Accounting Policies

Basis of preparation

The financial statements and group financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and the requirements of the South African Companies Act on the basis that the group is a going concern. The measurement basis used is the historical cost basis unless otherwise stated.

The financial statements incorporate the following significant accounting policies, which are consistent in all material respects with those applied in the previous year except in the case of goodwill (which is no longer amortised, but is subject to an annual impairment test), operating leases (see note 25), intangible assets and obligations to employees in terms of share appreciation rights as described below (see also note 17.1). The accounting policies of subsidiaries are consistent with those of the holding company.

Basis of consolidation

The group financial statements include the financial statements of the company and its subsidiaries.

Subsidiaries are those entities over whose financial and operating policies the group has the power to exercise control, so as to obtain benefits from their activities.

The group consolidates the share incentive trust and the shares owned by the trust are accounted for as treasury shares.

The results of any subsidiaries acquired or disposed of during the year are included from the dates effective control was acquired and, where applicable, up to the dates effective control ceased.

The identifiable assets and liabilities of companies acquired are assessed and included in the balance sheet at their fair values as at the date of acquisition.

All intragroup transactions and balances, including any unrealised gains arising from intragroup transactions, are eliminated on consolidation.

Financial instruments

Measurement

Financial instruments are initially measured at cost, which is the fair value of the consideration given (in the case of an asset) or received (in the case of a liability) for the instrument. The initial cost includes transaction costs. Subsequent to initial recognition, these instruments are classified according to their nature and are measured as set out below.

Held-to-maturity investments

Held-to-maturity investments are financial assets with fixed or determinable payments and a fixed maturity that the group has the positive intent and ability to hold to maturity. These investments are carried at amortised cost.

Held for trading financial instruments

A financial asset or financial liability held for trading is one that upon initial recognition is designated by the group as held for trading. It includes financial instruments that are acquired or incurred principally for the purpose of selling or repurchasing in the near term and derivatives.

Financial instruments included in this category are options and derivatives, and cash and bank balances.

These financial instruments are subsequently measured at fair value. Where fair value cannot be determined, and there is no fixed or determinable future cash flows or maturity, the financial assets are subsequently measured at cost.

Loans and receivables originated by the group

Loans and receivables originated by the group are financial assets that are created by the group by providing money, goods, or services directly to a debtor.

Financial assets included in this classification are loans and accounts receivable.

These financial instruments are subsequently measured at amortised cost less provision for doubtful debts or impairment losses as appropriate.

Available-for-sale financial assets

Available-for-sale financial assets are those financial assets that are not classified as loans and receivables originated by the group, held-to-maturity investments, or held for trading.

Financial assets included in this category are purchases of preference shares in subsidiary companies for future delivery included in investments in subsidiary companies.

Other financial liabilities

Other financial liabilities are those financial liabilities that are not included in held for trading financial instruments.

Financial instruments classified as other financial liabilities include non-current loans payable, accounts payable and short-term payables.

Other financial liabilities are subsequently measured at amortised cost.

Amortised cost

Amortised cost of a financial asset or financial liability is the amount at which the financial asset or liability was measured at initial recognition less principal repayments, adjusted for the cumulative amortisation of any difference between that initial amount and the maturity amount.

Gains and losses on subsequent measurement

Gains and losses arising from a change in the fair value of financial instruments are included in net profit or loss in the period in which the change arises except in the case of available-for-sale financial assets.

Gains and losses arising from a change in the fair value of available-for-sale financial assets are recognised directly in equity. The cumulative gain or loss so recognised is included in net profit or loss in the period in which the asset is realised.

Gains and losses arising from the change in the fair values of hedging instruments and the related hedged items that are part of a fair value hedge arrangement are included in net profit or loss in the period in which the change arises.

Gains and losses arising from the change in the fair values of hedging instruments that are part of a cash flow hedge arrangement are recognised in equity. Where the hedged transaction results in the recognition of an asset or liability, the cumulative amount recognised in equity is adjusted against the initial cost of that asset or liability when that asset or liability is recognised. For other cash flow hedges, the cumulative amount recognised in equity is reversed to income when the hedged transaction occurs.

Offset

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when the group has a legally enforceable right to set off the recognised amounts, and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Translation of foreign currencies

Transactions in foreign currencies are translated at rates of exchange ruling at the transaction date. Gains and losses arising from the settlement of such transactions are recognised in the income statement.

Monetary assets and liabilities denominated in foreign currencies are translated at the rates of exchange ruling at the balance sheet date.

Unrealised net gains and losses arising on the translation of foreign denominated assets and liabilities are reflected in income for the year unless the underlying asset or liability, in substance, forms part of the group's net investment in a foreign entity, in which case the gain or loss is reflected in non-distributable reserves. Only on the disposal of the net investment are the gains or losses reflected in income for the year.

Foreign subsidiaries

Foreign entities

A foreign entity is a foreign subsidiary, the activities of which are not integral to the activities of the local group.

The financial statements of foreign entities are translated into the reporting currency as follows:

assets and liabilities are translated at rates of exchange ruling at the balance sheet date; and
income and expenditure are translated at weighted average exchange rates for the year.

Goodwill arising on the acquisition of a foreign entity is treated as an asset of the subsidiary and translated at the exchange rate at the balance sheet date.

Exchange differences arising from the translation of foreign entities are taken directly to non-distributable reserves.

Integrated foreign operations

An integrated foreign operation is a foreign subsidiary which carries on its business as if it were an extension of the local group.

Where a foreign subsidiary is determined to be an integrated foreign operation, transactions and resulting non-monetary items are translated at the exchange rates ruling when the transactions occurred. Income statement items are translated at the appropriate weighted average exchange rates for the year. Monetary items are translated at the ruling exchange rates at the balance sheet date. Translation gains and losses are taken to income for the year.

Property, plant and equipment

All of the group's properties are owner-occupied properties. Land is stated at cost less impairment losses. Owner-occupied buildings are carried at cost less accumulated depreciation and accumulated impairment losses.

Other items of property, plant and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses.

Installation and other costs, which comprise materials and labour costs necessarily incurred in order to derive benefit from property, plant and equipment, are included in cost.

Depreciation is provided on the straight-line basis over the estimated useful lives of the assets in order to reduce the cost of the asset to its residual value. Residual value is the net amount expected to be recovered from disposal of the asset at the end of its estimated useful life.

The expected useful lives are as follows:

Buildings	50 years
Computer equipment	3 to 7 years
Furniture and fittings	5 to 10 years
Motor vehicles	5 years
Permanent fixtures	20 years

Subsequent expenditure relating to an item of property, plant and equipment is capitalised when it is probable that future economic benefits from the use of the asset will be increased. All other subsequent expenditure is recognised as an expense in the period in which it is incurred.

Surpluses or deficits on the disposal of property, plant and equipment comprising the difference between the net disposal proceeds and the carrying amount of the asset are recognised in the income statement.

Borrowing costs are expensed as incurred.

Assets subject to finance lease agreements are capitalised.

Intangible assets

Intangible assets are initially recognised at cost if acquired separately or internally generated or at fair value if acquired as part of a business combination. If assessed as having an indefinite useful life, they are not amortised but are tested for impairment annually and impaired if necessary. If assessed as having a finite useful life, they are amortised over their useful lives using a straight-line basis and tested for impairment if there is an indication that they may be impaired.

No value is attached to internally developed and maintained trademarks or brand names. Expenditure incurred to maintain trademarks and brand names is charged against the income statement as incurred.

Goodwill

Goodwill is the premium on acquisition arising from the difference between the purchase price paid and the group's interest in the fair value of the net assets acquired at the date of the transaction.

Goodwill is carried at cost less accumulated impairment losses and is not amortised. Goodwill acquired in a business combination for which the agreement date was before 31 March 2004 was previously amortised on a systematic basis over its estimated useful life. The accumulated amortisation previously raised has been netted against the cost.

The calculation of the gain or loss on disposal of a subsidiary includes the balance of the goodwill relating to the subsidiary disposed of.

Impairment of assets

Assets (other than goodwill and intangible assets with indefinite useful lives) are reviewed at each balance sheet date to determine whether there is any indication of impairment. Where such an indication exists, the asset's recoverable amount is estimated. The recoverable amount of an asset is the higher of its net selling price and its value in use. Recoverable amounts are estimated for individual assets or, if this is not possible, for a cash-generating unit. A cash-generating unit is the smallest collection of assets capable of generating cash flows independent of other assets or cash-generating units. The net selling price is the amount obtainable from the sale of an asset or cash-generating unit in an arm's length transaction. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of an asset or cash-generating unit and from its disposal at the end of its useful life. The expected future cash flows are discounted using a pre-taxation discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

As goodwill is not capable of generating cash flows independently of other assets, in assessing the recoverable amount of goodwill, the goodwill is allocated to cash-generating units on a reasonable and consistent basis. Where appropriate, corporate assets are also allocated to cash-generating units on a reasonable and consistent basis. The recoverable amount of the cash- generating unit (including an allocation of goodwill and corporate assets) is assessed with reference to the future cash flows of the cash-generating unit. Where an impairment is identified for a cash-generating unit, the impairment is applied first to the goodwill allocated to the cash-generating unit and then to other assets comprising the cash-generating unit provided that each identifiable asset is not reduced to below its recoverable amount.

Whenever the carrying amount of an asset exceeds its recoverable amount, an impairment loss is recognised as an expense in the income statement.

A reversal of an impairment loss recognised in prior years is recorded when there is an indication that the impairment loss recognised for the asset no longer exists or has decreased. The carrying amount of the affected asset is not increased to an amount higher than the carrying amount that would have been determined had no impairment loss been recognised in prior years. The reversal is recorded as income in the income statement. An impairment loss in respect of goodwill is never reversed.

Inventories

Merchandise for resale has been valued on the first-in-first-out (FIFO) basis and is stated at the lower of cost and net realisable value. The cost of inventories comprises all costs of purchase, conversion and other costs incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and costs necessary to make the sale. Obsolete, redundant and slow-moving inventories are identified on a regular basis and are written down to their estimated net realisable values.

Cash and cash equivalents

For the purpose of the cash flow statement, cash and cash equivalents comprise cash on hand, deposits held on call with banks, and investments in money market instruments, net of bank overdrafts, all of which are available for use by the group unless otherwise stated.

Outstanding cheques are included in accounts payable.

Treasury shares

Ordinary shares in New Clicks Holdings Limited which have been acquired by a group company in terms of an approved share repurchase programme or are held by the Share Incentive Trust are classified as treasury shares. The cost of these shares is deducted from equity and the number of shares is deducted from the weighted average number of shares. Dividends received on treasury shares are eliminated on consolidation.

Provisions

A provision is recognised when the group has a present obligation (legal or constructive) as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation.

A provision for onerous contracts is recognised when the expected benefits to be derived by the group from a contract are lower than the unavoidable cost of meeting the obligations under the contract.

Taxation

Current taxation comprises taxation payable calculated on the basis of the expected taxable income for the year, using the taxation rates enacted at the balance sheet date, and any adjustment of taxation payable for previous years.

Deferred taxation is provided at current rates using the comprehensive balance sheet method. Full provision is made for all temporary differences between the taxation value of an asset or liability and its balance sheet carrying amount.

The amount of deferred taxation provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using taxation rates enacted or substantively enacted at the balance sheet date. Deferred taxation is charged to the income statement except to the extent that it relates to a transaction that is recognised directly in equity, or a business combination that is an acquisition.

Deferred taxation assets are recognised for all deductible temporary differences and taxation losses to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and taxation losses can be utilised.

Secondary Taxation on Companies (STC) paid on net dividends paid is recognised as a taxation charge in the year it is incurred.

Leases

Leases that transfer substantially all the risks and rewards of ownership of the underlying asset to the group are classified as finance leases. Assets acquired in terms of finance leases are capitalised at the lower of fair value and the present value of the minimum lease payments at inception of the lease. The capital element of future obligations under the leases is included as a liability in the balance sheet. Lease payments are allocated using the effective interest rate method to determine the lease finance cost, which is charged against income over the lease period, and the capital repayment, which reduces the liability to the lessor.

A finance lease gives rise to depreciation expense for the asset as well as a finance expense for each accounting period. The depreciation policy for leased assets is consistent with that for depreciable assets that are owned.

Leases of assets under which substantially all of the risks and rewards of ownership are effectively retained by the lessor are classified as operating leases. Lease payments under an operating lease are recognised as an expense on a straight-line basis over the lease term.

Revenue

Turnover

Turnover comprises net sales to customers, excluding value-added and general sales tax. Sales are recognised when significant risks and rewards of ownership are transferred to the buyer, costs can be measured reliably, and receipt of the future economic benefits is probable.

Investment income

Interest is recognised on a time proportion basis, taking account of the principal outstanding and the effective rate over the period to maturity, when it is probable that such income will accrue to the group.

Dividend income is recognised when the right to receive payment is established.

Service revenue

Revenue in respect of services rendered is recognised in income as the services are rendered.

Rebate, franchise fee and other recovery income

Rebate, franchise fee and other recovery income is recognised in income when the group becomes contractually entitled to the income or when it is virtually certain that the conditions required to be fulfilled before payment is received will be fulfilled.

Employee benefits

Short-term employee benefits

The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service.

The accruals for employee entitlements to wages, salaries, bonuses, and annual and sick leave represent the amount which the group has a present obligation to pay as a result of employees' services provided to the balance sheet date. The accruals have been calculated at undiscounted amounts based on current wage and salary rates.

Long-term employee benefits

Liabilities for employee benefits which are not expected to be settled within twelve months are discounted using the market yields, at the balance sheet date, on high-quality bonds with terms which most closely match the terms of maturity of the related liabilities.

Retirement funds

The group operates a retirement scheme comprising a number of defined contribution funds in South Africa. The retirement scheme is funded by payments from employees and the relevant group company.

Contributions to these funds are charged to the income statement as incurred.

Equity-settled compensation benefits

The group grants share options to certain employees under an employee share plan. Other than costs incurred in administering the schemes, which are expensed as incurred, the scheme does not result in any expense to the group.

Cash-settled share-based compensation benefits

The group grants share appreciation rights to certain employees in terms of an incentive programme. These share appreciation rights are valued at fair value at each reporting date. The value of the obligation in terms of the share appreciation rights is expensed over the vesting period of the rights and the related liability is raised. Any change in the fair value of the liability is recognised in profit or loss for the period.

Medical aid

Where the group has an obligation to provide post-retirement medical aid benefits to employees, the group recognises the costs of those benefits in the year in which the employees render the service determined using the Projected Unit Credit Method.

Actuarial gains or losses are recognised in full in the income statement in the year they are determined.

Past service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits are already vested, past service costs are recognised immediately.

Capitalisation share awards/cash distributions

The full value of capitalisation share awards and cash dividends are recorded as a deduction from equity in the statement of changes in equity when the shareholder's right to receive payment is established. Upon allotment of shares in terms of a capitalisation award, the election amounts are transferred to the share capital account and share premium account.

Cash dividends and the related STC charge are recorded in the year of declaration.

Segmental reporting

The group is organised into trading brands which in turn are categorised broadly between distribution and retail. The group now operates exclusively within the southern African region and has therefore not presented geographical segment information.

Segment operating profit includes revenue and expenses directly attributable to a segment and the relevant portion of enterprise revenue and expenses that can be allocated on a reasonable basis to a segment, whether from external transactions or from transactions with other group segments. Inter-segment transfer pricing is based on cost plus an appropriate margin.

Segment assets and liabilities comprise those assets and liabilities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis.

Inflation accounting

The group recognises that the financial statements, which are prepared on an historical cost basis, do not take into consideration the impact of inflation on the results and the financial position. However, until an acceptable method of accounting for inflation is developed, the group will continue to disclose the financial information on an historical cost basis.

Comparative figures

Where necessary, comparative figures have been restated to accord with current year classifications. Where comparative figures have been restated, details of these reclassifications are included in note 24.

Financials