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
11. Property, plant and equipment      
  Land and buildings 967 550   833 589
  Plant, machinery and equipment 1 859 775   1 821 240
  Vehicles 271 344   287 857
  Net book value 3 098 669   2 942 686
  Property, plant and equipment include items leased by the Group to third parties under operating leases with the following carrying amounts:      
  Cost      
  As at beginning of the year 68 519   66 953
  Additions and transfers 21 470   3 632
  Disposals (1 687)   (2 066)
    88 302   68 519
  Accumulated depreciation      
  As at beginning of the year 24 926   22 519
  Charge for the year 4 122   3 099
  Transfers 3 475   (582)
  Disposals (943)   (110)
    31 580   24 926
         
  Net book value 56 722   43 593
  Refer to note 48 for further detail.

Property, plant and equipment in the course of construction amounts to R105,899,421 (2008: R116,975,674).

A register with full detail of property, plant and equipment is available at the Company’s registered office.

Refer to note 24 for detail of property, plant and equipment encumbered as security for borrowings from financial institutions.

Leased assets with a book value of Rnil (2008: R1,309,601) serve as security for capitalised lease agreements.

No major change in the nature of property, plant and equipment or change in the policy regarding the use thereof took place during the financial year.
      
12. Intangible assets      
  Trademarks 364 847   367 043
  Goodwill 222 625   269 559
  Intellectual property 17 104   16 245
  Computer software 44 333   26 668
  Net book value 648 909   679 515
  Refer to note 48 for further detail.

Included in trademarks are the following trademarks with their carrying values and remaining amortisation periods:		      
  Ceres trademarks – indefinite life (2008: indefinite life) 121 654   121 654
  Moir’s – indefinite life (2008: indefinite life) 55 741   55 741
  Marmite – indefinite life (2008: indefinite life) 33 288   33 288
  Bovril – indefinite life (2008: indefinite life) 33 886   33 886
  Pecks – indefinite life (2008: indefinite life) 19 245   19 245
  Redro – indefinite life (2008: indefinite life) 14 239   14 239
  Smash – indefinite life (2008: indefinite life) 21 506   21 506
  Maizena – indefinite life (2008: indefinite life) 18 820   18 820
  Wild Island – indefinite life (2008: indefinite life) 17 144   17 144
  W Daly and W Daly & Sons - 20 years (2008: 21 years) 8 172   8 570
  ProNutro – indefinite life (2008: indefinite life) 3 450   3 450
  Nature’s Source – indefinite life (2008: indefinite life) 2 650   2 650
  Tower – indefinite life (2008: indefinite life) 2 116   2 116
  Other – nil to 17 years (2008: nil to 18 years) 12 936   14 734
    364 847   367 043
         
  Impairment test for goodwill      
  Goodwill acquired in a business combination is allocated, at acquisition, to the Group's cash-generating units (CGU's) that are expected to benefit from the business combination.  The carrying amount of goodwill has been allocated as follows:      
  Sasko 3 597   3 564
  Agri Business –   –
  Bokomo Foods 162 633   209 600
  Ceres Beverages 56 395   56 395
    222 625   269 559
  The recoverable amount of a CGU is determined based on value-in-use calculations.  These calculations use pre-tax cash flow projections based on financial budgets approved by management covering a 5-year period.  Cash flow beyond the five-year period are extrapolated using the estimated rate stated below.  The growth rates do no exceed the long-term average growth rate for the food industry in which the CGU operates.

The Group re-assessed and adjusted the carrying values of the underlying intangible assets of the Moir's and Kwality businesses with amounts of R44,641,298 (2008: R14,386,742) and Rnil (2008: R5,905,895) respectively.  These impairment losses were calculated by comparing the carrying amount of the CGU to the value-in-use of these CGU's.

Key assumptions used for value-in-use calculations:
Growth rates from 0,0% to 5,4% (2008: 5,0% to 6,0%)
Discount rates from 12,7% to 24,4% (2008: 16,5% to 21,3%)

These assumptions have been used for the analysis of each CGU within the business segment.  Management determined the budgeted gross margins based on past performance and its expectations for market development.  The growth rate used represents the long-term growth rate based on a medium-term outlook on forecasted inflation rates.  The discount rate represents a pre-tax rate based on the Group's weighted average cost of capital.
      
13. Biological assets      
  Vineyards 14 004   11 599
  Livestock – cattle –   338
  Livestock – poultry 151 732   143 366
    165 736   155 303
  Less: Realisable within 12 months, transferred to current assets (151 732)   (143 366)
    14 004   11 937
         
    GROUP
    2009   2008
    Number   Number
  The Group is engaged in dried fruit and poultry production for supply to various customers.  Poultry includes point-of-lay hens, day-old chicks, broilers and eggs.

The fair value of vineyards is calculated as the future expected net cash flows from the asset, discounted at a current market-determined rate, over the remaining useful lives of the vineyards. A discount rate of 16,0% (2008: 16,5%) was used.

At 30 September, the Group held the following biological assets:		      
  Chickens – laying 3 736 009   3 634 984
  Chickens – broilers 3 401 223   3 918 991
  Chickens – grand parents 5 666   5 604
  Hatching eggs 6 875 159   5 324 294
  Vineyard – hectares 118   118
  Land (vegetables) – hectares 34   34
  Cattle –   100
  The following is the agricultural produce of the Group for the year ended 30 September:      
  Dozens of eggs 35 465 954   29 920 069
  Kilograms of meat 52 193 386   52 013 601
  Number of day-old chicks 53 052 305   50 316 262
  Number of point-of-lay hens 5 769 855   5 514 403
  Number of culls 1 349 741   1 483 000
  Rand value of vegetables produced 954 188   717 971
  Kilograms of fresh grapes produced 1 122 609   1 209 610
         
    GROUP
    2009   2008
    R’000   R’000
14. Loans to joint ventures      
  Unsecured loans 35 466   29 869
  Proportionately consolidated amounts of joint ventures included in the financial statements:      
  Non-current borrowings (20 076)   (20 998)
  Deferred income tax liabilities (14 556)   (10 330)
  Property, plant, equipment and intangible assets 171 397   136 039
  Current assets 180 851   177 111
  Current liabilities (102 293)   (101 561)
  Net assets 215 323   180 261
         
  Revenue 667 364   563 542
  Expenses (635 769)   (543 202)
  Profit after income tax 31 595   20 340
  Net cash (utilised)/generated (14 322)   24 330
  Refer to note 46 for further detail.
      
15. Investment in associates      
  Unlisted shares at cost 1 700   1 700
  Interest in retained earnings 1 229   790
    2 929   2 490
  Refer to note 47 for further detail.
      
16. Available-for-sale financial assets      
  Shares in other companies      
  Listed 23 918   24 210
    At cost 14 348   11 557
    Fair value adjustment at end of year 9 570   12 653
  Unlisted 7 810   4 980
    At cost 1 373   1 150
    Fair value adjustment at end of year 6 437   3 833
    Foreign exchange translation adjustment –   (3)
         
  Available-for-sale financial assets at fair value 31 728   29 190
  Market value of listed shares 23 918   24 210
  A register with full detail is available at the Company’s registered office.

Available-for-sale financial assets are denominated in the Group's functional currency and no significant risk concentrations exist outside South Africa.  The fair values of listed shares are based on their current bid prices in an active market.  The fair values of unlisted shares are based on quoted prices in an "over-the-counter" market for these shares.
      
17. Inventories      
  Raw material 1 094 480   1 267 855
  Manufactured products 650 085   682 934
  Packaging and consumables 205 751   233 345
    1 950 316   2 184 134
  Inventory carried at fair value less cost to sell amounts to R20,872,125 (2008: R6,466,378).

Inventories and biological assets, with carrying values of R2,003,857,329 (2008: R2,200,726,822), of certain Group companies are pledged as security for general and revolving banking facilities of some of the Group’s subsidiaries. Refer to note 24 for more detail.
     
18. Derivative financial instruments      
  Foreign exchange contracts – not earmarked for hedging (3 801)   (6 104)
  Foreign exchange contracts – cash flow hedges (3 648)   10 829
  Interest rate swaps – not earmarked for hedging –   1 263
  Interest rate collars – not earmarked for hedging (3 461)   1 312
  Interest rate swaps – cash flow hedges (10 806)   (13 144)
  Interest rate collars – cash flow hedges (58 207)   (34 107)
    (79 923)   (39 951)
  For the purposes of the balance sheet derivative financial instruments are presented as follows:      
  Current assets 114   13 717
  Non-current liabilities (26 430)   (37 393)
  Current liabilities (53 607)   (16 275)
    (79 923)   (39 951)
  Trading derivatives are classified as a current asset or liability. The fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability, if the maturity of the hedged item is less than 12 months.  The carrying values of derivative financial instruments represent their fair values at the balance sheet date.

Refer to note 49 for further detail.
      
19. Trade and other receivables      
  Trade receivables 1 517 482   1 648 822
  Allowance for outstanding credit notes (46 731)   (45 203)
  Provision for impairment (6 830)   (4 297)
  Net trade receivables 1 463 921   1 599 322
  Staff 1 266   903
  Prepayments 18 897   11 970
  Receivables from related parties (refer to note 34) 31 290   36 916
  Value-added tax 11 990   29 640
  Loans 16 930   12 294
  Other 10 470   12 085
    1 554 764   1 703 130
  For the purposes of the balance sheet trade and other receivables are presented as follows:      
  Non-current assets 16 930   12 294
  Current assets 1 537 834   1 690 836
    1 554 764   1 703 130
  The carrying value of trade and other receivables approximates their fair value at the balance sheet date.

An allowance for outstanding credit notes is accounted for based on past experience.

At year-end trade receivables with a carrying value of R1,496,787,413 (2008: R1,600,090,127) of certain Group companies were pledged as security for general and revolving banking facilities of some of the Group’s subsidiaries. Refer to note 24 for more detail.

Financial assets that are neither past due nor impaired are considered to be fully performing. The carrying amounts of fully performing financial assets included in trade in other receivables at year-end are:		      
  National customers 684 338   711 287
  Other customers 749 377   822 147
    1 433 715   1 533 434
  The credit quality of fully performing financial assets included in trade and other receivables is supported by the high proportion of the carrying value that can be ascribed to national customers, especially in the formal retail sector. The credit quality of the customer base is considered to be good based on historical default rates.

Financial assets included in trade and other receivables that are outside their normal payment terms are considered to be past due. The following represents an analysis of the past due number of days of financial assets that are past due but not impaired:		      
  National customers      
    Up to 30 days 9 214   20 939
    31 to 60 days 13 333   22 381
    61 to 90 days 5 271   4 664
    91 to 120 days 2 999   2 022
    More than 120 days 3 843   9 571
    34 660   59 577
  Other customers      
    Up to 30 days 26 343   33 429
    31 to 60 days 16 449   15 507
    61 to 90 days 3 714   5 869
    91 to 120 days 3 075   3 379
    More than 120 days 5 915   9 319
    55 496   67 503
  Staff      
    Up to 30 days 2   7
    31 to 60 days 1   4
    61 to 90 days 2   1
    91 to 120 days –   –
    More than 120 days 1   30
    6   42
  Loans to other parties      
    Within 12 months –   129
    Between 1 and 2 years –   143
    Between 2 and 3 years –   159
    Longer than 3 years –   533
    –   964
         
  Total 90 162   128 086
         
  Individually impaired receivables where indicators of impairment are present, comprise of a number of non-material customers.  The following trade receivables were impaired at year-end:      
  National customers –   –
  Other customers 6 830   4 297
  Total 6 830   4 297
  No interest (2008: Rnil) was charged on impaired trade receivables.

Movements on the Group’s provision for impairment of trade receivables are as follows:		      
  At 1 October 4 297   2 995
  Provision for impairment of receivables raised 6 079   3 843
  Receivables provision utilised during the year (1 624)   (2 215)
  Unused amounts reversed (1 922)   (350)
  Foreign exchange translation adjustment –   24
  At 30 September 6 830   4 297
  The renegotiation of customer balances are considered on a case by case basis by the relevant credit managers. The carrying amount of trade receivables that would otherwise be past due or impaired whose terms have been renegotiated:      
  National customers –   –
  Other customers 3 599   1 502
  Total 3 599   1 502
  The Group holds a number of categories of collateral as security for trade receivable balances. These collateral categories include mortgage bonds and notarial bonds, session of debtors, various guarantees and letters of credit.

Fair value of collateral held on past due and impaired trade receivables:		      
  National customers –   –
  Other customers 22 642   18 070
    22 642   18 070
         
  The carrying amount of the Group’s trade receivables is denominated in the following currencies:      
  Covered by means of foreign exchange contracts: 10 608   20 886
  Euro 1 374   3 283
  US Dollar 9 234   17 603
  Uncovered: 1 506 874   1 627 936
  Euro 4 052   4 881
  UK Pound 25 994   35 739
  Botswana Pula 16 328   17 601
  Us Dollar 44 925   56 606
  SA Rand 1 405 206   1 494 495
  Other currencies 10 369   18 614
         
  Total 1 517 482   1 648 822
  The following balances, included in the summary above, are denominated in the functional currencies of the relevant entities:      
  UK Pound 25 600   34 874
  Botswana Pula 16 328   17 601
    41 928   52 475
  Other receivables are largely denominated in the Group’s functional currency and no significant risk concentrations exist outside South Africa.
     
20. Cash and cash equivalents      
  Cash at bank and on hand 301 401   106 038
  Short-term bank deposits 296 128   119 693
    597 529   225 731
  The effective interest rate at the balance sheet date on short-term bank deposits was between 1,4% and 8,3% (2008: 4,5% and 11,5%). These deposits have maturity days ranging from 1 day to 90 days (2008: from 1 day to 180 days).

For the purposes of the cash flow statement, the year-end cash, cash equivalents and bank overdrafts comprised of the following:		      
  Cash and short-term deposits 597 529   225 731
  Short-term borrowings (5 413)   (304 711)
  Bank overdrafts (5 413)   (15 711)
  Call loans –   (289 000)
         
    592 116   (78 980)
  The Group's cash equivalents and short-term deposits are placed with creditable financial institutions with appropriate credit ratings.

The carrying amounts of the Group’s cash and cash equivalents are denominated in the following currencies:		      
  Euro 48   572
  UK Pound 20 414   8 646
  Botswana Pula 4 868   2 600
  Us Dollar 11 555   1 997
  SA Rand 556 256   205 724
  Other currencies 4 388   6 192
  Total 597 529   225 731
  The following balances, included in the summary above, are denominated in the functional currencies of the relevant entities:      
  UK Pound 20 414   8 564
  Botswana Pula 4 868   2 600
    25 282   11 164
  The majority of the Group’s cash and cash equivalents is denominated in the Group’s functional currency and no significant risk concentrations exist outside South Africa.

The carrying amounts of cash and cash equivalents approximate their fair values at the balance sheet date.