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notes to the financial statements (1-10)

for the year ended 31 August 2006
 Group
2006   2005  
           R’000   R’000  

1

Revenue

         
Turnover   10 000 621 8 714 338  
Financial income   11 370   7 878  
Other income   449 721 385 925  
Distribution and logistics fees    198 599   156 466  
Franchise fees   1 365   3 809  
        Rental income    2 348   1 987  
Cost recoveries and other   247 409    223 663  
                 
        10 461 712   9 108 141  
Financial income comprises interest income.          

2

Depreciation and amortisation

         
Depreciation on property, plant and equipment   103 470 104 084  
Amortisation of intangible assets   5 132   650  
Total depreciation and amortisation   108 602   104 734  
Depreciation included in cost of merchandise sold   (5 220)   (5 413)  
Depreciation and amortisation included in expenses   103 382   99 321  

3

Occupancy costs

         
Lease charges          
Operating leases – cash payments   305 848 282 387  
Operating lease accrual (see note 22)   15 639   9 018  
  Adjustment in respect of onerous contracts (see note 24)   (4 563)   4 021  
        316 924   295 426  
       

4

Employment costs

         
  Directors’ emoluments   20 086   18 887  
  Non-executive   1 451   1 901  
  Fees   1 132   1 026  
  Consulting services   319   875  
  Executive   18 635   16 986  
  Salary and bonus   5 029   5 166  
  Other benefits   13 606   11 820  
              
  Cash-settled share appreciation rights costs (see note 21)   9 146   662  
  Equity-settled share option costs (see note 18)   5 623   5 379  
  Staff salaries and wages   869 034   768 302  
  Leave-pay costs   16 834   8 516  
  Bonuses   66 321   49 026  
  Increase in liability for defined benefit plans (see note 21)   1 513   1 542  
  Total employment costs   988 557   852 314  
  Employment costs included in cost of merchandise sold   (46 193)   (37 490)  
  Employment costs included in expenses   942 364   814 824  
  For further detail of directors’ emoluments refer to the Corporate Governance Report.          
             
  Included in total employment costs are the following aggregate amounts (including directors’ emoluments) relating to transactions with key management personnel:          
  Salaries and bonuses   15 876   14 609  
  Other benefits   14 414   11 911  
    Fees and consulting services   1 451   1 901  
      31 741   28 421  
             

5

Other operating costs

         
  Other operating costs include the following:          
  Auditors’ remuneration   3 990   3 006  
             
  Audit fees   3 351   2 994  
  Other services and expenses   639   12  
             
  Fair value adjustment – derivative (see note 16)   (8 323)   3 945  
  Fees paid for outside services          
  Technical services   15 404   13 368  
  Net foreign exchange losses – realised   210   2 539  
  Net foreign exchange (gains)/losses – unrealised (see note 16)   (6 080)   2 500  
  Impairment of trade and other receivables   7 099   17 687  

     Company   Group  
    2006   2005   2006   2005  
    R’000   R’000   R’000   R’000  

6

Income tax expense

               
  South African normal tax                
  Current tax                
  Current year     17 687   76 549  
  Prior year underprovision 1 540   662   686   702  
  Secondary Tax on Companies                
  Current year 6 422   10 994   6 422   10 994  
  Deferred tax                
  Current year (3 030)   (557)   56 025   (12 635)  
  Prior year underprovision     948    
  Change in tax rate       (144)  
  Foreign tax                
  Current tax                
  Current year     2 081   2 101  
  Prior year underprovision     26    
  Deferred tax                
  Current year     (58)   (469)  
             Prior year underprovision     321    
    4 932   11 099   84 138   77 098  
  Reconciliation of rate of tax (%)                
  Standard rate – South Africa 29.00   29.00   29.00   29.00  
  Adjusted for:                
      Capital gains tax     (2.17)   (2.41)  
  Change in tax rate       (0.06)  
  Disallowable expenditure   0.05   0.97   3.11  
  Exempt income and allowances (42.71)   (29.41)   (3.98)   (5.66)  
  Foreign tax rate variations     0.11   0.10  
  Goodwill amortisation and impairment     0.11   1.91  
  Impairment of investment in The Link Investment Trust 13.71        
  Prior year under/(over)provision 2.44   0.43   (0.08)   (0.03)  
  Secondary Tax on Companies 5.38   7.13   1.95   4.29  
  Tax losses utilised     (0.28)   (0.38)  
    Other     (0.14)   0.22  
  Effective tax rate 7.82   7.20   25.49   30.09  
Subsidiaries of the group have estimated computed tax losses of R215.4 million available for set-off against future taxable income of those subsidiaries. A deferred tax asset of R0.8 million has not been raised in respect of R2.6 million of these computed tax losses.
  
    Group  
    2006   2005  

7

Earnings per share

       
  Basic earnings per share (cents) 71.4   52.7  
  Headline earnings per share (cents) 73.1   59.0  
  Diluted basic earnings per share (cents) 69.4   51.3  
  Diluted headline earnings per share (cents) 71.0   57.4  
     
    R’000   R’000  
  Reconciliation of basic to headline earnings        
  Basic earnings (profit for the year) 245 990   179 163  
  Adjustments:        
      Impairment of property, plant and equipment 3 159   4 362  
  Loss on disposal of property, plant and equipment 1 209   191  
    Goodwill impairment 1 254   16 814  
  Headline earnings 251 612   200 530  
     
    ’000   ’000  
  Reconciliation of shares in issue to weighted average number of shares in issue        
  Gross number of shares in issue at the beginning of the year 370 260   361 205  
  Treasury shares held for the full year and/or cancelled (29 741)   (15 828)  
  Shares issued in respect of options weighted for period in issue 4 859   5 343  
  Treasury shares purchased during the year weighted for period held (1 041)   (10 806)  
  Weighted average number of shares in issue for the year 344 337   339 914  
  Reconciliation of weighted average number of shares to weighted average diluted number of shares        
  Weighted average number of shares in issue for the year 344 337   339 914  
  Dilutive effect of share options 10 028   9 444  
  Weighted average diluted number of shares in issue for the year 354 365   349 358  

     Group  
        2006           2005      
        Accumulated   Book       Accumulated   Book  
    Cost   depreciation   value   Cost   depreciation   value  
        R’000   R’000   R’000   R’000   R’000   R’000  

8

Property, plant and equipment

                       
  Land 24 347     24 347   24 023     24 023  
  Buildings 283 614   27 556   256 058   268 127   26 091   242 036  
  Computer equipment 228 219   155 422   72 797   264 309   159 272   105 037  
  Equipment 98 878   48 202   50 676   105 017   48 445   56 572  
  Furniture and fittings 435 653   162 439   273 214   390 684   168 559   222 125  
  Motor vehicles 33 437   13 793   19 644   32 203   13 070   19 133  
    1 104 148   407 412   696 736   1 084 363   415 437   668 926  

A register of land and buildings containing the required statutory information is available for inspection on request at the registered office of the company.
All group property, other than the investment property specified in note 9 is owner-occupied.
Buildings with a net book value of R57.1 million are encumbered under a mortgage loan as detailed in note 20.
Furniture and fittings with a carrying value of R2.3 million are encumbered in terms of a finance lease as detailed in note 20.
 

The carrying amount of the group property, plant and equipment can be reconciled as follows:          
          Computer       Furniture   Motor      
  Land   Buildings   equipment   Equipment   and fittings   vehicles   Total  
  R’000   R’000   R’000   R’000   R’000   R’000   R’000  
Carrying amount at 1 September 2004 24 023   247 593   120 403   52 394   187 756   14 675   646 844  
Additions     49 817   14 669   71 898   12 399   148 783  
Disposals   (493)   (9 969)   (739)   (8 731)   (2 685)   (22 617)  
Depreciation   (5 064)   (55 214)   (9 752)   (28 798)   (5 256)   (104 084)  
Carrying amount at 31 August 2005 24 023   242 036   105 037   56 572   222 125   19 133   668 926  
Additions 324   16 308   26 420   7 808   96 548   8 928   156 336  
Disposals   (740)   (6 860)   (3 947)   (9 624)   (3 885)   (25 056)  
Depreciation   (1 546)   (51 800)   (9 757)   (35 835)   (4 532)   (103 470)  
Carrying amount at 31 August 2006 24 347   256 058   72 797   50 676   273 214   19 644   696 736  
Disposals include impairments in respect of assets written off during the year with a carrying amount of R3.2 million (2005: R6.1 million). These assets were scrapped as they were no longer in use.  
Group
2006  2005 
  R’000   R’000  

9

Investment property

 
Balance at the end of the year 6 900   6 900  
Investment property held by the group consists of a portion of New Teltron, Erf 98 Lea Glen, situated in Johannesburg. The property was independently valued in March 2006, with no fair value adjustment required.
An internal assessment determined that the fair value at year-end would not differ significantly to that determined above.
 
                Group          
        2006           2005      
        Accumulated   Book       Accumulated   Book  
    Cost   amortisation   value   Cost   amortisation   value  
    R’000   R’000   R’000   R’000   R’000   R’000  

10

Intangible assets

                       
  Clicks trademarks 272 000     272 000   272 000     272 000  
  Discom trademarks 100 000     100 000   100 000     100 000  
  Link Investment Trust trademark 6 880   4 250   2 630   6 880   3 600   3 280  
  Capitalised software development 27 302   4 482   22 820   21 323     21 323  
    406 182   8 732   397 450   400 203   3 600   396 603  
                           
  The carrying amount of the group intangible assets can be reconciled as follows:  
                           
                Link Invest-   Capitalised      
        Clicks   Discom   ment Trust   software      
        trademarks   trademarks   trademark   development   Total  
        R’000   R’000   R’000   R’000   R’000  
  Carrying amount at 1 September 2004   272 000   100 000   3 930     375 930  
  Additions           21 323   21 323  
  Amortisation         (650)     (650)  
  Carrying amount at 31 August 2005   272 000   100 000   3 280   21 323   396 603  
  Additions           5 979   5 979  
  Amortisation         (650)   (4 482)   (5 132)  
  Carrying amount at 31 August 2006   272 000   100 000   2 630   22 820   397 450  

The Link Investment Trust trademark has an estimated remaining useful life of four years.

The Clicks and Discom trademarks are considered to have indefinite useful lives. There is no apparent legal or other restriction to the use of the trademarks or risk of technical or other obsolescence. Given the strategic importance of the trademarks to the future sustainability of the group, the group’s intention is to continue to use the trademarks indefinitely. The directors consider that there is no foreseeable limit to the period over which these assets are expected to generate cash inflows for the group and, on this basis, the directors have concluded that the indefinite useful life assumption is appropriate.

In accordance with the group’s accounting policy, an impairment test was performed on the carrying values of intangible assets with indefinite useful lives at year-end. Budgeted operating cash flows for the related business units were projected and discounted at the group’s weighted average pre-tax cost of capital. The impairment calculations performed indicated that the trademarks were not impaired.