Notes to the annual financial statements
for the year ended 26 June 2011
Basis of accounting
The financial statements have been prepared on the historical cost basis, except for the revaluation of certain non-current assets and financial instruments to fair value.
The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and in a manner required by the Companies Act of South Africa. The principal accounting policies adopted are set out below.
These policies have been consistently applied for the period under review.
Basis of consolidation
The Group annual financial statements incorporate the annual financial statements of the Company (Massmart Holdings Limited) and the entities it controls. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The operating results of the subsidiaries are consolidated from the date on which effective control is transferred to the Group and up to the effective date of disposal.
Separate disclosure is made of minority interests where the Group’s investment is less than 100%. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority’s interest in the subsidiary’s equity are allocated against the interest of the Group, except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
All inter-company transactions and balances, income and expenses are eliminated in full on consolidation.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring the accounting policies used into line with those used by the Group.
GROUP FINANCIAL STATEMENTS
More detail on acquisitions within the financial year can be found in note 3.
The acquisition of subsidiaries is accounted for using the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for noncurrent assets (or disposal groups) that are classified as held-for-sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell. The interest of minority shareholders in the acquiree is initially measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.
GROUP FINANCIAL STATEMENTS
More detail on segmental reporting can be found in note 40.
The Group is organised into four divisions for operational and management purposes. Massmart reports its primary business segment information on this basis and on a secondary basis by significant geographical region based on location of assets.
When an accounting policy is altered, comparative figures are restated if required by the applicable accounting statement and where material. During the last financial year, the accounting policy for borrowing costs was amended. The change had no impact on the financial results of the Group and hence no restatements were required in the Group’s financials.
Interests in associates
An associate is an enterprise over which the Group has significant influence, but that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies.
GROUP FINANCIAL STATEMENTS
More detail on the associate company held in the prior period can be found in note 16.
The results, assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held-for-sale, in which case it is accounted for under IFRS 5 Non-current Assets Held for Sale and Discontinued Operations. The carrying amount of such interests is reduced to recognise any decline, other than a temporary decline, in the value of individual investments. The carrying amount reflects the Group’s share of net assets of the associate and includes any goodwill on acquisition, less any impairment in the value of individual investments.
Any excess of the cost of acquisition over the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any deficiency of the cost of acquisition below the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition (ie discount on acquisition) is credited to profit or loss in the period of acquisition.
Where a Group enterprise transacts with an associate of the Massmart Group, unrealised profits and losses are eliminated to the extent of the Group’s interest in the relevant associate, except where unrealised losses provide evidence of an impairment of the asset transferred.
GROUP FINANCIAL STATEMENTS
More detail on goodwill and the Group’s cash-generating units can be found in note 14.
Goodwill arising on consolidation of a subsidiary represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary or jointly controlled entity at the date of acquisition. Any deficiency of the cost of acquisition below the fair values of the identifiable net assets acquired (ie discount on acquisition) is credited to profit or loss in the period of acquisition.
Goodwill is initially recognised as an asset at cost and is subsequently measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill is allocated to each of the Groups cash-generating units expected to benefit from the synergies of the combination. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. If the recoverable amount of the cash-generating unit is less than the carrying amount of the unit, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of a subsidiary or jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
The Groups policy for goodwill arising on the acquisition of an associate is described under Interests in associates above.
Non-current assets held for sale
Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale which should be expected to qualify for recognition as a completed sale within one year from the date of classification.
Non-current assets (and disposal groups) classified as held for sale are measured at the lower of the assets previous carrying amount and fair value less costs to sell.
GROUP FINANCIAL STATEMENTS
More detail on segmental reporting can be found in note 40.
Property, plant and equipment
Freehold land is shown at cost and is not depreciated. Property, plant and equipment is shown at cost less accumulated depreciation, and reduced by any accumulated impairment losses.
Property cost includes professional fees. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Where expenditure incurred on property, plant and equipment will lead to future economic benefits accruing to the Group, these costs are capitalised. Repairs and maintenance are expensed as and when incurred.
Depreciation is charged so as to write off the cost of assets, other than land, over their estimated useful lives, using the straight-line method, on the following bases:
|Fixtures, fittings, plant, equipment and motor vehicles||4 to 15 years|
|Computer hardware||3 to 8 years|
|Leasehold improvements||Shorter of lease period or useful life|
Useful life and residual value is reviewed annually and the prospective depreciation is adjusted accordingly.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the term of the relevant lease.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in profit or loss.
GROUP FINANCIAL STATEMENTS
More detail on intangible
assets can be found in
Trademarks are measured initially at purchased cost. Intangible assets are shown at cost less accumulated amortisation, and reduced by any accumulated impairment losses.
Amortisation is charged so as to write off the cost of assets over their estimated useful lives, using the straight-line method, on the following bases:
|Computer software||3 to 8 years|
Useful life is reviewed annually and the prospective depreciation is adjusted accordingly.
Impairment of tangible and intangible assets excluding goodwill
GROUP FINANCIAL STATEMENTSMore detail on impairment can be found in:
At each reporting date, the Group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets may be impaired. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.
The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (cash-generating unit) is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.
Where an impairment loss subsequently reverses, the carrying amount of an asset (cash-generating unit) is increased to the revised estimate of its recoverable amount. This is done so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised immediately in profit or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.
GROUP FINANCIAL STATEMENTS
More detail on revenue can be found in note 4 .
Revenue of the Group comprises net sales, royalties and franchise fees, investment income, finance charges, property rentals, management and administration fees, commissions and fees, dividends and excludes value-added tax. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and sales-related taxes.
Sales of goods are recognised when goods are delivered and title has passed.
Interest income is accrued on a time basis, by reference to the principal outstanding and the interest rate applicable.
Dividend income from investments is recognised when the shareholders rights to receive payment have been established.
Other revenue is recognised on the accrual basis in accordance with the substance of the relevant agreements and measured at fair value of the consideration receivable.
GROUP FINANCIAL STATEMENTSMore detail on finance leases can be found in:
- Note 6 – Operating profit
- Note 24 – Non-current liabilities
- Note 26 – Trade and other payables
- Note 32 – Operating lease commitments
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are capitalised at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor, net of finance charges, is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss.
Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease.
The individual financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (ie its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in the functional currency of the Group, and the presentation currency for the consolidated financial statements.
Transactions in currencies other than the Group reporting currency (South African Rands) are initially recorded at the rates of exchange prevailing on the dates of the transactions. In order to hedge its exposure to certain foreign exchange risks, the Group has a policy of covering forward all its foreign exchange liability transactions of a trading nature (see below for details of the Groups accounting policies in respect of such derivative financial instruments).
GROUP FINANCIAL STATEMENTSMore detail on foreign currencies can be found in:
At each reporting date, monetary assets and liabilities that are denominated in foreign currencies are retranslated at the rates prevailing on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement and retranslation of monetary items are included in profit and loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit and loss for the period. However, where fair value adjustments of non-monetary items are recognised directly in equity, exchange differences arising on the retranslation of these non-monetary items are also recognised directly in equity.
On consolidation, the assets and liabilities of the Groups overseas operations (including comparatives) are translated at exchange rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period unless exchange rates fluctuate significantly. Exchange differences arising, if any, are classified as equity and transferred to the Groups translation reserve. Such translation differences are recognised as income or as expenses in the period in which the operation is disposed of.
The financial statements (including comparatives) of foreign subsidiaries and associates that report in the currency of a hyperinflationary economy are restated in terms of the measuring unit current at the reporting date before they are translated into South African Rands.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate.
Government grants for staff training costs are recognised in profit or loss over the periods necessary to match them with the related costs and are deducted in reporting the related expense. Income is not recognised until there is reasonable assurance that the grants will be received.
Retirement benefit costs
GROUP FINANCIAL STATEMENTS
More detail on retirement benefit costs can be found in note 30.
Payments to defined contribution plans are charged as an expense as they fall due. There are no defined retirement benefit plans in the Group.
Post-retirement healthcare benefits
Post-retirement healthcare benefits are provided by certain Group companies to qualifying employees and pensioners. The healthcare benefit costs are determined through annual actuarial valuations by independent consulting actuaries using the projected unit credit method. Such gains or losses are recognised over the expected remaining working lives of the participating members. Adjustments are made annually through profit or loss for provisions held for members who have already retired. Actuarial gains and losses are recognised in full in the period in which they occur.
GROUP FINANCIAL STATEMENTS
More detail on post-retirement medical aid can be found in note 25.
Income tax expense represents the sum of the tax currently payable and deferred tax.
The tax charge payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Groups liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the reporting date.
Deferred taxation is accounted for using the balance sheet liability method in respect of temporary differences arising from differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. In general, 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 or from the initial recognition (other than in a business combination) of other assets and liabilities, which affects neither the tax profit nor the accounting profit at the time of the transaction.
GROUP FINANCIAL STATEMENTSMore detail on taxation can be found in:
Deferred tax liabilities are recognised for taxable temporary differences arising on 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.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability 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.
Secondary Taxation on Companies (STC) is payable on net dividends paid and is recognised as a tax charge in profit or loss in the year it is incurred.
Any tax on capital gains is deferred if the proceeds of the sale of the assets are invested in similar assets, but the tax will ultimately become payable on sale of that similar asset.
GROUP FINANCIAL STATEMENTS
More detail on inventories can be found in note 19.
Inventories, which consist of merchandise, are valued at the lower of cost and net realisable value. Cost is calculated on the weighted-average method. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
Financial assets and financial liabilities are recognised on the Groups statement of financial position when the Group becomes a party to the contractual provisions of the instrument.
GROUP FINANCIAL STATEMENTS
More detail on financial instruments can be found in note 39.
Financial assets are classified into the following specified categories:
The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.
Effective interest method
This is a method of calculating the amortised cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset or, where appropriate, a shorter period.
Income is recognised on an effective interest basis for debt instruments other than those financial assets designated as at fair value through profit or loss.
Loans and receivables
Trade receivables, loans and other receivables are measured initially at fair value, and are subsequently measured at amortised cost using the effective interest method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit and loss when there is objective evidence that the asset is impaired.
Cash and cash equivalents
Cash and cash equivalents are measured at fair value. For purposes of the statement of cash flows, cash and cash equivalents comprise cash on hand, deposits held on call with banks and investments in money-market instruments that are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value, net of bank overdrafts.
GROUP FINANCIAL STATEMENTS
More detail on investments can be found in note 16.
Investments are recognised and derecognised on a trade date basis where the purchase or sale of an investment is under contract whose terms require delivery of the investment within the timeframe established by the market concerned, and are initially measured at fair value, plus directly attributable transaction costs.
At subsequent reporting dates, debt securities that the Group has the express intention and ability to hold to maturity (held-to-maturity debt securities) are measured at amortised cost using the effective interest method, less any impairment loss recognised to reflect irrecoverable amounts. An impairment loss is recognised in profit or loss when there is objective evidence that the asset is impaired, and is measured as the difference between the investments carrying amount and the present value of estimated future cash flows discounted at the effective interest rate computed at initial recognition.
Impairment losses are reversed in subsequent periods when an increase in the investments recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the amortised cost would have been had the impairment not been recognised.
Investments other than held-to-maturity debt securities are classified as either investments held-for-trading or as available-for-sale, and are subsequently measured at fair value. Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in profit or loss for the period.
Unrealised gains and losses on available-for-sale investments are recognised directly in equity until the disposal or impairment of the relevant investment, at which time the cumulative gain or loss previously recognised in equity is included in the profit or loss for the period. Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as available-for-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss.
Listed investments are carried at market value, which is calculated by reference to stock exchange quoted selling prices at the close of business on the reporting date.
Financial liabilities and equity
Financial liabilities are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. Debt instruments issued, which carry a right to convert to equity that is dependent on the outcome of uncertainties beyond the control of both the Group and the holder, are classified as liabilities, except where conversion is certain. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities.
Financial liabilities, other than derivative instruments, are recognised at amortised cost, comprising original debt less principal payments and amortisations.
Financial liabilities include finance lease obligations, interest-bearing bank loans and overdrafts, and trade and other payables. The accounting policy for finance lease obligations is outlined here.
Interest-bearing bank loans and overdrafts are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest 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 Groups accounting policy for borrowing costs (see below).
Trade and other payables are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest method.
Equity instruments are recorded as the proceeds received, net of direct issue costs.
Derivative financial instruments and hedge accounting
The Groups activities expose it primarily to the financial risks of changes in foreign exchange rates and interest rates.
The Group uses foreign exchange forward contracts to hedge its exposure to foreign currency fluctuations relating to certain firm trading commitments. The use of financial derivatives is governed by the Groups policies approved by the Board, which provide written principles on the use of financial derivatives consistent with the Groups risk management strategy. The Group does not trade in derivative financial instruments for speculative purposes.
Derivative financial instruments are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates.
The effective portion of the changes in fair value of derivative financial instruments that are designated and qualify as cash flow hedges are recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in profit or loss. If the hedged firm commitment or forecast transaction results in the recognition of an asset or liability, then, at the time the asset or liability is recognised, the associated gains or losses on the derivative that had previously been recognised in equity are included in the initial measurement of the asset or liability. Amounts deferred in equity are recognised in profit or loss in the same period in which the hedged firm commitment affects profit or loss.
Changes in the fair value of derivative financial instruments that do not qualify as cash flow hedges are recognised in profit or loss as they arise.
The hedge is de-designated as a cash flow hedge at the Shipped on Board date, and discontinued when the hedging instrument is sold, expired, terminated, exercised, or no longer qualifies for hedge accounting. At the time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until the forecast transaction is recognised in profit or loss. If a hedged transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to profit or loss for the period.
Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, and it is probable that the Group will be required to settle that obligation. Provisions are measured at managements best estimate of the expenditure required to settle the obligation at the reporting date, and are discounted to present value where the effect is material.
The Group issues equity-settled share-based payments to employees who are beneficiaries of the various Group share schemes. Equity-settled share-based payments are measured at fair value (excluding the effect of non-market-based vesting conditions) at the date of grant. The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Groups estimate of shares that will eventually vest and adjusted for the effect of non-market-based vesting conditions.
GROUP FINANCIAL STATEMENTS
More detail on share-based payments can be found in note 22.
Fair value is measured by use of a Binomial model. The expected life used in the model has been adjusted, based on managements best estimate, for the effects of non-transferability, exercise restrictions, and behavioural considerations.
All borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset form part of the cost of that asset. All other borrowing costs are recognised as an expense in the period in which they are incurred.
International Financial Reporting Standards
Massmart first adopted International Financial Reporting Standards (IFRS) with effect from 1 July 2005. Subsequent amendments have been made to the standards, resulting in revised issue and version dates. All these amendments have been complied with in line with the transitional provisions of that standard.
There has been no impact on the business, financial or practical of any amendments become effective in the past financial year. The Group is exposed to the following suite of standards:
The Improvements to International Reporting Standards is a relatively new standard issued by the International Accounting Standards Board (IASB). This standard is due to be issued annually and is the IASBs project that provides them with a vehicle for making non-urgent but necessary amendments to IFRSs. Some amendments involve consequential amendments to other IFRSs. Massmart has adopted the standard issued in April 2009. There were no financial or practical implications on the business. A new standard was issued in May 2010 that becomes effective for Massmarts 2012 financial year-end.
There were various other smaller amendments made to the standards which we feel are not material and thus have not listed them individually.
IFRS 9 Financial Instruments was issued in January 2010 and again in December 2010, effective for year-ends beginning on or after 1 January 2013, which would mean the Groups 2014 financial year. Early adoption is permitted, but the Group has elected not to do so. IFRS 9 is currently unfinished, and the intention is for it to replace IAS 39 Financial Instruments: Recognition and Measurement in its entirety. In its current format, there is no financial impact on the Groups results. However, the biggest theoretical change for the Group is the change from the four classifications of financial assets (being: fair value through profit or loss, loans and receivables, held-to-maturity and available-for-sale) to two classifications (being: assets measured at fair value through profit or loss and those measured at amortised cost). The standard does allow the entity to elect that certain equity investments be measured at fair value with value changes reported in other comprehensive income. The new standard enhances the ability of investors and other users of financial information to understand the accounting of financial assets and reduces its complexity.
Four additional standards were issued but are not yet effective for the current period. They are listed below with a brief description of the amendment. These standards are all effective for year-ends beginning on or after 1 January 2013, which would mean the Groups 2014 financial year.
Interpretations of Statements of Generally Accepted Accounting Practice
The International Financial Reporting Interpretations Committee (IFRIC) is a committee of the International Accounting Standards Board (IASB) that assists the IASB in establishing and improving standards of financial accounting and reporting for the benefit of users, preparers and auditors of financial statements. The role of the IFRIC is to provide timely guidance on newly identified financial reporting issues not specifically addressed in International Financial Reporting Standards (IFRSs) or issues where unsatisfactory or conflicting interpretations have developed, or seem likely to develop. It thus promotes the rigorous and uniform application of IFRSs.
The following IFRICs were issued or re-issued since the start of the financial year, or earlier but became effective for the current financial year. There is no impact on the Group from any of these IFRICs, and they have only been included for completeness.
A circular is issued by the Johannesburg Stock Exchange Limited (JSE) or The South African Institute of Chartered Accountants (SAICA) where guidance or clarification is required on an identified financial reporting issue on a South African platform (as opposed to an IFRIC, discussed above, that operates on an international platform). This assistance is required to establish and improve standards of financial accounting and reporting for the benefit of users, preparers and auditors of financial statements. It thus attempts to promote the rigorous and uniform application of the standards.
The following circular was issued since the start of the 2011 financial year. It has no impact on the Group, and has been included for completeness.
The Groups accounting policies are governed by IFRS and the AC 500 series as issued by the Accounting Practices Board and listed above. Guidance has been obtained from IFRICs and circulars effective on 5 October 2011, also listed above. Due to the nature and volatility of Exposure Drafts (EDs), no review has been provided, except for the lease exposure draft specifically discussed above.
The Group believes that accounting standards set the minimum requirement for financial reporting. The financial statements in this Annual Report have been prepared with the aim of exposing the reader to a very detailed view of the numbers, using a simplified approach, in the hope of facilitating a deeper and informed understanding of the business.
|Change in fair value of financial assets carried at fair value through profit or loss||56.6||42.2|
|Instalment-sale finance charges||1.8||1.0|
|Dividends from unlisted investments||2.1||2.3|
|Royalties and franchise fees||34.3||28.7|
|Management and administration fees||3.7||3.6|
|Commissions and fees||20.3||17.4|
|Credits to operating profit include:|
|Foreign exchange profit||89.0||93.3|
|Profit on disposal of tangible and intangible assets||2.3||6.1|
|Charges to operating profit include:|
|Depreciation and amortisation (owned assets):||454.1||361.7|
|Fixtures, fittings, plant and equipment||271.9||212.2|
|Right of use||1.9|||
|Depreciation and amortisation (leased assets):||22.2||21.1|
|Fixtures, fittings, plant and equipment||3.0||2.8|
|Foreign exchange loss||161.3||181.0*|
|Share-based payment expense||110.7||149.4|
|Massmart Holdings Limited Employee Share Trust||68.8||79.7|
|Massmart Thuthukani Empowerment Trust||33.5||57.8|
|Massmart Black Scarce Skills Trust||8.4||11.9|
|Operating lease charges||1,136.6||961.6|
|Land and buildings||1,083.5||915.6|
|Plant and equipment||35.2||32.8|
|Loss on disposal of tangible and intangible assets||6.3||9.7|
|Walmart Transaction Costs||408.8|||
|Accelerated share-based payment charge||70.1|||
|Supplier Development Fund||100.0|||
|Administrative and outsourcing services||70.9||67.7|
|Current year fee||17.3||14.0|
|Prior year under provision||0.3|||
|Tax advice and reviews||4.3||1.1|
|Consulting and business reviews||1.7||0.9|
|*||Foreign exchange movements relating to the cost of stock have been reallocated from Foreign exchange loss to Cost of sales in June 2010 (R76.6 million), in line with the Groups accounting policy.|
The Group was exposed to the following currencies for the period under review and their year-end exchange rates were:
In the 2007 financial year, the decision was made to prospectively deconsolidate the results of the Zimbabwean Makro operations.
In terms of IAS 27 Consolidated and Separate Financial Statements, control is defined as 'the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities'. It is evident from the current social, political and economic develpoments within Zimbabwe that control does not exist. This has been evidenced through the forcing of retailers to sell goods at predetermined prices and the inablility of the Massmart Group to repatriate monies. It is Massmart's view that, throughout the 2010 financial year, it did not have control over the Zimbabwean operations and, as such, the results remained deconsolidated.
On deconsolidation in 2007, the investment in Makro Zimbabwe was reflected as an 'available-for-sale' financial asset. The fair value of this asset was determined to be zero and the adjustment taken to equity as a reserve. For the period under review the fair value was again assessed as zero and, as a result, there has been no fair value movement. Details can be found in note 16.
The agreement to sell Makro Zimbabwe was signed in November 2010 and was finalised in late February 2011. The loss on sale of R38.6 million represents costs relating to the disposal of the Makro Zimbabwe stores.
|Interest on bank overdrafts and loans||131.4||81.9|
|Interest on obligations under finance leases||9.0||10.7|
|Income from investments, receivables and bank accounts||33.2||45.9|
Details on the loans and finance leases can be found in note 24.
|South African normal taxation:|
|Secondary taxation on companies||83.9||79.9|
|Taxation effect of participation in export partnerships||0.3||0.3|
|Prior year (over)/under provision:|
|South African normal taxation:|
|Deferred taxation (impairment of deferred taxation assets)||0.2||0.6|
|Taxation as reflected in the Income Statement||585.3||608.2|
|The rate of taxation is reconciled as follows:|
|Standard corporate taxation rate||28.0||28.0|
|Prior year under-provision (including impairment)||(1.4)||(1.2)|
|Secondary taxation on companies||5.6||4.6|