Annual Report 2009 Annual Report 2009
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Notes to the annual financial statements
for the year ended 30 September 2009

    GROUP
    2009   2008
    R'000   R'000
1. Accounting policies      
  The principal accounting policies incorporated in the preparation of these financial statements are set out here.
      
2. Critical accounting estimates and judgements      
  Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Group makes estimates and judgements concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and judgements that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.

Key assumptions and critical judgements
Goodwill
The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy for goodwill. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations.  These calculations require the use of estimates. Refer to note 12 for key assumptions used.

Provisions for post-retirement medical benefits and long service awards
These provisions are determined by annual actuarial calculations. Refer to note 26 for estimates used in these calculations.

Property, plant and equipment
These items are depreciated over their useful lives, taking into account the residual value at the end of the item’s useful life. Residual values and useful lives are based on industry knowledge and past experience with similar assets.

Intangible assets with finite useful lives
These items are amortised over their useful lives that are based on industry knowledge and past experience with similar assets.

Intangible assets with indefinite useful lives
Indefinite useful lives are allocated to intangible assets if there is no foreseeable limit to the period over which the Group expects to consume the future economic benefits embodied in the intangible asset. In making this assessment, management follows the guidance in IAS 38. The Group has classified a number of its trademarks as indefinite life, as indicated in note 12, by considering amongst other factors these brands’ history, current market share, brand development strategy and expected future benefits to be derived from these assets.

Share-based payments
The fair value of employee services received in exchange for the grant of options or class A ordinary shares is determined by reference to the fair value of the options granted and the shares issued. Refer to note 22 for assumptions used in these calculations.

Assessment of control over contract growers
The Group assesses whether it exercises control over contract growers based on an analysis of the activities of these entities, the Group’s decision-making powers, its ability to obtain benefits from these entities and the residual risks regarding these entities that are retained by the Group. Based on this analysis the Group concluded that it does not control the activities of any contract grower.

Contingent liabilities – Complaint referral by the Competition Commission of South Africa
Based on legal opinion obtained, the Group determined that the complaint referral by the Competition Commission as described in note 30 is a contingent liability and no provision was raised. The Group considers the guidance in IAS 37 to distinguish between provisions and contingent liabilities.
      
3. Operating profit      
  Operating profit is calculated after taking into account items of a capital nature (refer to note 4) as well as the following:
      
3.1 Operating income      
  Foreign exchange differences 60 378   61 315
  Financial assets at fair value through profit and loss      
    Foreign exchange contract fair value adjustments 60 290   32 345
    Fair value adjustment on interest rate swaps 35   1 263
    Fair value adjustment on interest rate collars 405   1 312
    Ineffective portion of cash flow hedges – futures 8 098   1 944
  Agricultural produce fair value adjustment 30   168
  Administration fees received 1 106   1 447
  Government grant amortisation 739   545
  Reversal of inventory previously written off 10 161   347
  Share-based payments      
    Broad-based share incentive scheme –   4 829
3.2 Operating expenditure      
  Staff costs 1 999 334   1 741 256
    Wages and salaries 1 731 074   1 526 210
    Termination benefits 4 608   3 515
    Other personnel costs 97 588   110 073
    Pension costs 114 700   99 099
    Share-based payments 51 364   2 359
  Technical services from non-employees 25 169   30 315
  Auditors' remuneration 11 409   11 375
    Audit – current year 9 403   9 057
      – (over)/under provision previous year (30)   434
    Tax related services 180   729
    Other consultation services 1 856   1 155
  Machine rental 22 477   21 938
  Rental of vehicles 7 726   7 864
  Rental of premises 87 691   76 192
  Depreciation and amortisation (refer to note 48) 269 086   252 259
    Own assets 249 333   232 887
    Leased assets 87   95
    Intangible assets 19 666   19 277
  Inventory written off 191 977   114 887
  Post-retirement medical benefits (refer to note 26) 116   952
  Change in provision for impairment of trade receivables 2 533   1 302
  Change in allowance for outstanding credit notes 1 528   11 417
  Foreign exchange differences 60 341   37 399
  Financial assets at fair value through profit and loss      
    Foreign exchange contract fair value adjustments 64 340   53 653
    Fair value adjustment on interest rate collars 8 869   –
    Research and development costs 24 480   19 008
    Administration fees paid 398   208
  Share-based payments 51 364   7 188
    Broad-based share incentive scheme 41 363   –
    Share options 5 090   5 066
    Share appreciation rights 4 911   2 122
         
3.3 Biological assets fair value adjustment      
  The adjustment of biological assets from cost to fair value includes a realised and unrealised component. The unrealised portion is reflected in the carrying amount of biological assets in the balance sheet and the realised portion is reflected in cost of sales.      
  Unrealised – reflected in carrying amount of biological assets 9 565   12 478
  Realised – reflected in cost of goods sold 170 345   57 129
    179 910   69 607
         
4. Items of a capital nature      
  Net (loss)/profit on disposal of property, plant, equipment and intangible assets (11 014)   3 323
    Gross (16 346)   1 670
    Tax effect 5 332   1 653
  Net profit on disposal of available-for-sale-financial assets 1 512   1 057
    Gross 1 676   1 239
    Tax effect (164)   (182)
  Impairment of property, plant and equipment (6 272)   (1 978)
    Gross (8 711)   (2 747)
    Tax effect 2 439   769
  Impairment of trademarks –   (2 660)
    Gross –   (3 694)
    Tax effect –   1 034
  Impairment of goodwill (44 641)   (15 837)
    Gross (44 641)   (15 837)
    Tax effect –   –
         
  Group total (60 415)   (16 095)
    Gross (68 022)   (19 369)
    Tax effect 7 607   3 274
         
         
5. Investment income      
  Interest income on financial assets: loans and receivables 26 973   30 473
    Joint ventures 4 438   4 565
    Amortised cost adjustment 692   1 351
    Call accounts and other 21 843   24 557
  Dividend income on available-for-sale financial assets 1 742   999
    Listed shares 1 105   878
    Unlisted shares 637   121
         
    28 715   31 472
         
6. Finance costs      
  Interest cost on financial liabilities measured at amortised cost      
    Joint ventures 321   186
    Non-current borrowings 147 675   61 962
    Provisions: unwinding of discount 7 770   6 758
    Call loans and bank overdrafts 47 548   181 880
  Fair value loss on financial liabilities measured at fair value through profit or loss      
    Interest rate swaps: transfers from equity 21 240   –
    224 554   250 786
         
7. Income tax expense      
  Current income tax 222 755   135 872
    Current year 222 709   135 923
    Under/(over) provision previous years 46   (51)
  Deferred income tax 93 340   22 913
    Current year 93 340   36 325
    Rate change –   (13 412)
  Secondary taxation on companies 18 820   15 623
    Current year 18 820   15 623
         
    334 915   174 408
  The income tax on the Group’s profit before income tax differs from the theoretical amount that would arise using the statutory rate of 28% (2008: 28%) as follows:      
    %   %
  Standard rate for companies 28.0   28.0
  Increase/(decrease) in rate:      
    Exempt income (0.1)   (0.1)
    Effect of assessed losses 1.0   0.1
    Secondary taxation on companies 2.1   2.5
    Non-deductible expenditure 3.5   1.7
    Rate change –   (2.1)
    Effect of capital gains tax (0.2)   (0.3)
    Other differences (0.7)   (2.0)
    Deferred income tax asset derecognised 3.8   –
  Effective rate 37.4   27.8
         
    R’000   R’000
  Gross calculated tax losses of certain subsidiaries at the end of the financial year available for utilisation against future taxable income of those companies 283 740   267 938
  Less: Utilised in reduction of deferred income tax (79 135)   (204 625)
  Net calculated tax losses carried forward 204 605   63 313
  Tax relief at current tax rates 57 289   18 869
  Utilisation of tax losses is dependent on sufficient taxable income being earned in the future by the subsidiaries concerned.
      
    GROUP
    2009   2008
    Number   Number
8. Earnings per ordinary share      
  Basic
The calculation of earnings per ordinary share is based on earnings attributable to equity holders of the Group of R560,519,314 (2008: R452,145,518) and 174,706,624 (2008: 160,160,357) weighted average ordinary shares in issue during the year.

Diluted
Share options and appreciation rights issued in terms of share incentive schemes have a dilutive effect on earnings per ordinary share. A calculation is done to determine the number of shares that could have been acquired at fair value (determined as the average annual market share price of the Company’s shares) based on the monetary value of the subscription rights attached to outstanding share options as well as share appreciation rights. The calculation of diluted earnings per ordinary share is based on earnings attributable to equity holders of the Group of R560,519,314 (2008: R452,145,518) and 177,534,380 (2008: 164,144,864) weighted average ordinary shares in issue during the year.

Reconciliation of weighted average ordinary shares in issue during the year:		      
  Weighted average ordinary shares 174 706 624   160 160 357
  Adjusted for share options and appreciation rights 2 827 756   3 984 507
  Weighted average ordinary shares for diluted earnings 177 534 380   164 144 864
         
    R'000   R'000
  Reconciliation between earnings and headline earnings      
  (Adjustments are after income tax and minority interest)      
  Earnings attributable to equity holders of the Group 560 519   452 146
  Items of a capital nature (refer to note 4) 60 415   16 095
  Headline earnings 620 934   468 241
  Headline earnings per ordinary share (cents) 355.4   292.4
  Diluted earnings per ordinary share (cents) 315.7   275.5
         
9. Dividend per ordinary share      
  Interim      
    36,0 cents (2008: 30,0 cents) per ordinary share 72 426   54 355
  Final      
    89,0 cents (2008: 66,0 cents) per ordinary share 179 054   132 781
    251 480   187 136
  Dividends payable are not accounted for until they have been declared by the board of directors. The statement of changes in equity does not reflect the final dividend payable. The final dividend for the year ended 30 September 2009 will be accounted for as an appropriation of retained earnings in the year ending 30 September 2010. Secondary taxation on companies (STC) will be applicable to the dividend paid at a rate of 10,0%.
     
10. Directors’ remuneration      
  Non-executive directors      
    Fees 2 168   1 914
  Executive directors paid by subsidiaries 19 199   10 101
    Salaries 9 985   9 028
    Retirement benefits 1 044   1 073
    Performance bonuses 8 170   –
         
  Annual remuneration 21 367   12 015
  Profit from share incentive scheme 8 232   3 127
  Total remuneration 29 599   15 142
  Paid by subsidiaries (19 199)   (10 101)
  Non-cash profit from share incentive scheme (8 232)   (3 127)
  Paid by the Company 2 168   1 914
  Refer to note 52 for further detail.      
    Number   Number
    ‘000   ‘000
  Executive directors’ share incentive scheme      
  Beginning of the year 2 278   2 134
  Redeemed (404)   (160)
  New offer at R25,48 per share (share appreciation rights) –   154
  New offer at R24,20 per share (share appreciation rights) 132   –
  Rights offer at R25,00 per share –   150
  End of the year 2 006   2 278
  At R8,65 per share, exercisable up to 27 May 2014 1 058   1 462
  At R14,05 per share, exercisable up to 24 December 2014 228   228
  At R21,86 per share, exercisable up to 25 January 2016 171   171
  At R31,42 per share, exercisable up to 12 February 2017 113   113
  At R25,00 per share, payable by 27 May 2014 (originating from rights offer) 150   150
  At R25,48 per share, exercisable up to 9 June 2018 (share appreciation rights) 154   154
  At R24,20 per share, exercisable up to 27 February 2019 (share appreciation rights) 132   –
  Shares under option and share appreciation rights 2 006   2 278
  Refer to note 54 for further detail.