage bonds 13 5 076 045 6 292 571 - - Trade and other payables 568 486 603 176 268 203 388 203 5 748 277 6 931 282 268 203 388 203 Less: Cash and cash equivalents 11 14 279 5 618 559 (17) Net debt 5 733 998 6 925 664 267 644 388 220 Total equity 21 095 691 19 059 674 14 356 510 13 992 916 Total capital 26 829 689 25 985 338 14 624 154 14 381 136 Gearing ratio 21 % 27 % 2 % 3 % Financial risk management The group s activities expose it to a variety of financial risks: market risk (including cash flow interest rate risk), credit risk and liquidity risk. The group s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the group s financial performance. Liquidity risk The group's risk to liquidity is a result of the funds available to cover future commitments. The group manages liquidity risk through an ongoing review of future commitments and credit facilities. The table below analyses the group s financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows. At 28 February 2010 Less than 1 Between 1 Between 2 Over 5 years year and 2 years and 5 years Mortgage bonds 1 253 363 1 253 363 2 815 482 1 572 781 Other financial liabilities 103 746 - - - Trade and other payables 568 487 - - - At 28 February 2009 Less than 1 Between 1 Between 2 Over 5 years year and 2 years and 5 years Mortgage bonds 1 373 611 1 373 611 4 120 834 3 358 788 Other financial liabilities 35 535 - - - Trade and other payables 603 178 - - - Bank overdraft 17 - - - 20
Notes to the Annual Financial Statements 3. Risk management (continued) 2010 2009 2010 2009 R R R R At 28 February 2010 Less than 1 Between 1 Between 2 Over 5 years year and 2 years and 5 years Trade and other payables 268 203 - - - At 28 February 2009 Less than 1 Between 1 Between 2 Over 5 years year and 2 years and 5 years Trade and other payables 388 203 - - - Bank overdraft 17 - - - Interest rate risk The group s interest rate risk arises from long-term borrowings and interest-bearing assets (loans). Borrowings issued and loans given at variable rates expose the group to cash flow interest rate risk. At 28 February 2010, if interest rates had been 1% higher/lower with all other variables held constant, profit before tax for the year would have been R 17 623 - (2009: R 10 126) lower/higher. Credit risk Credit risk consists mainly of cash deposits, cash equivalents, loans receivable and trade debtors. The group only deposits cash with major banks with high quality credit standing and limits exposure to any one counter-party. Trade receivables comprise a widespread customer base. Management evaluated credit risk relating to customers on an ongoing basis. 4. Investment property 2010 2009 Cost / Valuation Accumulated depreciation Carrying value Cost / Valuation Accumulated depreciation Carrying value Investment property 24 080 000-24 080 000 21 137 354-21 137 354 Reconciliation of investment property - - 2010 Opening balance Additions Additions Fair value resulting from adjustments capitalised subsequent expenditure Investment property 21 137 354 746 923 188 636 2 007 087 24 080 000 Reconciliation of investment property - - 2009 Opening Fair value Total balance adjustments Investment property 21 470 000 (332 646) 21 137 354 Total 21
Notes to the Annual Financial Statements 4. Investment property (continued) Pledged as security 2010 2009 2010 2009 R R R R Erf 9893, 29654 and 24787 Kimberley serves as security for bonds, refer to mortgage bonds note. Details of property Erf 9893 Kimberley - Purchase price 1 859 353 1 859 353 - - - Fair value adjustment 2006 4 882 646 4 882 646 - - - Fair value adjustment 2007 2 964 000 2 964 000 - - - Fair value adjustment 2008 2 964 001 2 964 001 - - - Fair value adjustment 2009 (807 834) (807 834) - - - Improvements 2010 11 710 - - - - Fair value adjustment 2010 319 824 - - - Erf 24787 Kimberley 12 193 700 11 862 166 - - - Purchase price 3 970 872 3 970 872 - - - Fair value adjustment 2007 914 564 914 564 - - - Fair value adjustment 2008 914 564 914 564 - - - Fair value adjustment 2009 344 339 344 339 - - - Improvements 2010 72 028 - - - - Fair value adjustment 2010 743 633 - - - Erf 29654 Kimberley 6 960 000 6 144 339 - - - Purchase price 61 348 61 348 - - - Additional costs during 2008 2 706 579 2 706 579 - - - Fair value adjustment 2008 232 073 232 073 - - - Fair value adjustment 2009 130 849 130 849 - - - Fair value adjustment 2010 459 151 - - - Erf 35747 Kimberley 3 590 000 3 130 849 - - - Purchase price: 18 May 2009 746 923 - - - - Improvements 2010 104 898 - - - - Fair value adjustment 2010 484 479 - - - 1 336 300 - - - Erf 9893 was valued on 10 May 2010 at R12 193 700 by G J D du Plessis of Capgrow on the grounds of discounted expected cashflows. A capitalisation rate of 9% (2009: 9%) was used in the valuation. Erf 24787 was valued on 10 May 2010 at R6 960 000 by G J D du Plessis of Capgrow on the grounds of discounted expected cashflows. A capitalisation rate of 11% (2009: 12%) was used in the valuation. 22
Notes to the Annual Financial Statements 4. Investment property (continued) 2010 2009 2010 2009 R R R R Erf 29654 was valued on 10 May 2010 at R3 590 000 by G J D du Plessis of Capgrow on the grounds of discounted expected cashflows. A capitalisation rate of 11% (2009: 12%) was used in the valuation. Erf 35747 was valued on 10 May 2010 at R1 336 300 by G J D du Plessis of Capgrow on the grounds of comparable market value. 5. Property, plant and equipment 2010 2009 Cost / Valuation Accumulated depreciation Carrying value Cost / Valuation Accumulated depreciation Carrying value Office equipment 51 024 (21 338) 29 686 51 024 (12 832) 38 192 Other equipment 40 310 (1 531) 38 779 - - - Total 91 334 (22 869) 68 465 51 024 (12 832) 38 192 Reconciliation of property, plant and equipment - - 2010 Opening balance Additions Depreciation Total Office equipment 38 192 - (8 506) 29 686 Other equipment - 40 310 (1 531) 38 779 Reconciliation of property, plant and equipment - - 2009 38 192 40 310 (10 037) 68 465 Opening Depreciation Total balance Office equipment 46 698 (8 506) 38 192 6. Goodwill 2010 2009 Cost Accumulated impairment Carrying value Cost Accumulated impairment Carrying value Goodwill on purchase of shares of Friedshelf 370 (Pty) Ltd 995 877-995 877 995 877-995 877 7. Investments in subsidiaries Name of company % holding 2010 Friedshelf 370 (Pty) Ltd % % holding 2009 Carrying amount 2010 Carrying amount 2009 100.00 100.00 % 4 200 000 4 200 000 23
Notes to the Annual Financial Statements 8. Other financial assets 2010 2009 2010 2009 R R R R Loans and receivables Friedshelf 370 (Pty) Ltd - - 4 972 261 3 188 574 Wimson Trust 4 745 763 6 177 261 4 745 763 6 177 261 4 745 763 6 177 261 9 718 024 9 365 835 Non-current assets Loans and receivables 4 245 763 4 177 261 4 245 763 4 177 261 Current assets Loans and receivables 500 000 2 000 000 5 472 261 5 188 574 The loan to Friedshelf 370 (Pty) Ltd is unsecured, does not have fixed repayment terms and does not carry interest. The loan to the Wimson Trust is unsecured, carries single interest at the prime interest rate plus 1% and have the following repayment terms: - R2 000 000 was payable on or before 15 May 2009 (2009: short term) - R500 000 is payable on or before 15 May 2010 (2010: short term) - The balance is payable on or before 15 November 2011 (long term) 9. Deferred income tax Deferred income tax asset 4 745 763 6 177 261 9 718 024 9 365 835 Tax losses available for set off against future 353 770 594 220 125 904 267 301 taxable income Taxable differences on revaluation of property (4 072 961) (3 510 977) - - Reconciliation of deferred income tax asset (liability) (3 719 191) (2 916 757) 125 904 267 301 At beginning of the year (2 916 757) (3 175 448) 267 301 267 301 Increase (decrease) in tax losses available for set (240 450) 165 551 (141 397) - off against future taxable income Originating temporary difference on revaluation of property (561 984) 93 140 - - 10. Trade and other receivables (3 719 191) (2 916 757) 125 904 267 301 Trade receivables 76 565 - - - Deposits 569 000 548 000 569 000 548 000 VAT 11 226-11 226-656 791 548 000 580 226 548 000 24
Notes to the Annual Financial Statements 11. Cash and cash equivalents Cash and cash equivalents consist of: 2010 2009 2010 2009 R R R R Bank balances 14 279 5 635 559 - Bank overdraft - (17) - (17) 14 279 5 618 559 (17) Current assets 14 279 5 635 559 - Current liabilities - (17) - (17) 12. Share capital 14 279 5 618 559 (17) Authorised 10 000 000 Ordinary shares of R1 each 10 000 000 10 000 000 10 000 000 10 000 000 Issued Ordinary 3 344 100 3 344 100 3 344 100 3 344 100 Share premium 13 769 150 13 769 150 13 769 150 13 769 150 Share issue costs written off against share premium (1 602 967) (1 602 967) (1 602 967) (1 602 967) 13. Mortgage bonds 15 510 283 15 510 283 15 510 283 15 510 283 Held at amortised cost Bond - Imperial Bank Erf 9893, Kimberley, serves as security for the loan. This loan is repayable in monthly installments of R 53 268 including interest. Interest is calculated at prime minus 1.25%. Bond - Nedbank Erf 24787, Kimberley, serves as security for the loan. This loan is repayable in monthly installments of R 32 843 including interest. Interest is calculated at prime. Bond - Imperial Bank Erf 29654, Kimberley, serves as security for the loan. This loan is repayable in monthly installments of R 18 336 including interest. Interest is calculated at prime minus 1%. 2 253 467 2 722 860 - - 1 234 434 1 917 292 - - 1 588 144 1 652 419 - - 5 076 045 6 292 571 - - 25
Notes to the Annual Financial Statements 13. Mortgage bonds (continued) 2010 2009 2010 2009 R R R R Non-current liabilities At amortised cost 4 274 790 5 710 522 - - Current liabilities At amortised cost 801 255 582 049 - - 14. Other financial liabilities 5 076 045 6 292 571 - - MW Bouwer 93 404 25 193 - - Marbou Trust 10 342 10 342 - - These loans are unsecured, do not have fixed repayment terms and do not carry interest. 15. Trade and other payables 103 746 35 535 - - Trade payables 185 683 134 772 - - VAT 83 332 48 635 - - Directors' remuneration 240 000 360 000 240 000 360 000 Rent deposits received 31 269 31 568 - - Share subscription deposits received 28 203 28 203 28 203 28 203 16. Revenue 568 487 603 178 268 203 388 203 Rental Income 2 227 763 2 221 817 - - 17. Expenses by nature Accounting fees 105 853 89 337 9 405 - Commission paid - 132 326 - - Depreciation, amortisation and impairments 10 036 8 506 - - Directors remuneration 158 000 360 000-360 000 Employee costs 192 450 192 379 - - Repairs and maintenance 296 757 72 275 - - Utilities 363 849 280 229 - - Other expenses 302 136 157 489 54 108 15 301 Total operating expenses 1 429 081 1 292 541 63 513 375 301 18. Investment revenue Interest revenue Bank 11 206 2 - Wimson Trust 568 502 851 687 568 502 851 687 568 513 851 893 568 504 851 687 26
Notes to the Annual Financial Statements 19. Finance costs 2010 2009 2010 2009 R R R R Bank 567 801 942 081 - - Interest paid on amounts owed to WDC Business - 109 652-109 652 Trust 20. Income tax expense Major components of the income tax expense (income) 567 801 1 051 733-109 652 Deferred Deferred tax 802 434 (258 691) 141 397 (267 301) Reconciliation of the income tax expense Reconciliation between accounting profit and income tax expense. Accounting profit 2 838 451 397 480 504 991 366 734 Tax at the applicable tax rate of 28% (2009: 28%) 794 766 111 296 141 397 102 686 Tax effect of adjustments on taxable income Fines and penalties 924 - - - Key person insurance 6 744 - - - Recognising deferred tax on previously - (61 506) - (61 506) accumulated tax losses Effect of capital tax loss from sale of associate - (308 481) - (308 481) 21. Auditors' remuneration 802 434 (258 691) 141 397 (267 301) Fees 35 000-35 000-22. Cash generated from (used in) operations Profit before taxation 2 838 451 397 480 504 991 366 734 Adjustments for: Depreciation and amortisation 10 036 8 506 - - Profit on sale of assets - - - - Interest received (568 513) (851 893) (568 504) (851 687) Finance costs 567 801 1 051 733-109 652 Fair value adjustments (2 007 088) 332 646 - - Impairment loss - - - - Loan written off - 13 629-13 629 Changes in working capital: Trade and other receivables (108 791) - (32 226) - Trade and other payables (34 689) 471 422 (120 000) 360 000 697 207 1 423 523 (215 739) (1 672) 27
Notes to the Annual Financial Statements 23. Tax refunded (paid) 2010 2009 2010 2009 R R R R Balance at beginning of the year 5 413 3 427 - - Balance at end of the year (1 985) (5 413) - - 24. Related parties 3 428 (1 986) - - ` Relationships Subsidiary Trust of director (M W Bouwer) Directors Friedshelf 370 (Pty) Ltd Marbou Trust M W Bouwer W S Visser D C Kemp Directors remuneration included in trade and other payables M W Bouwer - 120 000-120 000 W S Visser 120 000 120 000 120 000 120 000 D C Kemp 120 000 120 000 120 000 120 000 240 000 360 000 240 000 360 000 Directors remuneration M W Bouwer 138 000 120 000-120 000 W S Visser 10 000 120 000-120 000 D C Kemp 10 000 120 000-120 000 158 000 360 000-360 000 Loan accounts - Owing (to) by related parties Friedshelf 370 (Pty) Ltd - - 4 972 261 3 188 574 M W Bouwer (93 404) (25 193) - - Marbou Trust (10 342) (10 342) - - (103 746) (35 535) 4 972 261 3 188 574 28
Detailed Income Statement 2010 2009 2010 2009 Notes R R R R Revenue Rental Income 2 227 763 2 221 817 - - Gross profit 2 227 763 2 221 817 - - Other income Discount received - 690 - - Insurance claim received 31 969 - - - Interest received 568 513 851 893 568 504 851 687 Fair value adjustments 2 007 088 - - - 2 607 570 852 583 568 504 851 687 Expenses (Refer to page 30) (1 429 081) (1 292 541) (63 513) (375 301) Operating profit (loss) 3 406 252 1 781 859 504 991 476 386 Finance costs (567 801) (1 051 733) - (109 652) Fair value adjustments - (332 646) - - (567 801) (1 384 379) - (109 652) Profit (loss) before taxation 2 838 451 397 480 504 991 366 734 Income tax expense 802 434 (258 691) 141 397 (267 301) Profit (loss) for the year 2 036 017 656 171 363 594 634 035 The supplementary information presented does not form part of the group annual financial statements and is unaudited 29
Detailed Income Statement 2010 2009 2010 2009 Notes R R R R Operating expenses Accounting fees 105 853 89 337 9 405 - Administration and management fees 6 439 12 807 - - Advertising 3 243 386 - - Auditors remuneration 35 000-35 000 - Bank charges 17 058 18 919 1 550 1 672 Cleaning 4 696 2 721 - - Commission paid - 132 326 - - Computer expenses 4 836 1 948 - - Consulting and professional fees 100 021 26 518 20 000 - Depreciation, amortisation and impairments 10 036 8 506 - - Directors remuneration 158 000 360 000-360 000 Employee costs 192 450 192 379 - - Fines and penalties 3 300 - - - Insurance 50 613 43 850 - - Key person insurance 24 090 - - - Loan written off - 13 629-13 629 Motor vehicle expenses 1 261 1 877 - - Postage - 113 - - Printing and stationery 13 529 1 680 2 061 - Rent paid 2 000 - - - Repairs and maintenance 296 757 72 275 - - Security 15 999 - - - Subscriptions 2 154 1 897 - - Telephone and fax 20 220 29 605 - - Training - - - - Travel - local 2 180 1 539 - - Utilities 363 849 280 229 - - VAT on expenses not claimed in previous years (4 503) - (4 503) - 1 429 081 1 292 541 63 513 375 301 The supplementary information presented does not form part of the group annual financial statements and is unaudited 30