These financial statements are presented in South
African rand since that is the currency in which the majority of the groupís
transactions are denominated.
The financial statements for the current period cover the year ended 30
The principal accounting policies of the group, which are set out below, comply
with currently applicable South African Statements of Generally Accepted
Accounting Practice. These policies are, in all material respects, consistent
with those applied in the previous year except as detailed in note 8 to the
annual financial statements.
1. BASIS OF ACCOUNTING
The financial statements are prepared on the historical cost basis of
accounting as modified for certain financial instruments which are stated at
2. COMPARATIVE FIGURES
When an accounting policy is changed, comparative figures are restated. The
adoption of the new policy AC133 does not require restatement.
3. BASIS OF CONSOLIDATION
The group annual financial statements incorporate the financial statements of
the company, its subsidiaries, joint ventures and associates.
A subsidiary is an enterprise over which the group has control. Control is the
power to govern the financial and operating policies of an enterprise so as to
obtain benefits from its activities.
Operating results of subsidiaries acquired are included from the effective date
of acquisition. Operating results of subsidiaries disposed of are included up
to the effective date of sale.
Where the ability of certain foreign subsidiaries to transfer funds to South
Africa is severely restricted, these subsidiaries are not consolidated and the
results of these subsidiaries are brought to account to the extent of dividends
Outside shareholders are measured as a percentage of the equity of relevant
All intercompany trading within the group is eliminated in the consolidated
Positive goodwill, being the excess of cost of acquisition of subsidiaries,
associates and joint ventures and other businesses over the attributable fair
value of the net assets at the date of acquisition, is capitalised and
amortised over the expected useful life of the asset, not exceeding 20 years.
Where negative goodwill relates to expectations of future losses and expenses
identified at acquisition, these are recognised in income as the losses and
expenses are incurred. The portion not relating to future losses and expenses
is recognised as follows:
the amount not exceeding the fair values of identified
non-monetary assets is recognised over the remaining average useful life of
identifiable acquired depreciable or amortisable assets;
the amount in excess of the fair values of these assets
is recognised in income immediately.
On disposal of a subsidiary, associate or joint venture
the attributable amount of unamortised goodwill is included in the
determination of the profit or loss on disposal.
5. JOINT VENTURES
Joint ventures are those entities which are not subsidiaries and over which the
group exercises joint control.
Joint control is the contractually arranged sharing of control over an economic
Joint ventures are accounted for using the proportionate consolidation method,
whereby the groupís share of each of the assets, liabilities, income, expenses
and cash flows of joint ventures are included on a line-by-line basis in the
consolidated annual financial statements.
Intergroup transactions with joint ventures are accounted for as follows:
On sales made by the rest of the group to the joint venture, where the asset is
returned by it, only that portion of the gain attributable to the other
venturers is recognised. Where the sale is made at a loss, the full loss is
Where sales are made by the joint venture to the rest of the group, no profits
made by the joint venture are recognised in the group accounts until the asset
has been sold to an independent party.
Any difference between the cost of the acquisition and the groupís share of the
net identifiable assets, fairly valued, is recognised and treated according to
the groupís accounting policy for goodwill.
6. ASSOCIATE COMPANIES
Associate companies are those companies in which investments are held which
provide the group with the power to exercise significant influence over the
financial and operating policies of those companies, but are not considered to
be joint ventures.
Associate companies are accounted for by the equity method from their audited
or unaudited financial statements to 30 September. Post-acquisition earnings
and reserves retained by associate companies are transferred to
All investments are initially recognised at cost, which includes transaction
costs. After initial recognition investments held for trading and those
available for sale are measured at their fair values. The following categories
of investments are measured at amortised cost using the investment rate method
if they have a fixed maturity or at cost if there is no fixed maturity:
loans and receivables originated by Reunert and not
held for trading;
held to maturity financial assets where the group has
the ability and intention to hold the instrument to maturity; and
investments in financial assets that do not have a
quoted market price in an active market and whose fair value cannot be reliably
The carrying values are reduced by any impairment
losses recognised to reflect irrecoverable amounts.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost to the group less accumulated
depreciation. Major improvements to existing buildings, plant and equipment are
When the recoverable amount of an asset has declined below its carrying amount,
the carrying amount is reduced to reflect the decline in value. In determining
the recoverable amount of assets, expected cash flows are discounted to their
Investment properties are depreciated. The group defines investment properties
as those held to earn rentals or for capital appreciation or both. Where market
conditions indicate a permanent decline in value, these properties are written
down to this value.
Depreciation is calculated on cost over the estimated useful lives of the
assets. The methods and rates used are determined by conditions in the relevant
9. CAPITALISATION OF LEASED ASSETS
Assets subject to financial lease agreements, where considered material and
where the group assumes substantially all the benefits and risks of ownership,
are capitalised at the fair value of the leased assets and the corresponding
The cost of the assets is depreciated at appropriate rates on the straight-line
basis over the estimated useful lives of the assets.
Finance costs, which represent the difference between the total leasing
commitments and the fair value of the assets acquired, are charged to the
income statement over the term of the relevant lease so as to produce a
constant periodic rate of charge on the remaining balance of the obligations
for each accounting period.
Rentals payable under the operating leases are charged to income on a
straight-line basis over the term of the relevant lease.
10. INVENTORY AND CONTRACTS IN PROGRESS
Inventory is stated at the lower of cost and net realisable value. The basis of
determining cost is mainly the first-in first-out basis. The values of finished
goods and work in progress include direct costs and relevant overhead
Redundant and slow-moving inventory is identified and written down with regard
to its estimated economic or realisable value. Consumables are written down
with regard to their age, condition and utility.
Contracts in progress are valued at the lower of actual cost less progress
invoicing and net realisable value. Cost comprises direct materials, labour,
expenses and a proportion of overhead expenditure.
11. DEFERRED TAXATION
The charge for taxation is based on the results for the year as adjusted for
items which are non-taxable or disallowed. Deferred tax is accounted for using
the balance sheet liability method. Temporary differences arise from
differences between the carrying amounts of assets and liabilities in the
financial statements and the corresponding tax bases used in the computation of
assessable tax profit. Deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to the extent that
it is probable that taxable profit will be available against which deductible
temporary differences can be utilised. Such assets and liabilities are not
recognised if the temporary difference arises from goodwill, to the extent that
it is not deductible for tax purposes or from the initial recognition of other
assets and liabilities which affects neither the tax profit nor the accounting
profit at the time of the transaction.
Deferred tax liabilities are recognised for taxable temporary differences
associated with investments in subsidiaries and associates, and interests in
joint ventures, except where the group is able to control the reversal of the
temporary difference and it is probable that the temporary difference will not
reverse in the foreseeable future.
Deferred tax is calculated at the tax rates that are expected to apply to the
period when the asset is realised or the liability is settled. Deferred tax is
charged or credited in the income statement, except when it relates to items
credited or charged directly to equity, in which case the deferred tax is also
dealt with in equity.
Deferred tax assets and liabilities are offset when they relate to income taxes
levied by the same taxation authority and the group intends to settle its
current assets and liabilities on a net basis.
12. REVENUE RECOGNITION
Revenue from the sale of goods is recognised when the significant risks and
rewards of ownership of the goods are transferred to the buyer, while revenue
from services is recognised when the services are rendered.
Where the outcome of a construction contract can be reliably estimated, revenue
and costs are recognised by reference to the stage of completion of the
contract activity at the balance sheet date, as measured by the proportion that
the contract costs incurred for work performed to date bear to the estimated
total contract costs. Variations in contract work, claims and incentive
payments are included to the extent that they have been agreed with the
Where the outcome of a construction contract cannot be reliably estimated,
contract revenue is recognised to the extent that contract costs incurred will
be recoverable. Contract costs are recognised as expenses in the period in
which they are incurred.
When it is probable that total contract costs will exceed total contract
revenue, the expected loss is recognised immediately.
Dividends are recognised when the shareholderís right to receive them has been
Capitalisation share awards are included in dividend income in the income
Interest is recognised on the time proportion basis, taking account of the
principal amount outstanding and the effective rates over the period to
Revenue comprises net invoiced sales to customers, rental from leasing fixed
and moveable properties, commission and interest earned and excludes value
14. FOREIGN CURRENCIES
14.1 FOREIGN CURRENCY TRANSACTIONS
Transactions in foreign currencies are accounted for at the rates of exchange
ruling on the dates of the transactions. Gains and losses arising from the
settlement of such transactions are recognised in the income statement.
14.2 FOREIGN CURRENCY BALANCES
Foreign monetary assets and liabilities of South African companies are
translated into South African rand at rates ruling at 30 September.
Unrealised differences on foreign monetary assets and liabilities are
recognised in the income statement in the period in which they occur.
14.3 FOREIGN ENTITIES
Financial statements of foreign subsidiaries are translated into South African
rand as follows:
assets and liabilities at rates of exchange ruling at
the groupís financial year-end;
income, expenditure and cash flow items at the weighted
average rates of exchange during the financial year.
Differences arising on translation are reflected in
Goodwill and fair value adjustments are considered to relate to the foreign
15. BORROWING COSTS
Interest on borrowings raised specifically to finance the construction of
qualifying assets to prepare them for sale or use, is capitalised as part of
the cost of these assets up to the date that the assets are substantially ready
for their intended use or sale. Investment income earned on the temporary
investment of specific borrowings, pending their expenditure on qualifying
assets, is deducted from borrowing costs capitalised.
All other borrowing costs are expensed in the period in which they are
A provision is raised when a reliable estimate can be made of a present
obligation, resulting from a past event, which will probably result in an
outflow of resources, and there is no realistic alternative to settling the
obligation created by the event, which occurred before the balance sheet date.
17. FINANCIAL INSTRUMENTS
Financial instruments carried on the balance sheet include cash and bank
balances, investments, receivables, trade creditors, borrowings and derivative
instruments. Financial instruments are initially measured at cost. Details of
the subsequent measurement of different classes of financial instruments are
dealt with below and in the relevant notes above.
Cash and cash equivalents are measured at fair value.
Trade and other receivables are stated at their nominal value as reduced by
appropriate allowances for estimated irrecoverable amounts.
Derivative financial instruments, principally forward foreign exchange
contracts and interest rate swap agreements, are used by the group in its
management of financial risks. The risks being hedged by the forward foreign
exchange contracts are exchange losses due to unfavourable movements between
the rand and the foreign currency. Gains and losses from the cash flow hedges
are recognised directly in equity, while gains and losses arising from fair
value hedges are recognised in net profit or loss. The risks being hedged by
interest rate swaps are increases in interest expenses due to higher interest
rates being charged on borrowings. Gains and losses arising from the changes in
the fair values of interest rate swaps are recognised in net profit or loss as
In accordance with its treasury policy, the group does not hold or issue
derivative instruments for trading purposes. Derivative instruments are
initially measured at cost, if any, and are subsequently remeasured to fair
Financial liabilities, other than derivative instruments are recognised at
amortised cost, comprising original debt less principal payments and
Financial liabilities are classified according to the substance of the
contractual arrangements entered into. Debt instruments issued, which carry the
right to convert to equity that is dependant on the outcome of uncertainties
beyond the control of both the group and the holder, are classified as
liabilities except where the possibility of conversion is certain.
Financial liabilities include interest-bearing bank loans and overdrafts and
trade and other payables.
Interest-bearing bank loans and overdrafts are recorded at the proceeds
received, net of direct issue costs. Trade and other payables are stated at
their nominal value.
Gains and losses arising from the remeasurement to fair value of financial
instruments that are not available for sale financial assets are recognised in
net profit or loss. Unrealised gains and losses arising from changes in the
fair value of available for sale financial assets that are measured at fair
value subsequent to initial recognition are recognised directly in equity until
the disposal or impairment of the financial instrument at which time the
cumulative gain or loss previously recognised in equity is included in the net
profit or loss for the period.
18. RESEARCH AND DEVELOPMENT
Research and development expenditure is charged to operating profit in the year
in which it is incurred.
19. ABNORMAL ITEMS
Abnormal items are items of income or expense that arise from ordinary
activities but are of such size, nature or incidence that they are separately
disclosed in order to best reflect the groupís performance.
20. EXTRAORDINARY ITEMS
Extraordinary items are income or expenses that arise from events or
transactions that are clearly distinct from the ordinary activities of the
group and therefore are not expected to occur frequently or regularly. The
following two events give rise to extraordinary items:
the expropriation of assets;
an earthquake or other natural disaster.
21. RETIREMENT BENEFIT COSTS
Payments to defined contribution retirement benefit plans are charged as an
expense as they fall due. Payments made to state-managed retirement benefit
schemes are dealt with as defined contribution plans where the groupís
obligations under the schemes are equivalent to those arising in a defined
contribution retirement benefit plan.
For defined benefit retirement plans, the cost of providing benefits is
determined using the projected unit credit method, with actuarial valuations
being carried out at each balance sheet date. Actuarial gains and losses which
exceed 10% of the greater of the present value of the groupís pension
obligations and the fair value of plan assets are amortised over the expected
average remaining working lives of the participating employees. Past service
cost is recognised immediately to the extent that the benefits are already
vested, and otherwise is amortised on a straight-line basis over the average
period until the amended benefits become vested.
The amount recognised in the balance sheet represents the present value of the
defined benefit obligation as adjusted for unrecognised actuarial gains and
losses and unrecognised past service cost, and reduced by the fair value of
plan assets. Any asset resulting from this calculation is limited to
unrecognised actuarial losses and past service cost, plus the present value of
available refunds and reductions in future contributions to the plan.
22. INFLATION ACCOUNTING
At present inflation is at historically low levels which means that any
distortion caused by inflation is likely to be minimal. In addition,
conventionally prepared financial statements still form the basis upon which
business decisions are made and the yardstick by which companies are judged.
Until a method of accounting for the effect of changing prices is developed
which is meaningful, standardised, generally accepted and of benefit to users
of financial statements, the group prefers to refrain from any attempt to
disclose such effect.