- Certificate from the company secretaries
- Independent auditor's report
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- Accounting policies
- Balance sheet
- Income statement
- Statement of changes in equity
- Cash flow statements
- Notes to the group financial statements
- Financial statements of the company »
- Directorate profile
- Letter from the chairman
- Notice of annual general meeting
- AGM explanatory notes
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- Corporate data
Accounting policies
Allied Electronics Corporation Limited (“the company”) is a South African registered company. The consolidated financial statements of the company for the year ended 28 February 2009 comprise the company and its subsidiaries (together referred to as the “group”) and the group’s interest in associates and jointly controlled entities.
STATEMENT OF COMPLIANCE
The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the interpretations adopted by the International Accounting Standards Board (IASB) and the requirements of the South African Companies Act.BASIS OF PREPARATION
The annual financial statements are prepared in millions of South African rands on the historical-cost basis, except for the following assets and liabilities, which are stated at fair value: |
Derivative financial instruments |
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Financial instruments classified as available-for-sale. |
Non-current assets and liabilities and disposal groups held-for-sale are stated at the lower of carrying amount and fair value less costs to sell.
The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that may affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision only affects that period, or in the period of the revision and future periods if the revision affects both current and future periods. Judgements made by management in the application of IFRS that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are discussed in note 32.
The accounting policies set out below have been applied consistently to the periods presented in these consolidated financial statements.
The group’s accounting policies have been applied consistently by all group entities.
BASIS OF CONSOLIDATION
Subsidiaries
Subsidiaries are those entities over which the group has the power to, directly or indirectly, exercise control over the financial and operating policies, so as to obtain benefits from their activities.In assessing control, potential voting rights that presently are exercisable are taken into account.
The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases.
Associates
An investment in an associate is an investment in a company in which the group exercises significant influence but not control over the financial and operating policies. The equity method of accounting for associates is adopted in the group financial statements. In applying the equity method, account is taken of the group’s share of accumulated retained earnings and movements in reserves from the effective date on which the enterprise became an associate and up to the effective date of disposal.Goodwill arising on the acquisition of associates is included in the carrying amount of the associate and is treated in accordance with the group’s accounting policy for goodwill. Dividends received from associates are deducted from the carrying value of the investment. Where the group’s share of losses of an associate exceeds the carrying amount of the associate, the associate is carried at no value. Additional losses are only recognised to the extent that the group has incurred obligations or made payments on behalf of the associate.
Joint ventures
Joint ventures are those enterprises over which the group exercises joint control in terms of a contractual agreement. Joint ventures are proportionately consolidated, whereby the group’s share of the joint venture’s assets, liabilities, income, expenses and cash flows are combined with similar items, on a line-by-line basis, in the group’s financial statements from the date the joint control commences until the date the joint control ceases.Eliminations on consolidation
Intragroup balances and transactions, and any unrealised gains or losses arising from intragroup transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates and joint ventures are eliminated to the extent of the group’s interest in these enterprises. Unrealised losses on transactions with associates and joint ventures are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.The fair value of plan assets is deducted from the present value of the defined benefit obligation to the extent permitted by IAS 19 – Employee benefits. Past-service costs are recognised as an expense on a straight-line basis over the average period until the benefits become vested. Past-service costs which are already vested, are expensed immediately.
Actuarial gains and losses are recognised as income or expense if the net cumulative unrecognised actuarial gains or losses at the end of the previous financial year exceeded the greater of: |
10% of the present value of the defined benefit obligation at that date before deducting plan assets; and |
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10% of the fair value of the plan assets at that date. |
The amount recognised is the excess determined above, divided by the expected average remaining working lives of the employees participating in the plan.
When the calculation results in a benefit to the group, the recognised asset is limited to the net total of any unrecognised past-service cost and the present value of any future refunds from the plan or reductions in future contributions to the plan.
Post-retirement medical aid benefits
The group has an obligation to provide post-retirement medical aid benefits to certain eligible employees and pensioners. This obligation has been provided for in full.FINANCIAL INSTRUMENTS
Measurement
Financial instruments are initially measured at fair value, which includes transaction costs, except for those items carried at fair value through profit or loss, when the group becomes a party to the contractual arrangements as set out below. Subsequent to initial recognition these instruments are measured as set out below.Derecognition
Financial assets are derecognised if the group’s contractual rights to the cash flows from the financial assets expire or if the group transfers the financial assets to another party without retaining control or substantially all the risks and rewards of the asset.Financial liabilites are derecognised if the group’s obligations specified in the contract expire or are discharged or cancelled.
Interest-bearing borrowings
Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in the income statement over the period of the borrowings on an effective interest basis.Investments
Investments held-for-trading are classified as current assets and are stated at fair value, with any resultant gain or loss recognised in the income statement.Other investments held by the group are classified as being available-for-sale and are stated at fair value, with any resultant gain or loss recognised directly in equity, except for impairment losses and, in the case of monetary items, foreign exchange gains or losses, which are recognised in the income statement. When these investments are disposed of, the cumulative gain or loss previously recognised directly in equity is recognised in the income statement as a capital item. Where these investments are interest-bearing, interest calculated using the effective interest method is recognised in the income statement.
Trade and other receivables/payables
Trade and other receivables/payables originated by the group are stated at amortised cost less impairment losses on receivables.Derivative financial instruments
The group uses derivative financial instruments to manage its exposure to foreign exchange, interest rate and commodity price risks arising from operational, financing and investment activities. The group does not hold or issue derivative financial instruments for trading purposes.Derivative financial instruments comprise foreign exchange contracts, interest rate swaps and metal futures contracts. Derivatives are recognised initially at fair value; attributable transaction costs are recognised in profit or loss when incurred. Subsequent to initial recognition, derivatives are measured at fair value through the income statement. Fair value is determined by comparing the contracted forward rate to the present value of the current forward rate of an equivalent contract with the same maturity date. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged.
Hedging
Where a derivative financial instrument is designated as a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability, a firm commitment if it is a hedge of foreign exchange risk, or a highly probable forecast transaction that could affect the income statement, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity in the cash flow hedging reserve. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in the income statement.When the hedged firm commitment or forecast transaction results in the recognition of a non-financial asset or a non-financial liability, the cumulative amount recognised in equity up to the transaction date is adjusted against the initial measurement of the asset or liability. For other cash flow hedges, the cumulative amount recognised in equity is recognised in the income statement in the period when the commitment or forecast transaction affects the income statement.
Where the hedging instrument or hedge relationship is terminated but the hedged transaction is still expected to occur, the cumulative unrealised gain or loss remains in equity and is recognised in accordance with the above policy when the underlying transaction occurs. If the hedged transaction is no longer expected to occur, then hedge accounting is discontinued and the cumulative unrealised gain or loss is immediately recognised in the income statement.
Where a derivative financial instrument is used to economically hedge the foreign exchange exposure of a recognised monetary asset or liability, no hedge accounting is applied and any gain or loss on the hedging instrument is recognised in the income statement.
Offset
Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when the company 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.Financial income and expense
Finance income comprises interest income on funds invested, dividend income and changes in the fair value of financial assets at fair value through the income statement, and gains on hedging instruments that are recognised in the income statement. Interest income is recognised as it accrues in the income statement, using the effective interest method. Dividend income is recognised in profit or loss on the date that the group’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.Finance expenses comprise interest expense on borrowings, unwinding of the discount on provisions and other interest-free liabilities, changes in the fair value of financial assets at fair value through the income statement, impairment losses recognised on financial assets, and losses on hedging instruments that are recognised in the income statement.
FOREIGN CURRENCIES
Foreign currency transactions
Foreign currency transactions are converted to the respective functional currencies of group entities at the rates of exchange ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to the functional currency at the exchange rates ruling at that date. Gains or losses on translation are recognised in the income statement.Foreign operations
The assets and liabilities of all foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to South African rands at foreign exchange rates ruling at the balance sheet date. The revenues and expenses of foreign operations are translated to South African rands at rates approximating the foreign exchange rates ruling at the dates of the transactions.Foreign exchange differences arising on translation are recognised directly in a separate component of equity – the foreign currency translation reserve. The foreign currency translation reserve applicable to a foreign operation is released to the income statement as a capital item upon disposal of that foreign operation.
IMPAIRMENT OF ASSETS
The carrying amounts of the group’s assets are reviewed at least annually to determine whether there is any indication of impairment. If there is an indication that an asset may be impaired, its recoverable amount is estimated.For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, the recoverable amount is estimated annually or whenever there is an indication that the asset may be impaired.
The recoverable amount is the higher of an asset’s fair value less costs to sell and its value in use.
In assessing value in use, the expected future cash flows from the asset 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. An impairment loss is recognised in the income statement whenever the carrying amount of an asset exceeds its recoverable amount.
For an asset that does not generate cash inflows that are largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs. An impairment loss is recognised in the income statement whenever the carrying amount of the cash-generating unit exceeds its recoverable amount. Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating units and then, to reduce the carrying amount of other assets in the unit on a pro rata basis.
When a decline in the fair value of an available-for-sale financial asset has been recognised directly in equity and there is objective evidence that the asset is impaired, the cumulative loss that has been recognised directly in equity is recognised in the income statement even though the financial asset has not been derecognised. The amount of the cumulative loss that is recognised in the income statement is the difference between the acquisition cost and current fair value, less any impairment loss on that financial asset previously recognised in the income statement.
Reversal of impairment
A previously recognised impairment loss is reversed if there is an indication that the impairment loss no longer exists and the recoverable amount increases as a result of a change in the estimates used to determine the recoverable amount, but not to an amount higher than the carrying amount that would have been determined (net of depreciation or amortisation) had no impairment loss been recognised in prior years, except as detailed below.An impairment loss in respect of an investment in an equity instrument classified as available-for-sale is not reversed through the income statement. An impairment loss in respect of goodwill is not reversed.
INTANGIBLE ASSETS
Goodwill
Refer to “Basis of consolidation” above.
Research and development
Expenditure on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, is recognised as an expense as incurred.
Expenditure on development activities, whereby research findings are applied to a plan or design for the production of new or substantially improved products and processes, is capitalised if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the group intends to and has sufficient resources to complete development and to use or sell the asset.
The expenditure capitalised includes the cost of materials, direct labour and an appropriate proportion of overheads. Capitalised development expenditure is measured at cost less accumulated amortisation and impairment losses. Other development expenditure is recognised as an expense as incurred.
Other intangible assets
Other intangible assets that are acquired by the group, which have finite useful lives, are measured at cost less accumulated amortisation and impairment losses.Subsequent expenditure
Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.Amortisation
Amortisation is recognised in the income statement on a straight-line basis over the estimated useful lives of intangible assets from the date they are available for use, unless such lives are indefinite.The estimated useful lives are as follows:
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Trade names, designs, patents and trademarks 3 to 10 years |
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Customer relationships 1 to 10 years |
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Distribution rights and licence agreements indefinite life |
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Proprietary software 2 to 3 years |
INVENTORIES
Inventories are measured at the lower of cost and net realisable value taking into account market conditions and technological changes. Cost is determined on the first-in first-out and average cost methods. Work and contracts in progress and finished goods include direct costs and an appropriate portion of attributable overhead expenditure based on normal production capacity. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. INVESTMENTS IN SUBSIDIARIES
Investments in subsidiaries are measured at cost, less accumulated impairment losses.NON-CURRENT ASSETS HELD-FOR-SALE AND DISCONTINUED OPERATIONS
Non-current assets are classified as held-for-sale if their carrying amount will be recovered principally through a sale transaction, not through continuing use. These assets may be a component of an entity, a disposal group or an individual non-current asset. Upon initial classification as held-for-sale, non-current assets and disposal groups are recognised at the lower of carrying amount and fair value less costs to sell. Any impairment losses arising are recognised in the income statement as capital items.A discontinued operation is a component of the group’s business that represents a separate major line of business or geographical area of operations or a subsidiary acquired exclusively with a view to resale. Classification as a discontinued operation occurs upon the earlier of disposal or when the operation meets the criteria to be classified as held-for-sale. When an operation is classified as a discontinued operation, the comparative income statement and cash flow statement are restated as if the operation has been discontinued from the start of the comparative period.
OPERATING LEASES
Leases where the lessor retains the risks and rewards of ownership of the underlying asset are classified as operating leases. Payments made under operating leases are recognised in the income statement on a straight-line basis over the period of the lease.PROPERTY, PLANT AND EQUIPMENT
Owned assets
Property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. When components of an item of property, plant and equipment have different useful lives, those components are accounted for as separate items of property, plant and equipment.Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.
Leased assets
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, and depreciated over the shorter of the estimated useful life of the asset or the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term.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 method to determine the lease finance cost, which is recognised in the income statetment over the lease period, and the capital repayment, which reduces the liability to the lessor.
Subsequent costs
The group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item when the cost is incurred, if it is probable that additional future economic benefits embodied within the item will flow to the group and the cost of such item can be measured reliably. All other costs are recognised in the income statement as an expense when incurred.Depreciation
Depreciation is recognised in the income statement for each category of assets on a straight-line basis over their expected useful lives to estimated residual values. Land is not depreciated. The estimated useful lives are as follows: |
Buildings | 20 to 50 years |
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Plant and machinery | 3 to 20 years |
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Furniture and equipment | 5 to 20 years |
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Data infrastructure | 8 years |
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Motor vehicles | 4 to 8 years |
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IT equipment and software | 2 to 8 years |
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Leasehold improvements | over remaining period of lease |
The depreciation methods, useful lives and residual values are reassessed annually.
Gains and losses arising on the disposal of property, plant and equipment are included as capital items in the income statement.
PROVISIONS
General
Provisions are recognised when the group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and where a reliable estimate can be made of the amount of the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.Warranties and fault rectification
A provision for warranties and fault rectification is recognised when the underlying products or services are sold. The provision is based on historical warranty and fault rectification data and a weighting of all possible outcomes against their associated probabilities.Retrenchments and restructuring
A provision for retrenchments and restructuring is recognised when the group has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly. Future operating costs are not provided for.Contract losses
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.The provision is measured at the present value of the lower of the expected costs of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the group recognises any impairment loss on the assets associated with that contract.
SHARE-BASED PAYMENT TRANSACTIONS
Equity settled
The fair value of share options and deferred delivery shares granted to employees is recognised as an employee expense with a corresponding increase in equity. The fair value is measured at grant date and expensed over the period during which the employees are required to provide services in order to become unconditionally entitled to the equity instruments. The fair value of the instruments granted is measured using generally accepted valuation techniques, taking into account the terms and conditions upon which the instruments are granted. The amount recognised as an expense is adjusted to reflect the actual number of share options and deferred delivery shares that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. This accounting policy has been applied to all equity instruments granted after 7 November 2002 that had not yet vested at 1 January 2005.Cash settled
Share-linked instruments have been granted to certain employees in the group. The fair value of the amount payable to the employee is recognised as an expense with a corresponding increase in liabilities. The fair value is initially measured at grant date and expensed over the period during which the employees are required to provide services in order to become unconditionally entitled to payment. The fair value of the instruments granted is measured using generally accepted valuation techniques, taking into account the terms and conditions upon which the instruments are granted. The liability is remeasured at each balance sheet date and at settlement date. Any changes in the fair value of the liability are recognised as employees’ remuneration in the income statement.Group share-based payment transactions
Transactions in which a parent grants rights to its equity instruments directly to the employees of its subsidiaries are classified as equity settled in the financial statements of the subsidiary, provided the share-based payment is classified as equity settled in the consolidated financial statements of the parent.The subsidiary recognises the services acquired with the share-based payment as an expense and recognises a corresponding increase in equity for a capital contribution from the parent for those services acquired. The parent recognises in equity the equity-settled share-based payment and recognises a corresponding increase in the investment in subsidiary.
A recharge arrangement exists whereby the subsidiary is required to fund the difference between the exercise price on the share options and the market price of the share at the time of exercising the option. The recharge arrangement is accounted for separately from the
underlying equity-settled share-based payment upon initial recognition, as follows: |
The subsidiary recognises a recharge liability and a corresponding adjustment against equity for the capital contribution recognised in respect of the share-based payment. |
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The parent recognises a recharge asset and a corresponding adjustment to the carrying amount of the investment in the subsidiary. |
Subsequent to initial recognition the recharge arrangement is remeasured at fair value at each subsequent reporting date until settlement date to the extent vested. Where the recharge amount recognised is greater than the initial capital contribution recognised by the subsidiary in respect of the share-based payment, the excess is recognised as a net capital distribution to the parent. The amount of the recharge in excess of the capital contribution recognised as an increase in the investment in subsidiary is deferred and recognised as dividend income by the parent when settled by the subsidiary.
B-BBEE transactions
Where goods or services are considered to have been received from B-BBEE partners as consideration for equity instruments of the group, these transactions are accounted for as share-based payment transactions, even when the entity cannot specifically identify the goods or services received. This accounting policy is applicable to equity instruments that had not vested by 1 January 2005 (as above).RENTAL FINANCE ADVANCES
Rental finance advances to customers are supported by finance leases and are stated at the outstanding capital balances. The income earned is computed at the interest rates inherent in each contract, applied to the capital balance outstanding under such contract and is included in revenue.REVENUE
Revenue from the sale of goods is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts, volume rebates and value-added tax.Revenue is recognised when the significant risks and rewards have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods and the amount of revenue can be measured reliably.
Revenue from services rendered is recognised in profit or loss in proportion to the stage of completion of the transaction at reporting date.
SHARE CAPITAL
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects.Preference share capital
Preference share capital is classified as equity if it is non-redeemable and any dividends are discretionary, or is redeemable but only at the company’s option. Dividends on preference share capital classified as equity are recognised as distributions within equity.Preference share capital is classified as a liability if it is redeemable on a specific date or at the option of the shareholders or if dividend payments are not discretionary. Dividends thereon are recognised in the income statement as a finance expense.
Repurchase of share capital
When share capital recognised as equity is repurchased, the amount of the consideration paid, including directly attributable costs, is recognised as a deduction from equity. Repurchased shares held by subsidiaries are classified as treasury shares and presented as a deduction from total equity.SEGMENTAL REPORTING
A segment is a distinguishable component of the group that is engaged in either providing related products or services (business segment), or in producing products or undertaking service activities within a particular economic environment (geographical segments), which is subject to risks and rewards that are different from those of other segments. The primary basis for reporting segment information is business segments and the secondary basis is by significant geographical region, which is based on the location of assets. The basis of segment reporting is representative of the internal structure used for management reporting.Segment results include revenue and expenses directly attributable to a segment whether from external transactions or from transactions with other group segments.
Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment or can be allocated to the segment on a reasonable basis.
TAXATION
Income tax expense comprises current and deferred tax. Income tax expense is recognised in the income statement except to the extent that it relates to items recognised directly in equity, in which case it is recognised in equity.Current tax
Current tax comprises tax payable calculated on the basis of the expected taxable income for the year, using the tax rates enacted or substantively enacted at the balance sheet date, and any adjustment of tax payable for previous years.Deferred tax
Deferred tax is recognised using the balance sheet method, based on temporary differences. Temporary differences are differences between the carrying amounts of assets and liabilities for financial reporting purposes and their tax values.Deferred tax is not recognised for the following temporary differences: the initial recognition of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries and joint ventures to the extent that they will not reverse in the foreseeable future.
The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities using tax rates enacted or substantively enacted at the balance sheet date. The effect on deferred tax of any changes in tax rates is recognised in the income statement, except to the extent that it relates to items previously charged or credited directly to equity.
A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which the unused tax losses and deductible temporary differences can be utilised. Deferred tax assets are reviewed at each balance sheet date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.