CONTENTS
page
Financial highlights and value added statement
2
Group structure
3
Directorate and administration	...
FINANCIAL H IG HLI GHTS
2013	2012	2011	2010
Volumes
mt’000	489	404	352	300
Revenue
US$’000	295,926	233,998	201,170...
National Foods Properties Limited
(formerly National Foods Limited)
Property Owning Company
National Foods Limited (forme...
National Foods Annual Report 2013
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D I R E C T O R AT E A N D A D M I N I S T R AT I O N
(as at 30 Ju ne 2 0 1 3 )
National Foods Holdings Limited
Principa...
C H A I R M A N ’ S S TAT E M E N T
I ntroduc tion
The Company posted a good set of financial results for the year. This
p...
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C H A I R M A N ’ S S TAT E M E N T
~ continued
MI LLI NG, MA NUFAC T U R I N G A N D D I S T R I BUT I ON
Flour M illin g...
National Foods Annual Report 2013
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National Foods Annual Report 2013
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C H A I R M A N ’ S S TAT E M E N T
~ continued
Stoc kfee ds
The Stockfeeds business posted good volume growth of 38% on p...
National Foods Annual Report 2013
12
“Success is a
journey, not a
destination.”
~ Ben Sweetland
FM CG
Volumes of rice, salt, small grains, pasta, spreads and ...
C H A I R M A N ’ S S TAT E M E N T
~ continued
Proper ties
During the year under review eight properties were sold as we...
National Foods Annual Report 2013
15
CORPOR AT E G O V ERNANCE
National Foods Holdings Group subscribes to the principles of discipline,
independence, account...
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National Foods Annual Report 2013
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CO RP OR ATE GO V E R N A N C E
~ continued
R is k M anagement Commi t tee
The directors are accountable for the process ...
R E V IE W OF FINANCI ALS
CONSOLI DATED STAT EMEN T OF COMPR EHEN S I V E IN CO M E
Year ended
Year ended
Year e...
R AT IOS A N D S TAT I S T I C S
Year ended
Year ended
Year ended
Year Ended
30 June 2013 30 June 2012 30 June...
R EPOR T OF T HE D IREC TORS
The Directors have pleasure in presenting their report, together with the audited financial ...
STAT E M E N T OF D I R E C TO R S’ R E S P ONS IBIL IT Y
The Directors of the company are required by the Companies Act ...
R EPOR T OF T HE IND EPEND ENT AU DI TORS
 
Ernst & Young
Chartered Accountants (Zimbabwe)
Registered Public Auditors
...
CO NS OLI DATE D S TAT E M E N T O F CO MPREH ENS IV E INCOME
for the year ended 30 June 2013
Notes
2013	2012
US$	US$
R...
CO N S OL IDAT ED S TAT EMENT OF FINANCIAL POSI TI ON
as at 30 June 2013
Notes
2013	2012
US$	US$
AS SE TS
Non-current ...
CO NS OLI DATE D S TAT E M E N T O F C HANG ES IN EQUIT Y
for the year ended 30 June 2013
At t r ibu ta bl e to Equ i ...
CONS OL IDAT ED S TAT EMENT OF CAS H F LO W S
for the year ended 30 June 2013
Notes
2013	2012
US$	US$
O P ER ATI NG AC...
NOT E S TO TH E CO N S O L I DAT E D F I N ANCIAL S TAT EMENTS
1
CORPORATE INFORMATION
The Company and its subsidiaries...
N OT E S TO T H E CONS OL IDAT ED FINANCIAL S TATEMENTS
IAS 19 Employee Benefits (Revised)
The IASB has issued numerous a...
NOT ES TO TH E CO N S O L I DAT E D F I N ANCIAL S TAT EMENTS
IFRS 13 Fair value measurement.
IFRS 13 establishes a singl...
N OT E S TO T H E CONS OL IDAT ED FINANCIAL S TATEMENTS
The statement of comprehensive income reflects the share of the r...
NOT ES TO TH E CO N S O L I DAT E D F I N ANCIAL S TAT EMENTS
Deferred taxation is recognised in profit or loss except to...
N OT E S TO T HE CONS OL IDAT ED FINANCIAL S TATEMENTS
The amount recognised as a provision is the best estimate of the c...
NOT ES TO TH E CO N SO L I DAT E D F I N ANCIAL S TAT EMENTS
of an asset’s or cash-generating unit’s fair value less cost...
National Foods Holdings Limited 2013 Annual Report
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National Foods Holdings Limited 2013 Annual Report
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National Foods Holdings Limited 2013 Annual Report

National Foods Holdings Limited 2013 Annual Report
Published on: Mar 3, 2016
Published in: Investor Relations      Business      Economy & Finance      
Source: www.slideshare.net


Transcripts - National Foods Holdings Limited 2013 Annual Report

  • 1. CONTENTS page Financial highlights and value added statement 2 Group structure 3 Directorate and administration 5 Chairman’s statement 6 Corporate governance 16 Review of financials 20 Ratios and statistics 21 Report of the directors 22 Statement of directors’ responsibility 23 Report of the independent auditors 24 Consolidated financial statements 25 Notes to the consolidated financial statements 29 Company statement of financial position 51 Shareholders’ analysis 52 Notice of annual general meeting 53 Shareholders’ diary 54 National Foods Annual Report 2013 1
  • 2. FINANCIAL H IG HLI GHTS 2013 2012 2011 2010 Volumes mt’000 489 404 352 300 Revenue US$’000 295,926 233,998 201,170 160,818 Profit from operating activities US$’000 18,439 11,053 7,032 1,429 Profit for the year US$’000 13,939 7,904 5,097 3,148 Profits attributable to equity holders of the parent US$’000 13,939 7,899 4,971 2,897 Basic earnings per share USc’s 20.38 11.55 7.27 4.24 Net asset value per share USc’s 89 73 64 57 Market value per share USc’s 245 112 95 90 Shares in issue at year end 000’s 68,400 68,400 68,399 68,379 VALUE AD D ED S TATEMENT For the year ended 30 June 2013 Value added is a measure of the wealth the Group has been able to create in its operations by adding value to the cost of raw materials, products and services purchased. The statement summarises the total wealth created and shows how it was shared by employees and other parties who contributed to the Group’s operations. The calculation takes into account the amount retained and reinvested in the Group for the replacement of assets and further development of operations. Revenue Other Income Suppliers for materials and services Total wealth created Distributed as follows: Employees Government Income tax PAYE Other taxes Providers of capital Dividends paid to shareholders Interest paid on borrowings Paid out NCI on disposal of subsidiary Reinvested in the Group to maintain and develop operations Depreciation Retained income Total wealth distributed and reinvested in the Group 2013 2012 US$000 US$000 295,926 233,998 4,265 512 (259,451 ) (203,774 ) 40,740 30,736 16,275 7,407 3,254 4,097 56 Government Providers of Capital Reinvested in the Group to maintain and develop operations National Foods Annual Report 2013 2 8,378 1,887 6,491 40,740 Employees 1,757 1,407 345 5 12,748 1,929 10,819 FY 2013 6,377 2,793 3,573 11 4,310 3,120 1,190 - G rap h ical S u m m a r y 14,224 30,736 FY 2012
  • 3. National Foods Properties Limited (formerly National Foods Limited) Property Owning Company National Foods Limited (formerly National Foods Operations Limited 100% GR O U P S TR U C T UR E Limited) Botswana Milling and Produce Flour and maize milling. Prepacking and Company (Proprietary) Limited Investment Company sale of dry groceries. Manufacturing of 100% and Meadow Milling Company stockfeeds and vitamin and mineral Rice Mills (Private) Limited ZUR Properties (Private) Limited Dormant Dormant Speciality Animal Feed Company Limited Natpak Zimbabwe (Private) Limited Dormant 100% Dormant Bakery Products (Private) Limited Harris Maize Milling and Produce Company (Private) Limited Dormant Palte-Harris (Private) Limited Dormant Dormant National Foods Annual Report 2013 3 100% 100% Dormant 100% N F Transport Bulawayo (Private) Limited Dormant Kestrib Investments (Private) Limited 100% Red Seal Manufacturers (Proprietary) Limited Property Owning Company 100% Principal Operating Company 100% 100% 100% 100% 100% premixes for stockfeed applications.
  • 4. National Foods Annual Report 2013 4
  • 5. D I R E C T O R AT E A N D A D M I N I S T R AT I O N (as at 30 Ju ne 2 0 1 3 ) National Foods Holdings Limited Principal Operating Company BOARD OF DIRECTORS The principal operating company of National Foods Holdings Limited is National Foods Limited, which is incorporated in and operates throughout Zimbabwe via a system of factories, depots and agencies. T. Moyo J.J. Brooke* N. Brimacombe B.S. Dionisio N.P. Doyle J. Koumides L.T. Murimwa* J.P. Schonken Chairman Managing Director Alternate Director National Foods Limited Finance Director D IRE C TO RS (as at 30 June 2013) AUDIT COMMITTEE J. Koumides N. Brimacombe N. P. Doyle T. Moyo J.P. Schonken Chairman Alternate Member Managing Director Finance Director Operations Director Alternate Member G RO U P E X E C U T IV E CO M M IT T E E REMUNERATION COMMITTEE J. Koumides N. Brimacombe N.P. Doyle J.J. Brooke L.T. Murimwa M.J.R. Lashbrook N. Brimacombe J. Koumides Chairman Alternate Member COMPANY SECRETARY L.C. Blakeway TRANSFER SECRETARIES First Transfer Secretaries (Private) Limited P.O. Box 11, Harare. REGISTERED OFFICE J.J. Brooke L.T. Murimwa M.J.R. Lashbrook J. Gapu L.C. Blakeway C. Spong R. Usayi Managing Director Finance Director Operations Director Sales, Marketing and Distribution Director Group Legal Executive Group IT Executive Group Human Resources Executive MAN AG IN G E X E C U T IV E S M. Chawanda C. Nheta D. Maregedze L. Gunter G. Nyakwende Gloria House 10 Stirling Road, Workington P.O. Box 269, Harare. PRINCIPAL BANKERS Barclays Bank Of Zimbabwe Limited CBZ Limited AUDITORS Ernst & Young Angwa City Cnr K. Nkrumah Avenue/ J.Nyerere Way P.O. Box 62, Harare. LEGAL Dube, Manikai & Hwacha * Executive Directors National Foods Annual Report 2013 5 Managing Executive - Flour Milling Managing Executive - Maize Milling Managing Executive - FMCG Managing Consultant - Stockfeeds Managing Executive - Depots
  • 6. C H A I R M A N ’ S S TAT E M E N T I ntroduc tion The Company posted a good set of financial results for the year. This performance was assisted by increased capacity utilisation as its strategy to “fix, optimise and grow” gained traction in all core categories. The underlying macro-economic trends in this Industry going forward are a cause for concern. Cereal production is at its lowest levels in the last 50 years which will force millers and stockfeed processors to import increasing quantities of raw material, and has the effect of exacerbating an already fragile current account deficit and thereby applying further pressure on a strained liquidity situation. The devaluation in the South African rand during the year has enabled the importation of finished goods as these products can now more easily compete with locally manufactured products. In addition to the ongoing improvements in manufacturing processes, the Zimbabwean food manufacturing industry requires a dramatic increase in domestic cereal production in order to compete fully with the finished imported products. The wage increases of up to 9% during the year have been far in excess of inflation figures and are beginning to weigh heavily on the production costs of companies in this industry. There will be a need to expedite mechanisation in the industry to contain overhead costs to enable us to compete with imported finished goods. Most consumers generally traded down the brand triangles in an effort to stretch ever reducing disposable incomes. Consequently most leading food brands reduced margins to maintain market share and shelf space. This affected overall margins especially in the second half of the year. The Industry met regularly with policy makers resulting in positive changes taking place in various areas except that we still have to come up with a strategy for improving the local production of cereals which are critical inputs in the Industry. O ver v iew of financi a l pe r fo rm a n ce For the financial year to 30 June 2013, the Group delivered revenue growth of 26% to $296 million on a volume increase of 21%. Total volumes sold of 489,000 tons represented capacity utilisation of 46%. O p e rat i o ns R evi ew We operated eight of our eleven factories which provided us sufficient capacity to fulfill actual demand. Backup generator power was installed at the Bulawayo and Harare flour mills and also at the rice plant in Mutare. Despatch services, weighbridges, and the Information Technology system are now supported with standby power. At Stockfeeds, we commenced an upgrade of the extruders and pelleters to improve quality and fulfill increased demand for poultry feed. The laboratories at all sites have been upgraded to enable us to quality-test every batch produced. Considerable investment was made into grain intake, bulk storage, weighbridges and security systems to capacitate the business for growth along with improved efficiencies. Seven new distribution depots were opened in Ruwa, Birchenough Bridge, Aspindale, Guruve, Lupane, Checheche and Hauna bringing the network of distribution depots to 34, further enhancing the service to our customer channels. The depot network also supplies inputs to farmers and purchases raw materials for cash. The support services of Human Resources, Information Technology (IT), Risk, Procurement, Credit Control and Legal were all significantly enhanced to meet the needs of the business at its current size and provide capability for growth. Our four main brands namely Red Seal, Gloria, Mahatma and NF Stockfeeds retained category leader status as well as being awarded 1st, 2nd and 3rd in the Basic Foods category at the annual Zimbabwean Superbrands Awards. Valuable consumer insights were gained during the year which enabled us to produce a number of brand variants, new products and a more compelling consumer proposition for launch during 2013. In order to ensure sustainability, the Group entered into several arrangements with various service providers for the provision of rail transportation, port handling facilities, bulk storage, grain origination, delivery services and technical support. The Group’s margins are heavily influenced by international commodity price movements, the length and cost of our raw material pipeline, as well as regional competitor activity. Accordingly, National Foods realised margins above expectation in the first half and below expectation in the second half as the world markets moved down and against positions taken. Overall gross profit achieved was 23% which is 0.6% down on previous year. Non-recurring profits of $3,4m were realised through property disposals of $0,8m and once off raw material gains of $2,6m. Overall profit before tax achieved of $17,2m was therefore 61% higher than the previous year. Profit after tax increased by 76% to $13,9m. Headline earnings of $13,2m achieved was 70% higher than the previous year. Net working capital increased by $33,1m to $46,7m to fund the increase in volumes produced along with more appropriate on-balance sheet funding structures. This change in funding structures had no material impact on earnings per share. Accordingly our net borrowings increased to $16,5m resulting in a gearing ratio of 27% which is within plan. In an effort to modernise the operating platform, the Group invested $6,1m into capital projects and has plans to invest further in key operational areas in the coming year. “Whatever the mind can conceive and believe, it can achieve.” ~ Napoleon Hill National Foods Annual Report 2013 6
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  • 8. C H A I R M A N ’ S S TAT E M E N T ~ continued MI LLI NG, MA NUFAC T U R I N G A N D D I S T R I BUT I ON Flour M illin g This division sold 44% more flour in the year under review compared to the prior year due mainly to the introduction of tariffs on imported flour. Users were largely protected from a price increase as we elected to trade gross margin reduction for increased volumes and a resultant higher capacity utilisation at the mill. This in turn necessitated increased expenditure to repair the mills, but also capital expenditure to ensure quality continuity. We succeeded in meeting the increased demand at the requisite quality and maintained a nationwide single price. Given that 90% of our wheat is imported from distant locations such as Russia, Australia, Argentina and Ukraine, our wheat pipeline is five months ahead of demand. World price movements allowed us to generate strong gross margins in the first half of the year however, the reciprocal occurred in the latter six months. The year long evaluation of a greenfield new mill site versus replacing the mills on our existing sites has been completed. We have elected to significantly upgrade our existing mills in Bulawayo and Harare, starting immediately. M ai ze M i l l i ng A noteworthy development during the year was the emergence of the Grain Marketing Board (GMB) as a material competitor at the lower end of this category. Consequently there was no change in volumes sold, year on year, although net sales revenue grew 14% driven by an increased average realisation per ton sold to $482. Profitability was down 13% on the prior year due to subdued volumes and increased competition - nevertheless our Pearlenta brand continued to gain market share in the refined maize meal category which is our primary strategic intent. Automated packing machines and investment into the aspiration systems helped maintain an excellent quality product. The local maize harvest appears to be considerably smaller than projected, however the Group is well positioned with a large stock-holding pipeline to ensure maize meal availability until the end of 2013. This business remains a significant contributor to Group profits. The important contribution to Group profit by this division coupled with strong market share through off-take arrangements with our major customers provide the justification needed for a major investment into the mills. “Action is the universal language of success.” ~ Steve Maraboli National Foods Annual Report 2013 8
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  • 10. National Foods Annual Report 2013 10
  • 11. C H A I R M A N ’ S S TAT E M E N T ~ continued Stoc kfee ds The Stockfeeds business posted good volume growth of 38% on prior year to 167,000mt driven mainly by improved sales of beef and poultry feeds. Interventions in raw material quality and feed formulations, along with investment in the laboratories, saw an overall uplift in quality of product which was well received by our customers and supported by extensive trials which scored well against regional feed conversion ratios. Whilst all-in manufacturing costs per ton were 3% up over the prior year, numerous opportunities exist to re-engineer our processes and systems for better efficiency and a lower feed cost to the protein industry. High soya and maize prices put substantial pressure on protein producers’ ability to compete with imported chicken from countries that grow their own raw materials. Our stockfeeds plants in both Bulawayo and Harare are being upgraded to accommodate higher production levels producing the consistently outstanding feed that our market demands. Additionally we see potential in toll manufacturing feed for the region given our geographical location. The inextricable link between local agricultural production, local millers, local stockfeed manufacturers and local protein producers needs to be protected at all costs. Long term, sustainable policy changes are urgently needed to support these critical components of the economy, and indeed the country. The business’ profit grew by 55% over the prior year driven almost exclusively by improved capacity utilisation from volume growth. “Success is... knowing your purpose in life, growing to reach your maximum potential, and sowing seeds that benefit others.” ~ John C. Maxwell National Foods Annual Report 2013 11
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  • 13. “Success is a journey, not a destination.” ~ Ben Sweetland FM CG Volumes of rice, salt, small grains, pasta, spreads and baked beans sold were 13% higher than the prior year but at the expense of margin which dropped to 21% from 22.5% in an increasingly competitive market. The business contributed marginally to Group profitability with little year on year change which is disappointing given the strength and diversity of the brands in this portfolio. Of significance though, is the $3,2m contribution to Group overhead. The market remains largely price driven with little, or no brand premium available. Consequently, we are compelled to re-engineer the processes and systems to become the lowest cost and most efficient producer in each and every category in which we compete. Numerous initiatives have commenced with positive results in the pasta, salt and rice categories. In particular our longterm rice strategy, underpinned by the new downpacking plant in Mutare, will offer products and variants across the category at all price points. By the financial year-end we were experiencing positive market share gains in rice. Interventions into procurement, logistics and product handling should impact positively on this business in the near term. National Foods Annual Report 2013 13
  • 14. C H A I R M A N ’ S S TAT E M E N T ~ continued Proper ties During the year under review eight properties were sold as we continue to dispose of non-core or ageing assets in order to apply the balance sheet value more appropriately. At 30 June 2013 the net lettable area of properties we own had reduced from June 2012 by 11% to 150,000m², of which 57% was occupied by National Foods, whilst 10% was leased to third parties and 33% was vacant. There was increased focus during the year on repairing and maintaining the core National Foods properties. Supp or t S er vices In order to both de-risk and capacitate the Group for growth, significant upskilling took place in all the support services. The Information Technology (IT) outsource was terminated and brought inhouse under a newly recruited Group IT Executive with a mandate to deliver a far-reaching and innovative single IT strategy across the enterprise. Similarly an in-house Group Legal executive was recruited to contain rising fraud and mitigate risk in general. The Credit Control and Procurement Committees have full time executive representation to execute these two essential functions more effectively and efficiently. Corp orate S ocia l R e spo n si bi li t y There are twenty five identified charities and vulnerable institutions across the country to whom we provide regular and on-going support, primarily through the provision of food. The continuation of growth at the recent levels will be largely dependent on a revival of the local agricultural sector and the macro-economic policies to be adopted. D i vi de nd The Board has declared a final dividend of 3,0c per share (bringing the total dividend for the year to 6,0c per share) payable on or about 4th October 2013 to shareholders registered in the books of the Company by noon on 20th September 2013. The transfer books and register of members will be closed on 21st and 22nd September 2013. Ac k nowl e dg e m e nt and Ap p re c i at i o n I wish to thank my fellow Board members for the roles they have played in the sub-committees and on the Board itself. I am very much pleased with the improved profitability of the Group, as well as strategies adopted to build sustainability. I thank the management and staff for their contribution to this set of results in the full realisation that they were achieved in a period of diminishing liquidity. The Group has sufficient capacity and capability for growth in both existing and new categories which I am confident will be achieved in the next year to the satisfaction of most stakeholders. Our three on-site clinics continue to provide free medical services to our full time and contract employees as well as voluntary HIV/AIDS testing plus free ARV treatment. Future Prosp ec ts The group posted a good financial performance for the year, albeit partly assisted by some non-recurring items. The five year underlying profit before tax compounded annual growth rate stands at 29% bearing testimony to the good strategies adopted over the years. In particular our brands have grown market share which in turn drives volumes and capacity utilisation at the factories enabling better efficiencies off a predominantly fixed cost operating platform. Todd Moyo Chairman 20 August 2013 The current environment is showing signs of a slow down on the back of a liquidity crisis and insufficient local agricultural production. Moreover, further devaluation of the South African rand could negatively impact on Zimbabwe’s food manufacturing sector. Management will continue to develop all aspects of the business to bolster our ability to compete and offer a compelling brand proposition. The increase in volumes sold in the year necessitates further upgrades into the plant and equipment and investment into our people. To this end, we will spend about $7m on capital expenditure in the forthcoming financial year. By its very nature, the Group has a large fixed overhead with associated risks in the event of a downturn in volumes sold. Conversely the Group is well positioned for growth into new categories and through the existing facilities that have significant available capacity. Organic growth will be driven by the economic policies adopted by the new Government in September so this remains a largely unknown quantity. The Group is reviewing the business cases for entry into two new categories that can be easily “clipped on” to the existing manufacturing and distribution footprint. We are confident at least one new product will be in the market in the forthcoming financial year. Consumers justifiably continue to demand more. The Group will work to gain meaningful insights into consumer needs to drive the innovation in product and brand to meet the needs of the consumer. Particular focus is on pack size and price point to mitigate the absence of coins as change. National Foods is committed to the training and development of our people as we build capabilities for future prospects. We remain grateful to our partners for assisting with technical training and support in key areas particularly through short term exchange programs which connect and expose our people to world-class best practices. National Foods Annual Report 2013 14
  • 15. National Foods Annual Report 2013 15
  • 16. CORPOR AT E G O V ERNANCE National Foods Holdings Group subscribes to the principles of discipline, independence, accountability, transparency, responsibility, integrity, fairness and social responsibility, identified as the primary characteristics of good governance in the Code of Corporate Practices and Conduct, contained within the King III Report on Corporate Governance and the Combined Code on Corporate Governance. The primary objective of any system of corporate governance is to ensure that directors and managers, to whom the running of large corporations has been entrusted by the shareholders, carry out their responsibilities faithfully and effectively, placing the interests of the corporation and society ahead of their own. This process is facilitated through the establishment of appropriate reporting and control structures within the organisation. The Board believes that the Group’s governance practices are strong and that in all material respects, the Group conforms to the principles embodied within the King III Report and Combined Code on Corporate Governance and is committed to ensuring that these principles continue to be an integral part of the way in which the group’s business is conducted. D i re c to rate and E xe c ut i ve M anag e m e nt The Boards of Directors of the Holding Company and of the Principal Operating Company retain full and effective control over the Group. The Boards meet regularly, no less than four times a year to review strategy, planning, operational performance, acquisitions and disposals, stakeholder communications and other material matters relating to performance of executive management. The majority of Directors of the Holding Company are non-executive bringing objective judgement to bear on issues of strategy and performance. The Group Chairman is an independent non-executive Director. Managerial levels of authority have been established for capital expenditure projects and the acquisition and disposal of assets. However, decisions of a material nature are taken by the Board of Directors and senior management, who constitute key management and whose remuneration is disclosed in Note 20.8. The directors have access to the advice and services of the company secretary who is responsible to the Board for ensuring compliance with procedures and regulations. Directors are entitled to seek independent professional advice about the affairs of the Group, at the company’s expense, if they believe that course of action would be in the best interests of the Group. Fi nanc i al St ate m e nt s The Directors of the National Foods Holdings Group are responsible for preparing financial statements and other information presented in the annual report in a manner that fairly presents the state of affairs and results of the operations of the company and the Group. The external auditors are responsible for carrying out an independent examination of the financial statements in accordance with International Standards on Auditing and reporting their findings thereon. The annual financial statements contained in this report have been prepared in accordance with International Financial Reporting Standards. They are based on appropriate accounting policies and are supported by reasonable and prudent judgements and estimates. The directors have no reason to believe that the Group’s operations will not continue as a going concern in the year ahead. Audi t Co m m i t te e The Group has an audit committee comprising representation by nonexecutive directors and is chaired by a non-executive director. As at 30 June 2013 the committee comprised J. Koumides (Chairman), T. Moyo, N.P Doyle, N. Brimacombe and J.P Schonken. The external auditors have unrestricted access to this committee. The audit committee reviews the effectiveness of internal controls in the Group with reference to the findings of both the internal and external auditors. Other areas covered include the review of important accounting issues, including specific disclosures in the financial statements and a review of the major audit recommendations. National Foods Annual Report 2013 16
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  • 18. National Foods Annual Report 2013 18
  • 19. CO RP OR ATE GO V E R N A N C E ~ continued R is k M anagement Commi t tee The directors are accountable for the process of risk management and for establishing appropriate risk and control policies and to ensure that these are communicated throughout the Group. Executive managers are responsible for the identification and evaluation of key risks applicable to their areas of business. The Group has established a risk management committee which is responsible for overseeing and reporting on the overall group risk. This provides an on-going process for identifying, evaluating and managing the significant risks faced by the Group. This committee reports to the Board on all areas of risk that have been identified in the Group. I nternal Control The Group maintains internal controls and systems designed to provide reasonable assurance as to the integrity and reliability of the financial statements and to adequately safeguard, verify and maintain accountability for its assets. Such controls are based on established policies and procedures and are implemented by trained personnel with an appropriate segregation of duties. The internal audit function operates under the direction of the Group Audit Committee, which approves the scope of the work to be performed. Significant findings are reported to both executive management and the audit committee. Corrective action is taken to address internal control deficiencies identified in the execution of the work. Nothing has come to the attention of the Directors that indicates any material breakdown in the functioning of the key internal controls and systems during the period under review. The Group has comprehensive risk and loss control procedures in place, which form an integral part of a sophisticated third party and self-insurance programme. D IRE C TO RS’ A ND EX EC UT I V E R EMU N ER AT I ON R em u neration Committe e The remuneration committee has been delegated by the board with the responsibility of determining the remuneration of the executive directors and other senior management members. The chairman of the committee is obliged to report to the board on its deliberations. The committee is comprised of J. Koumides (Chairman), N. Brimacombe and N.P. Doyle. R em u neration p olic y The remuneration policy is formulated to attract, retain and motivate top talent in the best interests of shareholders, and is based upon the following principles: • Remuneration arrangements will be designed to support National Foods Holdings’ business strategy, vision and to conform to best practices. • Total rewards will be set at levels that are competitive within the context of the relevant areas of responsibility and the industry in which the Group operates. “The backbone of success is... hard work, determination, Com pos ition of executive re m u n e rat i o n The remuneration packages of executive directors comprise an annual salary, benefits and a short term incentive scheme. M anagement R ep or tin g There are comprehensive management reporting disciplines in place which include the preparation of annual budgets by all operating units. Individual budgets are approved by the Principal Operating Company board of directors, while the Group budget is reviewed by the directors of the Holding Company. Monthly results and the financial status of operating units are reported against approved budgets and compared to the prior year. Profit projections and cash flow forecasts are updated half yearly, while working capital and borrowing levels are monitored on an on-going basis. Strategic Plannin g Proce ss In line with its mission to build a world-class business, the overall strategy for National Foods Holdings is clearly focused. Annual strategic plans are compiled at both Group and business unit level, with detailed plans for action and allocated responsibilities. Progress is reviewed regularly. good planning and perserverence.” ~ Mia Hamm Et hi c s Directors and employees are required to observe the highest ethical standards, ensuring that the business practices are conducted in a manner which, in all reasonable circumstances is beyond reproach. An ethics and standard of business principles policy is in place to ensure good governance. In line with the Zimbabwe Stock Exchange Listing Requirements, the Group operates a closed period prior to the publication of its interim and year end financial results during which period directors, officers and employees may not deal in the shares of the Holding Company. Where appropriate, this is also extended to include other sensitive periods. Equal O p p o r t uni t y The Group is committed to providing equal opportunities for its employees regardless of race, tribe, place of origin, political opinion, colour, creed or sex. National Foods Annual Report 2013 19
  • 20. R E V IE W OF FINANCI ALS CONSOLI DATED STAT EMEN T OF COMPR EHEN S I V E IN CO M E Year ended Year ended Year ended Year ended 30 June 2013 30 June 2012 30 June 2011 30 June 2010 US$000 US$000 US$000 US$000 Revenue 295,926 233,998 201,170 160,818 Profit from operating activities Net financing costs -finance expense -finance income Fair value adjustments Share of associate’s profit Profit before tax Taxation Profit for the year Discontinued operations Profit for the year 18,439 11,053 7,032 1,429 (1,190 ) (345 ) (551 ) (1,198 ) (1,479 ) (1,158 ) (1,300 ) (1,497 ) 289 813 749 299 - - - 10 - - 823 628 17,249 10,708 7,304 869 (3,310 ) (2,804 ) (2,207 ) 2,279 13,939 7,904 5,097 3,148 - - (73 ) (251 ) 13,939 7,904 5,024 2,897 Total comprehensive income for the year 13,937 7,900 5,022 2,897 CONSOLI DATED STAT EMEN T OF FI N A N CI A L POS I T IO N Assets Property, plant and equipment Investments in associate companies Other non-current financial assets Other current assets Cash & cash equivalents Assets classified as held for sale Total assets As at As at As at As at 30 June 2013 30 June 2012 30 June 2011 30 June 2010 US$000 US$000 US$000 US$000 37,925 35,851 33,266 34,288 - - 813 628 120 277 64 71,993 41,770 41,174 36,264 4,106 10,619 5,921 7,458 - - 748 114,144 88,517 81,986 78,638 Equity and Liabilities Equity Deferred tax Bank overdraft and acceptances Other current liabilities Total equity and liabilities 60,828 50,011 43,601 39,032 7,450 8,074 8,190 7,361 - 2,265 2,033 373 45,866 28,167 28,162 31,872 114,144 88,517 81,986 78,638 CONSOLI DATED STAT EMEN T OF C A S HF LOWS Year ended Year ended Year ended Year ended 30 June 2013 30 June 2012 30 June 2011 30 June 2010 US$000 US$000 US$000 US$000 (18,408) 12,911 4,109 (6,110) Net cash (outflows)/inflows from operating activities Investing activities -purchase of property plant and equipment -other investing activities Net cash (outflows)/inflows from investing activities (6,086 ) 2,875 (3,211 ) (4,764 ) 2,011 (2,753 ) (2,217 ) 1,245 (972 ) (1,959 ) 4,611 2,652 Net cash (outflow)/inflow before financing activities (21,619 ) 10,158 3,137 (3,458 ) Financing activities 17,371 (5,692 ) (6,333 ) 8,259 Net (decrease)/increase in cash and cash equivalents (4,248 ) 4,466 (3,196 ) 4,801 National Foods Annual Report 2013 20
  • 21. R AT IOS A N D S TAT I S T I C S Year ended Year ended Year ended Year Ended 30 June 2013 30 June 2012 30 June 2011 30 June 2010 Profitability Operating margin % 6% 5% 3% 1% Return on total assets % 18% 13% 9% 2% Return on equity % 28% 18% 13% 8% Effective tax rate % 19% 26% 30% (262% ) Growth Increase in revenue Increase/(Decrease) in operating profit % % 26% 67% 16% 57% 25% 392% 103% (81% ) Productivity Asset turnover times 3 3 3 2 Solvency and liquidity Current ratio Interest cover Net debt to shareholders’ funds Total liabilities to shareholders’ funds times 1.66 1.72 1.56 1.36 times 15.50 32.03 12.76 1.19 % 27% 0% 3% 11% % 88% 77% 88% 101% Employee statistics Number of employees Revenue per employee Operating profit per employee ave 966 918 924 1,601 US$ 366,245 254,900 217,716 100,449 US$ 22,820 12,040 7,611 893 Share performance Number of shares issued Weighted average shares in issue Basic earnings per share Diluted earnings per share Dividend per share Dividend cover Dividend yield Price earnings ratio Net asset value per share Market capitalisation 000’s 68,400 68,400 68,399 68,379 000’s 68,400 68,399 68,399 68,379 US cents 20.38 11.55 7.27 4.24 US cents 20.38 11.55 7.27 4.24 US cents 6.00 2.75 0.7 times 3.40 4.19 4.74 % 2% 2% 1% times 12.02 9.70 13.07 21.23 US cents 88.93 73.12 63.75 57.08 $’000 167,580 76,608 64,979 61,541 Market price per share High Low Price-year end US cents 270 125 101 135 US cents 140 80 81 85 US cents 245 112 95 90 The following definitions relate to terms used in this report: Asset turnover - Revenue divided by net assets at the end of the financial period. Average - Opening balance plus closing balance divided by two. Current ratio - Ratio of current assets to current liabilities. Dividend cover - Earnings per share divided by declared dividend per share. Dividend yield - Dividend per share as a percentage of market price at period end. Interest cover - Profit/(loss) from operations before taxes plus interest payable, divided by interest payable. Market capitalisation - Share price at period end multiplied by number of shares in issue. Net asset value per share - Shareholders’ funds at end of period divided by number of shares in issue at that date. Operating margin - Profit/(loss) from operating activities as a percentage of turnover. Price earnings ratio - Market price at period end divided by earnings per share. Return on equity - Profit/(loss) after tax for the year as a percentage of opening shareholders’ funds. Return on total assets - Profit/(loss) from operating activities as a percentage of average total assets. Shareholders’ funds - Issued capital plus distributable and non-distributable reserves. Total liabilities - Long term liabilities, current liabilities, bank overdrafts and acceptances. National Foods Annual Report 2013 21
  • 22. R EPOR T OF T HE D IREC TORS The Directors have pleasure in presenting their report, together with the audited financial statements for the year ended 30 June 2013. GROUP FI NA NC I AL R ES ULTS Profit before tax Tax Profit after tax 2013 2012 2011 2010 US$ US$ US$ US$ 17,249,091 10,707,499 7,304,056 869,142 (3,309,971 ) (2,803,839 ) (2,207,267 ) 2,278,801 13,939,120 7,903,660 5,096,789 3,147,943 Total comprehensive income for the year 13,936,690 7,900,101 5,022,488 2,896,858 SHA RE C A P I TA L During the year the authorised share capital remained at 73 000 000 ordinary shares of (US$) 1 cent each. No new shares were issued during the year (2012:1 300) and the number of shares in issue was 68 400 108. NATI ONA L FOODS WOR KER S T RUS T National Foods Workers Trust (Private) Limited was established to provide a scheme for worker participation in both the equity and profits of the company. Through donations by the Company to the Trust, the Trust acquired a 10% shareholding in National Foods. Dividends received through its shareholding are administered by a board of nine Trustees for the benefit of workers under grades “A”, “B” and “C” of the Milling and Commercial Industries and grades 1-16 of the Textile Industry, being the National Employment Councils for which the wide categories of employees fall. BORROWI NG P OW ER S In terms of the Articles of Association, the borrowing powers of the company and its subsidiaries (excluding inter-company borrowings) are limited in aggregate to the nominal amount of the share capital of the company plus the total free reserves of the company and its subsidiaries. The level of borrowings throughout the year was adequately covered in this respect. R ESER VES Movements in reserves are shown in the statement of changes in equity. D IVI DENDS The Board has declared a final dividend of (US$) 3,0 cents per share payable on or about 4 October 2013 to shareholders registered in the books of the company by noon 20 September 2013. The transfer books and register of members will be closed on 21st and 22nd September 2013. Together with the interim dividend of (US$) 3,0 cents per share, this final dividend brings the total dividend for the year to ($US) 6,0 cents per share. D IREC TOR ATE Messrs J.J. Brooke and N. Brimacombe who retire by rotation in terms of the Articles of Association of the Company, and being eligible, offer themselves for reelection. At a board meeting held on 19 February 2013, Mr J. Koumides was appointed as a Director of the Company with effect from that date. In terms of the Articles of Association of the Company he is required to retire from the Board at the Annual General Meeting and being eligible, offers himself for re-election. Mr T.W. Brown resigned from the board on 19 February 2013. AUDI TORS Members will be asked to fix the remuneration of Ernst & Young for the past audit and to confirm their reappointment for the ensuing year. T. Moyo J.J. Brooke Chairman Managing Director HARARE 30 September 2013 National Foods Annual Report 2013 22
  • 23. STAT E M E N T OF D I R E C TO R S’ R E S P ONS IBIL IT Y The Directors of the company are required by the Companies Act to maintain adequate accounting records and to prepare financial statements that present a true and fair view of the state of affairs of the Company and the Group at the end of each financial year and of the profit and cash flows for the period. In preparing the accompanying financial statements, International Financial Reporting Standards have been followed. Suitable accounting policies have been used and consistently applied, and reasonable and prudent judgements and estimates have been made. The financial statements have been prepared under the historical cost convention, are in agreement with the underlying books and records and have been properly prepared in accordance with the accounting policies set out in note 2 of the financial statements, and comply with International Financial Reporting Standards and the disclosure requirements of the Companies Act (Chapter 24:03) and the relevant regulations made thereunder. The principal accounting policies of the Group are consistent with those applied in the previous year and conform to International Financial Reporting Standards (IFRS). The Directors have satisfied themselves that the Group is in a sound financial position and has adequate resources to continue in operational existence for the foreseeable future. Accordingly they are satisfied that it is appropriate to adopt the going concern basis in preparing the financial statements. The Board recognises and acknowledges its responsibility for the Group’s systems of internal financial control. National Foods maintains internal controls and systems that are designed to safeguard the assets of the Group, prevent and detect errors and fraud and ensure the completeness and accuracy of the Group’s records. The Group’s Audit Committee has met the external auditors to discuss their reports on the results of their work, which include assessments of relative strengths and weaknesses of key control areas. Whilst in a growing Group of the size, complexity and diversity of National Foods it may be expected that occasional breakdowns in established control processes may occur, no breakdowns involving material loss have been reported to the Directors in respect of the period under review. The financial statements for the year ended 30 June 2013, which appear on pages 25 to 50 have been approved by the Board of Directors and are signed on its behalf by: T. Moyo J.J. Brooke Chairman Managing Director HARARE 30 September 2013 National Foods Annual Report 2013 23
  • 24. R EPOR T OF T HE IND EPEND ENT AU DI TORS   Ernst & Young Chartered Accountants (Zimbabwe) Registered Public Auditors Angwa City Cnr Julius Nyerere Way Kwame Nkrumah Avenue P.O. Box 62 or 702 Harare Zimbabwe Tel: +263 4 750905 - 14 or 750979 - 83 Fax: +263 4 750707 or 773842 Email: admin@zw.ey.com www.ey.com To The Members of National Foods Holdings Limited R epor t on the conso li d ate d f i n a n ci a l st ate m e nt s We have audited the accompanying consolidated financial statements of National Foods Holdings Limited as set out on pages 25 to 50, which comprise the Group Statement of Financial Position at 30 June 2013, the Group Statement of Comprehensive Income, the Group Statement of Changes in Equity and the Group Statement of Cash Flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. D i rec tors’ respon si bi li t y fo r t h e f i n a n ci a l st ateme nt s The Company’s Directors are responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act (Chapter 24:03), and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor ’s resp ons i bi li t y Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. O p inion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of National Foods Holdings Limited as at 30 June 2013, and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. R epor t on oth er l e g a l a n d regu lato r y req u i re m e nt s In our opinion, the consolidated financial statements have, in all material respects, been properly prepared in compliance with the disclosure requirements of the Companies Act (Chapter 24:03) and the relevant Statutory Instruments (SI 33/99 and SI62/96). ERNST & YOUNG CHARTERED ACCOUNTANTS (ZIMBABWE) Registered Public Auditors Harare 2 October 2013 National Foods Annual Report 2013 24
  • 25. CO NS OLI DATE D S TAT E M E N T O F CO MPREH ENS IV E INCOME for the year ended 30 June 2013 Notes 2013 2012 US$ US$ Revenue 5 295,925,743 233,998,200 Cost of sales (228,009,907 ) (178,712,537 ) Gross profit 67,915,836 55,285,663 Other income 6.1 4,265,044 511,687 Selling and distribution expenses (11,629,102 ) (9,495,932 ) Employee benefits expenses 6.2 (20,371,670 ) (17,796,534 ) Administrative expenses 6.2 (19,812,279 ) (15,565,338 ) Depreciation 6.3 (1,928,962 ) (1,887,014 ) Profit from operating activities 6 18,438,867 11,052,532 Finance income 6.4 289,452 813,412 Finance costs 6.4 (1,479,228 ) (1,158,445 ) Profit before tax 17,249,091 10,707,499 Income tax expense 7.1 (3,309,971 ) (2,803,839 ) Profit for the year 13,939,120 7,903,660 Other comprehensive income to be recycled to profit and loss at a future point in time Exchange differences on translation of foreign operations - net of tax Total comprehensive income for the year (2,430 ) (3,559 ) 13,936,690 7,900,101 Profit for the year attributable to: Equity holders of the parent 13,939,120 7,898,543 Non-controlling interests - 5,117 13,939,120 7,903,660 Total comprehensive income for the year attributable to: Equity holders of the parent 13,936,690 7,894,984 Non-controlling interests - 5,117 13,936,690 7,900,101 Earnings per share Basic and diluted Headline 8 8 National Foods Annual Report 2013 25 20.38 cents 19.27 cents 11.55 cents 11.32 cents
  • 26. CO N S OL IDAT ED S TAT EMENT OF FINANCIAL POSI TI ON as at 30 June 2013 Notes 2013 2012 US$ US$ AS SE TS Non-current assets Property, plant and equipment 9 37,925,146 35,851,195 Investment in associate 10 - Other financial assets 11.1 119,845 Finance lease receivables 12 - 277,093 38,044,991 36,128,288 Current assets Finance lease receivables 12 388,133 286,636 Other financial assets 11.1 470,329 396,163 Inventories 13 46,923,613 23,069,768 Trade and other receivables 14 24,211,255 18,017,180 Cash & cash equivalents 19.4 4,106,296 10,618,986 76,099,626 52,388,733 Total assets 114,144,617 88,517,021 E QUI T Y A ND LI A B I L I T I ES Equity Issued capital 15.1 684,001 684,001 Non-distributable reserves 15.2 24,676,429 24,678,859 Distributable reserves 15.3 35,467,199 24,648,429 Total equity 60,827,629 50,011,289 Non-current liabilities Deferred tax liability 7.4 7,449,678 8,073,580 7,449,678 8,073,580 Current liabilities Trade and other payables 17 23,956,721 26,408,001 Bank overdrafts and acceptances 19.4 - 2,265,085 Interest bearing borrowings 11.2 20,566,233 75,128 Provisions 18 726,069 713,201 Income tax payable 7.3 618,287 970,737 45,867,310 30,432,152 Total equity and liabilities T. Moyo J.J. Brooke Chairman Managing Director HARARE 30 September 2013 National Foods Annual Report 2013 26 114,144,617 88,517,021
  • 27. CO NS OLI DATE D S TAT E M E N T O F C HANG ES IN EQUIT Y for the year ended 30 June 2013 At t r ibu ta bl e to Equ i t y H o l d e r s o f th e pa re nt Issued Non- Non- Share Distributable Distributable controlling Capital Reserves Reserves Total Interests Total US$ US$ US$ US$ US$ US$ Notes 15.1 15.2 15.3 Balance at 30 June 2011 683,988 24,682,418 18,156,989 43,523,395 77,817 43,601,212 Profit for the year - - 7,898,543 7,898,543 5,117 7,903,660 Other comprehensive income - (3,559 ) - (3,559 ) - (3,559 ) Total comprehensive income - (3,559 ) 7,898,543 7,894,984 5,117 7,900,101 Issue of shares 13 - - 13 - 13 Dividends paid - - (1,407,103 ) (1,407,103 ) - (1,407,103 ) Disposal of subsidiary - - - - (82,934 ) (82,934 ) 684,001 24,678,859 24,648,429 50,011,289 - 50,011,289 Profit for the year - - 13,939,120 13,939,120 - 13,939,120 Other comprehensive income - (2,430 ) - (2,430 ) - (2,430 ) Total comprehensive income - (2,430 ) 13,939,120 13,936,690 - 13,936,690 Dividends paid - - (3,120,350 ) (3,120,350 ) - (3,120,350 ) 684,001 24,676,429 35,467,199 60,827,629 - 60,827,629 Balance at 30 June 2012 Balance at 30 June 2013 National Foods Annual Report 2013 27
  • 28. CONS OL IDAT ED S TAT EMENT OF CAS H F LO W S for the year ended 30 June 2013 Notes 2013 2012 US$ US$ O P ER ATI NG AC TI VI T I ES Cash generated from operations 19.1 Working capital changes 19.2 Operating cash flow Interest received Interest paid Income tax paid 19.3 21,369,803 (34,301,761 ) (12,931,958) 289,452 (1,479,228 ) (4,286,323 ) 15,140,568 200,731 15,341,299 813,412 (1,158,445 ) (2,084,872 ) Net cash flows from operating activities (18,408,057 ) 12,911,394 IN V ESTI NG AC TI V I T I ES Purchase of property, plant and equipment to expand operations Purchase of property, plant and equipment to maintain operations Purchase of financial instruments and other investments Proceeds on disposal of property, plant and equipment Proceeds on disposal of assets held for sale Proceeds on disposal of financial instruments Proceeds on disposal of associate Dividends received from associate Net cash flow on disposal of subsidiary 4 (3,778,715 ) (2,306,883 ) (478,227 ) 2,893,710 - 459,810 - - - (2,796,071 ) (1,968,414 ) (895,265 ) 393,975 748,045 1,068,655 3,000 809,585 (117,170 ) Net cash flows from investing activities (3,210,305 ) (2,753,660 ) FI NA NC I NG AC TI VI T I ES Proceeds from issue of shares Proceeds from borrowings Repayment of borrowings Dividends paid - 20,491,107 - (3,120,350 ) 13 5,000,000 (9,284,541 ) (1,407,103 ) Net cash flows from financing activities 17,370,757 (5,691,631 ) (Decrease)/increase in cash and cash equivalents (4,247,605 ) 4,466,103 Cash and cash equivalents at beginning of the year 8,353,901 3,887,798 Cash and cash equivalents at the end of the year 19.4 4,106,296 8,353,901 National Foods Annual Report 2013 28
  • 29. NOT E S TO TH E CO N S O L I DAT E D F I N ANCIAL S TAT EMENTS 1 CORPORATE INFORMATION The Company and its subsidiaries are incorporated in Zimbabwe except for Botswana Milling and Produce Company (Proprietary) Limited and Red Seal Manufactures (Proprietary) Limited which are incorporated in Botswana. Refer to Directorate and Administration Section for additional corporate information. The Group’s main activities comprise of the milling of flour and maize, manufacture of stock feeds and the packaging and sale of other general household goods. The consolidated financial statements of National Foods Holdings Limited for the year ended 30 June 2013 were authorised for issue in accordance with a resolution of the Directors on 30 September 2013. 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of Preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). The consolidated financial statements have been prepared on a historical cost basis, except for financial investments assets, if any, that have been measured at fair value. The consolidated financial statements are presented in United States Dollars. All values are rounded to the nearest dollar (US$), except when otherwise indicated. 2.2 Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2013. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and dividends are eliminated in full. Total comprehensive income within a subsidiary is attributed to the non-controlling interest even if that results in a deficit balance. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it: • Derecognises the assets (including goodwill) and liabilities of the subsidiary • Derecognises the carrying amount of any non-controlling interest • Derecognises the cumulative translation differences recorded in equity • Recognises the fair value of the consideration received • Recognises the fair value of any investment retained • Recognises any surplus or deficit in profit or loss • Reclassifies the parent’s share of components previously recognised in other comprehensive income to profit or loss or retained earnings, as appropriate. 2.3 New and revised standards with no material effect on current year reporting The accounting policies adopted are consistent with those of the previous financial year. Amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Group: IAS 1 Financial Statement Presentation-Presentation of Items of Other Comprehensive Income IAS 12 Income Taxes (Amendment) – Deferred Taxes: Recovery of underlying assets The adoption of the standards or intepretation is described below: IAS 1 Financial Statement Presentation (Amendment) The amendment became effective for annual periods beginning on or after 1 July 2012. The amendments to IAS 1 changed the grouping of items presented in OCI. Items that could be reclassified (or ‘recycled’) to profit or loss at a future point in time (for example, upon derecognition or settlement) would be presented separately from items that will never be reclassified. The amendment affects presentation only and has no impact on the Group’s financial position or performance. IAS 12 Income Taxes – Recovery of Underlying Assets The amendment became effective for annual periods beginning on or after 1 January 2012. The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduced a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduced the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. 2.4 Standards issued but not yet effective Standards issued but not yet effective up to the date of issuance of the Group’s financial statements are listed below. This listing of standards and interpretations issued are those that the Group reasonably expects to have an impact on disclosures, financial position or performance when applied at a future date. The Group intends to adopt these standards when they become effective. • IAS 19 (Revised) - Employee Benefits. • IAS 28 (Revised) - Investments in associates and joint ventures • IAS 32 - Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 • IAS 36 - Impairment of Assets (Amendment) - Disclosure requirements for the recoverable amount of impaired assets • IFRS 7 - Disclosures - offsetting financial assets and financial liabilities • IFRS 9 - Financial Instruments: Classification and Measurement • IFRS 10 - Consolidated financial statements. • IFRS 11 - Joint arrangements. • IFRS 12 - Disclosure of interests in other entities. • IFRS 13 - Fair value measurement. • IFRIC 21 - Levies National Foods Annual Report 2013 29
  • 30. N OT E S TO T H E CONS OL IDAT ED FINANCIAL S TATEMENTS IAS 19 Employee Benefits (Revised) The IASB has issued numerous amendments to IAS 19. These range from fundamental changes such as removing the corridor mechanism and the concept of expected returns on plan assets to simple clarifications and re-wording. The more significant changes include the following: • For defined benefit plans, the ability to defer recognition of actuarial gains and losses (i.e. the corridor approach) has been removed. As revised, actuarial gains and losses are recognised in OCI when they occur. Amounts recorded in profit or loss are limited to current and past service costs, gains or losses on settlements, and net interest income (expense). All other changes in the net defined benefit asset (liability) are recognised in OCI with no subsequent recycling to profit or loss. • Objectives for disclosures of defined benefit plans are explicitly stated in the revised standard, along with new or revised disclosure requirements. These new disclosures include quantitative information of the sensitivity of the defined benefit obligation to a reasonably possible change in each significant actuarial assumption. • Termination benefits will be recognised at the earlier of when the offer of termination cannot be withdrawn, or when the related restructuring costs are recognised under IAS 37 Liabilities. • The distinction between short-term and other long-term employee benefits will be based on expected timing of settlement rather than the employee’s entitlement to the benefits. The Group is currently assessing the full impact of the remaining amendments (termination benefits and definitions of short-term and long-term employee benefits). IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new IFRS 11 Joint Arrangements, and IFRS 12 Disclosure of Interests in Other Entities, IAS 28 Investments in Associates, has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to investments in joint ventures in addition to associates. The revisions are not expected to have an impact on the Group’s performance or financial position. The revised standard becomes effective for annual periods beginning on or after 1 January 2013. IAS 32 Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 These amendments clarify the meaning of currently has a legally enforceable right to set-off. The amendments also clarify the application of the IAS 32 offsetting criteria to settlement systems (such as central clearing house systems) which apply gross settlement mechanisms that are not simultaneous. These amendments are not expected to impact the Group’s financial position or performance and become effective for annual periods beginning on or after 1 January 2014. IAS 36 Impairment of Assets (Amendment) - Disclosure requirements for the recoverable amount of impaired assets The amendments clarify the disclosure requirements about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. The amendments clarify the IASB’s original intention: that the scope of these disclosures is limited to the recoverable amount of impaired assets that is based on fair value less costs of disposal. These improvements are effective for annual periods beginning on or after 1 January 2014 and have no impact on the financial statements of the Group. IFRS 7 Financial Instruments Disclosures - Offsetting Financial Assets and Financial Liabilities - Amendments to IFRS 7 These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g. collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entity’s financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. These amendments will not impact the Group’s financial position or performance and become effective for annual periods beginning on or after 1 January 2013. IFRS 9 Financial Instruments - Classification and Measurement IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The group is currently assessing the full impact of the remaining amendments. IFRS 10 Consolidated Financial Statements, IAS 27 Separate Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also addresses the issues raised in SIC-12 Consolidation - Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled and therefore are required to be consolidated by a parent, compared with the requirements that were in IAS 27. Based on the preliminary analyses performed, IFRS 10 is not expected to have any impact on the Group. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRS 11 Joint arrangements. IFRS 11 replaces IAS 31 Interests in Joint Ventures and SIC-13 Jointly-controlled Entities - Non-monetary Contributions by Venturers. IFRS 11 removes the option to account for jointly controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the definition of a joint venture must be accounted for using the equity method. These amendments will not impact the Group’s financial position or performance and become effective for annual periods beginning on or after 1 January 2013. IFRS 12 Disclosure of interests in other entities. IFRS 12 includes all of the disclosures that were previously in IAS 27 related to consolidated financial statements, as well as all of the disclosures that were previously included in IAS 31 and IAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. A number of new disclosures are also required, but has no impact on the Group’s financial position or performance. This standard becomes effective for annual periods beginning on or after 1 January 2013. National Foods Annual Report 2013 30
  • 31. NOT ES TO TH E CO N S O L I DAT E D F I N ANCIAL S TAT EMENTS IFRS 13 Fair value measurement. IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Group is currently assessing the impact that this standard will have on the financial position and performance, but based on the preliminary analyses, no material impact is expected. This standard becomes effective for annual periods beginning on or after 1 January 2013. IFRIC 21 Levies IFRIC 21 provides guidance on when to recognise a liability for a levy imposed by a government, both for levies that are accounted for in accordance with IAS 37 ‘Provisions, Contingent Liabilities and Contingent Assets’ and those where the timing and amount of the levy is certain. The interpretation clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. It also clarifies that a levy liability is accrued progressively only if the activity that triggers payment occurs over a period of time, in accordance with the relevant legislation. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be recognised before the specified minimum threshold is reached. This standard becomes effective for annual periods beginning on or after 1 January 2014 and has no impact on the financial statements of the Group. Annual Improvements These improvements will not have an impact on the Group, but include: IAS 1 Presentation of Financial Statements This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period. IAS 16 Property Plant and Equipment This improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. IAS 32 Financial Instruments, Presentation This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. IAS 34 Interim Financial Reporting The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures. These improvements are effective for annual periods beginning on or after 1 January 2013. 2.5 Summary of significant accounting policies 2.5.1 Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects to measure the non-controlling interest in the acquiree either at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition costs incurred are expensed and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the acquirer’s previously held equity interest in the acquiree is remeasured to fair value at the acquisition date through profit or loss. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration which is deemed to be an asset or liability will be recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. If the contingent consideration is classified as equity, it should not be remeasured until it is finally settled within equity. Goodwill is initially measured at cost being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured based on the relative values of the operation disposed of and the portion of the cash-generating unit retained. 2.5.2 Investments in associates The Group’s investment in its associate is accounted for using the equity method. An associate is an entity in which the Group has significant influence. Under the equity method, the investment in the associate is carried in the statement of financial position at cost plus post acquisition changes in the Group’s share of net assets of the associate. Goodwill relating to the associate is included in the carrying amount of the investment and is neither amortised nor individually tested for impairment. National Foods Annual Report 2013 31
  • 32. N OT E S TO T H E CONS OL IDAT ED FINANCIAL S TATEMENTS The statement of comprehensive income reflects the share of the results of operations of the associate. Where there has been a change recognised directly in the equity of the associate, the Group recognises its share of any changes and discloses this, when applicable, in the statement of changes in equity. Unrealised gains and losses resulting from transactions between the Group and the associate are eliminated to the extent of the interest in the associate. The Group’s share of profit of an associate is shown on the face of the statement of comprehensive income. This is the profit attributable to equity holders of the associate and therefore is profit after tax and non-controlling interests in the subsidiaries of the associate. The financial statements of the associate are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognise an additional impairment loss on the Group’s investment in its associate. The Group determines at each reporting date whether there is any objective evidence that the investment in the associate is impaired. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate and its carrying value and recognises the amount in the ‘share of profit of an associate’ in profit or loss. Upon loss of significant influence over the associate, the Group measures and recognises any retaining investment at its fair value. Any difference between the carrying amount of the associate upon loss of significant influence and the fair value of the retaining investment and proceeds from disposal is recognized in profit or loss. 2.5.3 Foreign currency translation The Group’s financial statements are presented in United States Dollars (US$) (see 2.1), which is the Group’s functional and presentation currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognised at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognised in profit or loss in the period in which they arise. For the purpose of presenting consolidated financial statements, the assets and liabilities of the Group’s foreign operations are expressed in United States Dollars using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognised in other comprehensive income and accumulated in equity (attributed to non-controlling interests as appropriate). Upon disinvestment of a foreign entity, translation differences related to that entity are recycled into profit or loss. 2.5.4 Taxes 2.5.4.1 Current income tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the end of the reporting period in countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in other comprehensive income or equity is recognised in other comprehensive income or equity and not in profit or loss for the period. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 2.5.4.2 Deferred income tax Deferred income tax is provided using the liability method on all temporary differences at the reporting date between the tax base of assets or liabilities and their carrying amounts in the statement of financial position for financial reporting purposes. Deferred income tax liabilities are recognised for all taxable temporary differences, except: • where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future. Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except: • where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and • in respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised. The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised. Unrecognised deferred income tax assets are reassessed at the end of each reporting period and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. National Foods Annual Report 2013 32
  • 33. NOT ES TO TH E CO N S O L I DAT E D F I N ANCIAL S TAT EMENTS Deferred taxation is recognised in profit or loss except to the extent that it relates to items that are recognized outside profit or loss (whether in other comprehensive income or directly in equity), in which case tax is also recognized outside of profit or loss. Deferred taxation relating to tax losses carried forward is recognised to the extent that it is probable that future taxable profit will be available against which the unused tax losses can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled based on tax rates (and tax laws) that have been enacted or substantively enacted at the end of the reporting period. Deferred tax assets and deferred income tax liabilities are offset, only if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority. 2.5.4.3 Value Added Tax (VAT) Revenues, expenses and assets are recognised net of the amount of VAT except: • Where the VAT incurred on a purchase of assets or services is not recoverable from the tax authorities, in which case the VAT is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and • receivables and payables that are stated with the amount of VAT included. The net amount of VAT recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. 2.5.5 Non-current assets held for sale and discontinued operations Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amounts and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. In the consolidated statement of comprehensive income of the reporting period and the comparable period of the previous year, income and expenses from discontinued operations are reported separately from income and expenses from continuing operations, down to the level of profit after taxes, even when the Group retains a non-controlling interest in the subsidiary after sale. The resulting profit or loss (after taxes) is reported separately in the statement of comprehensive income. Property, plant and equipment and intangible assets once classified as held for sale are not depreciated or amortised. 2.5.6 Inventories Inventories are stated at the lower of cost and estimated net realisable value. Costs incurred in bringing each product to its present location and condition are accounted for as follows: Raw materials: • Purchase cost on a first in, first out basis Finished goods and work in progress: • Cost of direct materials and labour and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Initial cost of inventories includes the transfer of gains and losses on qualifying cash flow hedges, recognised in other comprehensive income, in respect of the purchases of raw materials. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. 2.5.7 Leases The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveying the right to use the asset. Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 2.5.7.1 The Group as lessor Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognised on a straight-line basis over the lease term. 2.5.7.2 The Group as lessee Finance leases which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item are capitalized at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognised in finance costs in profit or loss. A capitalised leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. Operating lease payments are recognised as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. 2.5.8 Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. National Foods Annual Report 2013 33
  • 34. N OT E S TO T HE CONS OL IDAT ED FINANCIAL S TATEMENTS The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. 2.5.9 Retirement benefits Retirement benefits are provided for eligible Group employees through various independently administered defined contribution schemes, including the National Social Security Authority. Contributions to these funds are recognised as an expense in the period to which employees’ services relate. 2.5.10 Property, plant and equipment All items of property, plant and equipment are shown at cost less accumulated depreciation and accumulated impairment losses, if any. Cost includes expenditures that are directly attributable to the acquisition of the asset. Land is carried at cost whereas buildings are carried at cost less accumulated depreciation and accumulated impairment losses. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. No depreciation is provided on land or capital work-in-progress. Depreciation commences when the asset is available for use. Other fixed assets are depreciated on a straight line basis, at such rates as are considered appropriate to reduce their book values to residual values over their estimated useful lives, as follows: Buildings 40 years Productive plant and machinery 8 - 20 years Ancillary machinery, equipment and furniture 5 - 10 years Motor vehicles 5b- 10 years The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively if appropriate. The carrying values of plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable in full. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the year the asset is derecognised. 2.5.11 Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received/receivable net of discounts, rebates, VAT and other sales taxes or duty. Intra-group revenue, which arises in the normal course of business is excluded from revenue. The following specific recognition criteria must also be met before revenue is recognised: 2.5.11.1 Sale of goods Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. 2.5.11.2 Rental income Rental income arising from operating leases on properties is accounted for on a straight line basis over the lease terms. 2.5.11.3 Dividend and interest revenue Dividend revenue from investments is recognised when the shareholder’s right to receive payment has been established (provided that it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably). Interest revenue is recognised when it is probable that the economic benefits will flow to the Group and the amount of revenue can be measured reliably. Interest revenue is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition. 2.5.12 Borrowing costs Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset shall be capitalised as part of the cost of that asset. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. 2.5.13 Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher National Foods Annual Report 2013 34
  • 35. NOT ES TO TH E CO N SO L I DAT E D F I N ANCIAL S TAT EMENTS of an asset’s or cash-generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. Impairment losses of continuing operations are recognised in profit or loss in those expense categories consistent with the function of the impaired asset. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Group makes an estimate of recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss. After the reversal depreciation charge is adjusted in future periods to allocate the revised carrying amount, less any residual value, on a systematic basis over the remaining useful life. 2.5.14 Financial assets The Group’s financial assets include trade and other accounts receivable, cash and cash equivalent and other financial instruments. Financial assets in the scope of IAS 39 are classified as either financial assets at fair value through profit or loss and loans and receivables as appropriate. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. The Group determines the classification of its financial assets on initial recognition and, where allowed and appropriate, re-evaluates this designation at each financial year end. All regular purchases and sales of financial assets are recognised on the trade date i.e. the date that the Group commits to purchase the asset. Regular purchases or sales are purchases or sales of financial assets that require delivery of assets within the period generally established by regulation or convention in the marketplace. 2.5.14.1 Effective interest method The effective interest method is a method of calculating the amortised cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees on points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. Income is recognised on an effective interest basis for debt instruments other than those financial assets classified as at fair value through profit and loss. 2.5.14.2 Financial assets at fair value through profit or loss [FVTPL] Financial assets at fair value through profit or loss includes financial assets held for trading and financial assets designated upon initial recognition as at fair value through profit and loss. A financial asset is classified as held for trading if: • it has been acquired principally for the purpose of selling it in the near term; or • on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or • it is a derivative that is not designated and effective as a hedging instrument. Financial assets may be designated at initial recognition as at fair value through profit or loss if the following criteria are met: • the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognising gains or losses on them on a different basis; or • the assets are part of a group of financial assets which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management strategy. The fair value of investments that are actively traded in organised financial markets is determined by reference to quoted market bid price at the close of business on the last day of the reporting period. For investments where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions (reference to the current market value of another instrument, which is substantially the same) discounted cash flow analysis and option pricing models. Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. 2.5.14.3 Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are measured at fair value on initial recognition, and are subsequently carried at amortised cost using the effective interest rate method, less any impairment losses. Gains and losses are recognised in profit or loss when the loans and receivables are derecognised or impaired, as well as through the amortisation process. 2.5.14.4 Cash and cash equivalents Cash and cash equivalents comprise cash at banks and in hand and short term deposits with an original maturity of three months or less and are measured at amortised cost. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash on hand and deposits in banks, net of bank overdrafts and short term borrowings. National Foods Annual Report 2013 35

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