Annual financial statements
- Audit and risk committee report
- Approval of the financial statement
- Certificate by Company Secretary
- Independent Auditor’s report
- Directors’ report
- Consolidated statement of comprehensive income
- Consolidated statement of financial position
- Consolidated statement of changes in equity
- Consolidated statement of cash flows
- Notes to the consolidated financial statements
- Notes 1 - 10
- Notes 11 - 20
- Notes 21 - 30
- Notes 31 - 34
- Abbreviations
- Definitions
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
| GROUP | COMPANY | |||||||
|---|---|---|---|---|---|---|---|---|
| 2016 | 2016 | |||||||
| Freehold land and buildings | Leasehold properties | Plant, equipment and vehicles | Capital work-in-progress | Total | Freehold land and buildings | |||
| R’000 | R’000 | R’000 | R’000 | R’000 | R’000 | |||
| Cost | ||||||||
| Balance at 1 July 2015 | 853 344 | 31 030 | 1 947 093 | 327 408 | 3 158 875 | 250 | ||
| Capital expenditure | 365 133 | 365 133 | – | |||||
| Capitalised | 154 426 | 5 152 | 204 441 | (364 019) | – | – | ||
| Government grants received | – | – | (2 003) | 2 003 | – | – | ||
| Transfer to assets classified as held-for-sale | (34 359) | – | (13 993) | – | (48 352) | – | ||
| Acquisition through business combinations | – | – | 463 | (463) | – | – | ||
| Disposals and scrappings | (497) | – | (40 151) | – | (40 648) | – | ||
| Foreign exchange translations | – | 2 833 | 5 979 | (144) | 8 668 | – | ||
| Balance at 30 June 2016 | 972 914 | 39 015 | 2 101 829 | 329 918 | 3 443 676 | 250 | ||
| Accumulated depreciation and impairment | ||||||||
| Balance at 1 July 2015 | (217 156) | (5 145) | (783 123) | – | (1 005 424) | (16) | ||
| Depreciation for the year | (25 264) | (3 076) | (138 601) | – | (166 941) | (1) | ||
| Transfer to assets classified as held-for-sale | 13 195 | – | 11 767 | – | 24 962 | – | ||
| Disposals and scrappings | 412 | – | 28 545 | – | 28 957 | – | ||
| Foreign exchange translations | – | (418) | (1 596) | – | (2 014) | – | ||
| Balance at 30 June 2016 | (228 813) | (8 639) | (883 008) | – | (1 120 460) | (17) | ||
| Net book value as at 30 June 2016 | 744 101 | 30 376 | 1 218 821 | 329 918 | 2 323 216 | 233 | ||
| GROUP | |||||||
|---|---|---|---|---|---|---|---|
| 2016 | |||||||
| Goodwill R’000 |
Trademarks, patents and customer lists R’000 |
Software licences R’000 |
Right-of-use R’000 |
Capital work-in-progress – software R’000 |
Total R’000 |
||
| Cost | |||||||
| Balance at 1 July 2015 | 375 205 | 128 478 | 130 215 | 9 579 | 7 722 | 651 199 | |
| Capital Expenditure | – | – | – | – | 66 367 | 66 367 | |
| Capitalised | – | – | 15 383 | – | (15 381) | 2 | |
| Additions through business combinations | 5 540 | 14 027 | – | – | (19 567) | – | |
| Disposals and scrappings | – | – | (10 236) | – | – | (10 236) | |
| Government grants received | – | – | (9 604) | – | 9 604 | – | |
| Balance at 30 June 2016 | 380 745 | 142 505 | 125 758 | 9 579 | 48 745 | 707 332 | |
| Accumulated amortisation and impairment | |||||||
| Balance at 1 July 2015 | (1 311) | (15 753) | (65 554) | (1 024) | – | (83 642) | |
| Amortisation for the year | – | (9 933) | (9 831) | (1 916) | – | (21 680) | |
| Disposals and scrappings | – | – | 10 181 | – | – | 10 181 | |
| Balance at 30 June 2016 | (1 311) | (25 686) | (65 204) | (2 940) | – | (95 141) | |
| Net book value as at 30 June 2016 | 379 434 | 116 819 | 60 554 | 6 639 | 48 745 | 612 191 | |
An impairment test is done annually at the Group’s financial year-end on goodwill acquired through business combinations. The value-in-use of the businesses are represented by the present value of future cash flows generated by the businesses estimated for a five-year period and is based on: Current net profit before tax, projected forward at an average growth of between 5%-10% (2016: 5%-6%) and adjusted for non-cash items; movements in working capital; and a before tax discount rate of 19.27% (2016: 19,92%). Goodwill has been allocated to Clover Industries Group excluding Clover Frankies and then to Clover Frankies and Clover Pride respectively as the smallest separately identifiable cash-generating units due to income, cost, assets and liabilities not being possible to be split into smaller cash-generating units. The respective calculated recoverable amounts exceeds the carrying amount of the cash-generating unit. No reasonably possible change will result in the carrying amount exceeding the recoverable amount of the cash-generating unit. Government grants in the prior year have been received in terms of the DTI’s Manufacturing Competitive Enhancement Programme for the purchase of specific software additions made during the current financial year. There are no unfulfilled conditions or contingencies attached to these grants. |
|||||||
| GROUP | |||
|---|---|---|---|
| Goodwill has been allocated to the following cash-generating units for purposes of the impairment review: | 2017 R’000 |
2016 R’000 |
|
| Clover Industries* | 373 894 | 373 894 | |
| Clover Frankies | 5 540 | 5 540 | |
| Clover Pride | 21 579 | – | |
| Clover Industries Group | 401 013 | 379 434 | |
| *Clover Industries Limited does not hold any goodwill at a company level | |||
Call option to acquire remaining shares in Clover Frankies Call option to acquire remaining shares in Clover Good Hope A – Average annual EBITDA of Clover Good Hope for the financial years preceding the call option B – EBITDA multiple. If Clover’s EBITDA multiple is 7 or lower the EBITDA multiple will be 6. If Clover’s EBITDA multiple is above 7 then the EBITDA multiple will be 7 C – Actual average net financing cost of Clover Good Hope for the two financial years preceding the call option The discounted cash flow valuation of the call option was based on the following inputs; estimated annual free cash flow of R7,3 million; free cash flow growth per annum of between 6% to 10% and a discount rate of 18% Call option to acquire remaining shares in Clover Pride The value of the call option was calculated by comparing the expected price as per the contract to a price calculated by using a discounted cash flow model. The same assumptions were utilised in calculation the discounted cash flow as those used for the purchase price allocation as per note 3.1. |
Foreign exchange contracts
Foreign exchange contracts through profit or loss are those foreign exchange forward contracts that are not designated in hedge relationship as they are intended to reduce the level of foreign currency risk for expected sales and purchases.
Clover Industries shares forward purchase
The Group had entered into a forward contract to purchase 2 132 695 Clover Industries shares, this transaction was entered into to hedge a portion of the share appreciation rights issued to management.
The fair value of the shares forward purchases was determined by Investec Bank Limited. The fair value was determined by calculation the future settlement price after the following inputs were taken into consideration, a dividend of 3,92% (2016: 3,11%), a credit spread of 2,75% (2016: 2,75%), a spot rate of R16,55 (2016: R18,51) and a swap interest rate reflecting the term of each tranche of the hedge.
| 2017 | 2016 | |||
| Expiry date | Number of forwards | Forward price per share (Rand) | Number of forwards | Forward price per share (Rand) |
| 3 October 2016 | 308 500 | 21.40 | ||
| 1 June 2017 | 158 936 | 22.40 | ||
| 30 June 2017 | 158 937 | 22.29 | ||
| 30 June 2017 | 253 575 | 22.46 | ||
| 1 June 2017 | 158 937 | 22.35 | ||
| 30 June 2017 | 308 500 | 22.35 | ||
| 2 October 2017 | 308 500 | 23.20 | 308 500 | 23.20 |
| 29 June 2018 | 308 500 | 23.97 | ||
| 31 July 2018 | 519 442 | 24.29 | ||
| 3 June 2019 | 476 810 | 2 6.48 | 476 810 | 26.48 |
| 28 June 2019 | 519 443 | 25.72 | ||
| Total | 2 132 695 | 2 132 695 | ||
Diesel hedge The Group purchases diesel on an ongoing basis as its operating activities in the distribution division require a continuous supply of diesel for the transport of its own products and those of its principals. Due to the recent fluctuations in the commodities market specifically relating to the international price of oil and the effect it had on the price of diesel locally the Group entered into a diesel hedge with RMB in the form of a long-futures contract. The futures contracts do not result in the physical delivery of diesel, but are designated as cash flow hedges of offset the effect of the prices changes in diesel. The fair values are based on the quoted price from RMB for an item with the same expiry date and a similar value, taking into account the ruling ICE Gasoil price at year end and the forecasted change in the ICE Gasoil prices until expiry of the instrument. The realised loss portion of the Ice Gasoil long-futures contract recognised in other operating expenses in the statement of profit or loss for the year was R 5,9 million (R 4,2 million net of tax) (2016: R 25,8 million (R 18,6 million net of tax)), the unrealised profit portion of R Nil (2016: R 3,3 million (R 2,4 million net of tax)) is reflected in other comprehensive income and will affect the profit or loss in the next financial year, depending on the move in the ICE Gasoil price. During the financial year the Group hedged 1 500 000 litres of ICE Gasoil per month at a average price of R 5,61 per litre. As at 30 June 2017 all the Group diesel hedged had expired. |
| 14.3 | Fair value hierarchy | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique; As at 30 June 2017, the Group held the following financial instruments carried at fair value in the Statement of Financial Position:
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| GROUP | COMPANY | ||||
|---|---|---|---|---|---|
| 2017 R’000 |
2016 R’000 |
2017 R’000 |
2016 R’000 |
||
| Reconciliation of fair value measurement of level 3 financial assets | |||||
| Call option to acquire remaining shares in Clover Frankies (Pty) Ltd | |||||
| 3 297 | Balance at the beginning of the year | ||||
| – | 445 | Initial recognition through OCI | |||
| 617 | 2 852 | Remeasurement recognised through statement of profit or loss | |||
| (3 914) | Derecognised against investment in Clover Frankies (note 3.2) | ||||
| – | 3 297 | Balance at the end of the year | – | ||
| Call option to acquire remaining shares in Clover Good Hope (Pty) Ltd | |||||
| 560 | Balance at the beginning of the year | ||||
| – | 560 | Initial recognition through OCI | |||
| 296 | Remeasurement recognised through statement of profit or loss | ||||
| 856 | 560 | Balance at the end of the year | – | ||
| Refer to Note 30.1 (ii) to 30.1 (vi) for further disclosure. | |||||
| GROUP | COMPANY | ||||
|---|---|---|---|---|---|
| 2017 R’000 |
2016 R’000 |
2017 R’000 |
2016 R’000 |
||
| 15 | DEFERRED TAXATION | ||||
| (155 339) | (155 557) | Balance at the beginning of the year | 77 | 77 | |
| (20 230) | 218 | Movements during the year: | |||
| (14 411) | (6 997) | Charge to profit or loss | |||
| (590) | – | Deferred tax limitation | |||
| 3 105 | 368 | Prior year over provision | |||
| 970 | – | Change in rate | |||
| 520 | (62) | Foreign currency translation effect | |||
| 938 | (938) | Charge from/(to) other comprehensive income | |||
| 79 | 9 193 | Credit to the statement of changes in equity | |||
| (10 841) | (1 346) | Acquisition of subsidiaries | |||
| (175 569) | (155 339) | Balance at the end of the year | 77 | 77 | |
| The balance is constituted as follows: | |||||
| Deferred tax assets | |||||
| 1 668 | 920 | Doubtful debts provision | 77 | 77 | |
| 3 356 | 5 029 | Credit note accrual | |||
| 1 138 | 1 420 | Leases straight-lined | |||
| 47 205 | 60 314 | Employee related expenses that are only deductible when paid | |||
| 5 400 | 6 582 | Income received in advance | |||
| – | 272 | Inventory provision | |||
| 21 138 | 18 018 | Other accruals | |||
| 96 882 | 55 939 | Assessed loss carried forward | |||
| 1 636 | 717 | Foreign tax credits | |||
| 4 578 | 7 773 | Cash flow hedges | |||
| 183 001 | 156 984 | Total deferred tax assets | 77 | 77 | |
| Deferred tax liabilities | |||||
| (351 872) | (306 491) | Property, plant and equipment | |||
| (2 069) | (1 524) | Prepayments | |||
| (3 150) | (2 798) | Consumable stores | |||
| (1 358) | (1 398) | Pension fund asset | |||
| (121) | (112) | Other | |||
| (358 570) | (312 323) | Total deferred tax liabilities | |||
| (175 569) | (155 339) | Net deferred tax (liability)/asset | 77 | 77 | |
| Reflected in the Statement of Financial Position as follows: | |||||
| 45 496 | 37 019 | Deferred tax assets | 77 | 77 | |
| (221 065) | (192 358) | Deferred tax liabilities | |||
| (175 569) | 155 339 | Net deferred tax (liability)/asset | 77 | 77 | |
In assessing the availability of sufficient future taxable profit for utilisation against unused tax losses, cognisance was taken of the Group’s vision, goals and strategies. The Board is of the opinion that future taxable profits would be adequate to utilise the unused tax losses. |
|||||
The Statement of Financial Position disclosure for deferred tax assets is the total amount for all Group companies with net deferred tax assets. Likewise the deferred tax liability represents the total of all companies with net deferred tax liabilities. Note 15, however, groups all deferred tax assets and liabilities in the Group, irrespective of the net position of individual Group companies. |
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| 16 | INVENTORIES | ||||
| – | 5 800 | Delivery agreements | |||
| 170 659 | 156 746 | Raw materials | |||
| 99 221 | 112 506 | Work-in-progress | |||
| 115 403 | 107 697 | Consumable stores | |||
| 579 347 | 534 160 | Finished goods | |||
| 964 630 | 916 909 | Total inventories | |||
| The amount of the write-down of inventories recognised as an expense is R22.4 million (2016: R13,2 million). This expense is included in the cost of sales line item as a cost of inventories. |
| GROUP | COMPANY | ||||
|---|---|---|---|---|---|
| 2017 R’000 |
2016 R’000 |
2017 R’000 |
2016 R’000 |
||
| 17 | TRADE AND OTHER RECEIVABLES | ||||
| 1 182 775 | 1 227 372 | Trade receivables | 13 061 | 4 129 | |
| 36 515 | 27 335 | Trade receivables from principals | |||
| 139 262 | 73 284 | Other receivables and advance payments | 275 | 50 286 | |
| 2 585 | 2 612 | Loans to Executive Directors and other Executives | 2 585 | 2 612 | |
| Inter-company loan: Clover SA | 547 578 | 546 844 | |||
| Loan: CIL Share Purchase Plan Trust | 9 | 9 | |||
| (6 517) | (3 847) | Allowance for impairment | (275) | (275) | |
| (13 309) | (18 533) | Credit note accrual | |||
| 1 341 311 | 1 308 223 | Total trade and other receivables | 563 233 | 603 605 | |
| Clover SA securitised its trade debtors, excluding debtors generated from export sales, through a special-purpose entity, Clover Capital. Clover Capital is consolidated into the results of the Group. | |||||
| The loans to Directors and other Executives were made to finance ordinary shares in CIL issued to them on 31 May 2010. The terms of the loans are as follows: they will bear interest at 90% of the prime rate of Absa Bank, interest will be capitalised on a monthly basis, repayable by management on the sale of the ordinary shares or within two months of leaving the employment of Clover or within six months in the case of death. All proceeds of the ordinary shares are ceded to CIL as security for the loans. The loan agreements have been amended to make provision for a final repayment date of the respective loans linked to the normal retirement date for each of the Executives. See note 29.3 for further details. | |||||
| See note 30.5 for age analysis on trade receivables and on credit risk of trade receivables to understand how the Group manages and measures credit quality of trade receivables that are neither past due nor impaired. | |||||
| Trade receivables are non-interest-bearing and the payment terms are 30 days after the end of the month in which the goods were delivered. | |||||
| As at 30 June 2017, trade receivables of an initial value of R6,5 million (2016: R3,9 million) were impaired and fully provided for. See below for the movement in the provision for impairment of receivables. | |||||
| 3 847 | 2 525 | Balance at the beginning of the year | 275 | 275 | |
| 4 978 | 1 671 | Charge for the year | |||
| (2 308) | (349) | Impairment loss written off | |||
| 6 517 | 3 847 | Balance at the end of the year | 275 | 275 |
