| Wed 9 Mar 2005, 8:25 | | AVI - Interim results for the six months ended 31 |
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AVI - Interim results for the six months ended 31 December 2004
AVI
AVI - Interim results for the six months ended 31 December 2004
AVI LIMITED
(Incorporated in the Republic of South Africa)(Registration number 1944/017201/06)
Share code: AVI
ISIN: ZAE000049433
(`AVI` or the `Group`)INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 DECEMBER 2004
Key features
- Re-alignment of the Group completed:
- Consol unbundled and relisted effective 28 February 2005 - Vector Logistics sold, effective 2 December 2004, profit on sale R311
million
- Turnover from continuing operations up 7% to R2.5 billion
- Operating profit from continuing operations up 22% to R239 million- Cash generated by continuing operations up 19% to R340 million
- Group diluted headline earnings per share up 19% to 108.0 cents per share
- Special distribution of 64 cents per share to shareholders (inclusive of
interim dividend)- Early adoption of International Financial Reporting Standards
`Following the unbundling of Consol Limited and the sale of Vector Logistics, we
have successfully restructured the Group to focus on branded consumer products.
AVI is well positioned to grow with strong operational management teams, ahealthy innovation pipeline and a sound balance sheet.`
Angus Band
Group managing director
Enquiries:Angus Band, Group managing director Tel: +27 (11) 779 2703
Rob Katzen, Group financial director Tel: +27 (11) 779 2704
Sam Denoon-Stevens, Investor relations officer Tel: +27 (11) 779 2721
Condensed Group balance sheetsAs at 31 December
Unaudited Unaudited Audited
IFRS* IFRS*# IFRS*#
restated restated at 2004 2003 30 June 2004
Rm Rm Rm
ASSETS
Non-current assetsProperty, plant and equipment 1,104.5 1,996.2 2,295.2
Intangible assets 424.5 219.7 262.5
Investments 403.5 354.9 359.1
Deferred taxation 74.5 109.7 103.8 2,007.0 2,680.5 3,020.6
Current assets
Inventories 475.9 859.9 890.2
Trade and other receivables 935.2 1,538.1 1,375.2Cash and cash equivalents 252.9 579.8 674.5
Assets of discontinued operations 1,985.0 - -
3,649.0 2,977.8 2,939.9
TOTAL ASSETS 5,656.0 5,658.3 5,960.5EQUITY AND LIABILITIES
Equity
Share capital, share premium,
retained earnings andreserves 3,606.5 3,089.9 3,159.6
Amounts recognised directly in
equity relating to
discontinued operations (213.9) - -Total equity attributable to
equity holders of AVI 3,392.6 3,089.9 3,159.6
Minority interest 184.4 396.0 432.4
Total equity 3,577.0 3,485.9 3,592.0Non-current liabilities
Interest-bearing borrowings 139.7 67.7 155.8
Deferred taxation 118.6 147.7 201.6
Post-retirement medical aidprovision 253.3 327.1 323.0
511.6 542.5 680.4
Current liabilities
Trade and other payables 864.7 1,508.4 1,536.1Corporate taxation 58.2 86.6 79.6
Short-term borrowings 147.7 34.9 72.4
Liabilities of discontinued
operations 496.8 - - 1,567.4 1,629.9 1,688.1
TOTAL EQUITY AND LIABILITIES 5,656.0 5,658.3 5,960.5
Notes:
*The Group has adopted International Financial Reporting Standards (`IFRS`) forthe year ending 30 June 2005. Comparative periods have been restated in
accordance with IFRS as set out in supplementary note 1.
# The restated balance sheets at 31 December 2003 and 30 June 2004 which are
presented in accordance with IFRS are not comparable to the balance sheet at 31December 2004 because these balance sheets include the assets, equity and
liabilities of discontinued operations (Consol Limited and Vector Logistics
(Pty) Limited). These balance sheets have been restated on a comparable basis in
supplementary note 5.Condensed Group income statements
For the six months ended 31 December
Unaudited Unaudited Audited
IFRS* IFRS* IFRS* restated Change restated
results results
Year ended
2004 2003 30 June 2004 Rm Rm % Rm
CONTINUING OPERATIONS
Revenue 2,539.1 2,369.4 7 4,481.6
Operating profit before capitalitems 239.3 195.7 22 401.2
Investment income 15.5 29.2 60.1
Finance costs (22.3) (11.7) (17.8)
Share of equity accounted(losses)/earnings of associates and
joint ventures (1.8) 0.1 3.8
Capital items 20.5 (1.9) (7.0)
Profit before taxation 251.2 211.4 19 440.3Taxation 83.6 70.8 138.1
Profit for the period from
continuing operations 167.6 140.6 19 302.2
DISCONTINUED OPERATIONSRevenue 1,437.5 1,399.5 3 2,546.8
Operating profit before capital
items 312.7 289.3 8 550.3
Investment income 3.4 5.2 10.6Finance costs (0.6) (0.9) (1.7)
Capital items 1.0 2.1 (0.7)
Profit before taxation 316.5 295.7 7 558.5
Taxation 108.5 105.6 189.9Profit for the period from
discontinued operations 208.0 190.1 9 368.6
Profit for the period before gain
on disposal of discontinuedoperation 375.6 330.7 14 670.8
Gain on disposal of discontinued
operation 311.1 - -
Profit for the period 686.7 330.7 108 670.8Attributable to:
Equity holders of AVI 669.3 289.3 131 587.5
Minority interest 17.4 41.4 83.3
Profit for the period 686.7 330.7 670.8Basic earnings per share (cents) 215.7 91.0 137 186.0
Basic headline earnings per share
(cents) 109.3 91.1 20 188.4
Diluted earnings per share (cents) 213.1 91.0 134 184.0Diluted headline earnings per share
(cents) 108.0 91.1 19 186.3
Notes:
1. Basic earnings and headline earnings per share are calculated on a weightedaverage of 310 326 004 (2003: 317 963 269 and 30 June 2004: 315 809 761)
ordinary shares in issue.
2. Diluted earnings and headline earnings per ordinary share are calculated on a
weighted average of 314 024 908 (2003: 318 044 401 and 30 June 2004: 319 375150) ordinary shares in issue, after taking account of the relevant number of
incentive scheme shares and options currently in issue.
* The Group has adopted IFRS for the year ending 30 June 2005. Comparative
periods have been restated in accordance with IFRS as set out in supplementarynote 1.
Condensed Group cash flow statements
For the six months ended 31 December
Unaudited Unaudited Audited IFRS* IFRS* IFRS*
restated restated at
year ended
2004 2003 30 June 2004 Rm Rm Rm
CONTINUING OPERATIONS
Operating activities
Cash generated by operations 340.3 285.8 524.5Cash flows from investments 13.3 27.9 39.5
Increase in working capital (166.4) (216.5) (20.2)
187.2 97.2 543.8
Interest paid (18.9) (11.7) (17.8)Taxation paid (101.0) (41.6) (72.4)
Dividends paid (167.8) (264.0) (345.7)
Cash (utilised in)/retained from operating
activities (100.5) (220.1) 107.9Investing activities
Property, plant and equipment
- acquisitions (101.3) (80.2) (176.5)
- disposals 25.3 2.2 8.6Net investment in property, plant and
equipment (76.0) (78.0) (167.9)
Intangible assets acquired - (34.4) (88.8)
Investment acquisitions, net of disposal (176.5) (100.9) (104.5)- other investments (12.0) 15.4 6.2
(264.5) (197.9) (355.0)
Financing activities
Net shareholder funding 9.2 11.4 (114.2)Long-term borrowings - net movement (57.8) (5.6) 92.4
(48.6) 5.8 (21.8)
DISCONTINUED OPERATIONS
Cash flows from operating activities 226.4 157.8 450.2Cash flows from investing activities (111.8) (140.1) (518.1)
Cash flows from financing activities - (2.3) -
Acquisition of minority equity interest in
discontinued operation (526.4) - -Cash flow from disposal of discontinued
operation 368.1 - -
(43.7) 15.4 (67.9)
Net decrease in cash and cash equivalents (457.3) (396.8) (336.8)Net cash and cash equivalents at beginning
of period 602.1 955.6 955.6
Translation of the cash equivalents of
foreign subsidiaries (9.0) (13.9) (16.7)Net cash and cash equivalents at end of
period 135.8 544.9 602.1
Short-term borrowings 147.7 34.9 72.4
Cash and cash equivalents at end of period 283.5 579.8 674.5Attributable to:
Continuing operations 252.9
Discontinued operations 30.6
283.5Notes:
* The Group has adopted IFRS for the year ending 30 June 2005. Comparative
periods have been restated in accordance with IFRS as set out in supplementary
note 1.Condensed Group statements of changes in equity
Share
capital
and Treasury Retained premium shares Reserves earnings
Rm Rm Rm Rm
Half-year ended 31 December
2004At 1 July 2004 - audited IFRS
restated* 317.9 (342.4) (4.9) 3,179.6
Profit for the period - - - 669.3
Dividends paid - - - (167.5)Issue of ordinary shares 7.8 - - -
Own ordinary shares disposed
of by the Company`s Share
Trusts (net) - 1.4 - -Foreign currency translation
differences - - (29.4) -
Cash flow hedging reserve - - (13.0) -
Net (acquisition)/disposal ofminority`s equity interests in
subsidiaries - - - -
Share based payments - - 1.3 -
At 31 December 2004 -unaudited IFRS* 325.7 (341.0) (46.0) 3,681.4
Premium
on minority
equity Minority Total transactions Total interest equity
Rm Rm Rm Rm
Half-year ended 31 December
2004At 1 July 2004 - audited IFRS
restated* 9.4 3,159.6 432.4 3,592.0
Profit for the period - 669.3 17.4 686.7
Dividends paid - (167.5) (3.1) (170.6)Issue of ordinary shares - 7.8 - 7.8
Own ordinary shares disposed
of by the Company`s Share
Trusts (net) - 1.4 - 1.4Foreign currency translation
differences - (29.4) (1.0) (30.4)
Cash flow hedging reserve - (13.0) (0.1) (13.1)
Net (acquisition)/disposal ofminority`s equity interests in
subsidiaries (236.9) (236.9) (261.2) (498.1)
Share based payments - 1.3 - 1.3
At 31 December 2004 -unaudited IFRS* (227.5) 3,392.6 184.4 3,577.0
Share
capital
and Treasury Retained premium shares Reserves earnings
Rm Rm Rm Rm
Half-year ended 31 December
2003At 1 July 2003 - audited IFRS 304.0 (182.8) 42.2 2,926.4
restated*
Profit for the period - - - 289.3
Dividends paid - - - (255.1)Issue of ordinary shares 12.1 - - -
Own ordinary shares acquired - (2.4) - -
Minorities loans repaid - - - -
Foreign currency translationdifferences - - (37.3) -
Cash flow hedging reserve - - (16.5) -
Share based payments - - 0.6 -
At 31 December 2003 -unaudited IFRS restated* 316.1 (185.2) (11.0) 2,960.6
Premium
on minority
equity Minority Total transactions Total interest equity
Rm Rm Rm Rm
Half-year ended 31 December
2003At 1 July 2003 - audited IFRS 9.4 3,099.2 398.3 3,497.5
restated*
Profit for the period - 289.3 41.4 330.7
Dividends paid - (255.1) (35.2) (290.3)Issue of ordinary shares - 12.1 - 12.1
Own ordinary shares acquired - (2.4) - (2.4)
Minorities loans repaid - - (0.6) (0.6)
Foreign currency translationdifferences - (37.3) (4.0) (41.3)
Cash flow hedging reserve - (16.5) (3.9) (20.4)
Share based payments - 0.6 - 0.6
At 31 December 2003 -unaudited IFRS restated* 9.4 3,089.9 396.0 3,485.9
Share
capital
and Treasury Retained premium shares Reserves earnings
Rm Rm Rm Rm
Year ended 30 June 2004
At 1 July 2003 - audited IFRSrestated* 304.0 (182.8) 42.2 2,926.4
Profit for the year - - - 587.5
Dividends paid - - - (336.9)
Dividend adjustment in respectof the consolidation of the
Company`s Share Trusts - - - 2.6
Issue of ordinary shares 13.6 - - -
Issue of convertible redeemablepreference shares 0.3 - - -
Own ordinary shares acquired
- by wholly-owned subsidiary - (127.5) - -
- by Company`s Share Trusts(net) - (32.1) - -
Foreign currency translation
differences - - (70.1) -
Cash flow hedging reserve - - 21.3 -Share based payments - - 1.7 -
At 30 June 2004 - audited IFRS
restated* 317.9 (342.4) (4.9) 3,179.6
Premium on minority
equity Minority Total
transactions Total interest equity
Rm Rm Rm RmYear ended 30 June 2004
At 1 July 2003 - audited IFRS
restated* 9.4 3,099.2 398.3 3,497.5
Profit for the year - 587.5 83.3 670.8Dividends paid - (336.9) (46.5) (383.4)
Dividend adjustment in respect
of the consolidation of the
Company`s Share Trusts - 2.6 - 2.6Issue of ordinary shares - 13.6 - 13.6
Issue of convertible redeemable
preference shares - 0.3 - 0.3
Own ordinary shares acquired- by wholly-owned subsidiary - (127.5) - (127.5)
- by Company`s share Trusts
(net) - (32.1) - (32.1)
Foreign currency translationdifferences - (70.1) (7.2) (77.3)
Cash flow hedging reserve - 21.3 4.4 25.7
Share based payments - 1.7 0.1 1.8
At 30 June 2004 - audited IFRSrestated* 9.4 3,159.6 432.4 3,592.0
Notes:
* The Group has adopted IFRS for the year ending 30 June 2005. Comparative
periods have been restated in accordance with IFRS as set out in supplementarynote 1.
GROUP OVERVIEW
In October 2004 AVI announced its plans for the restructuring and strategic re-
alignment of its portfolio to attain the long-stated objective of becoming afocused, branded consumer products group. This restructuring involved the sale
of Vector Logistics (Pty) Limited (`Vector Logistics`) and the unbundling and
relisting of Consol Limited (`Consol`) as an independent, focused, packaging
company. Vector was sold effective 2 December 2004 for R454 million and Consollisted on the JSE Securities Exchange South Africa (`JSE`) on 28 February 2005.
The results from both of these operations have accordingly been included in the
consolidated results but reflected as discontinued operations in accordance with
the relevant accounting standard. This commentary will focus on the performanceof the continuing operations.
The Group has converted to International Financial Reporting Standards (`IFRS`)
from South African Generally Accepted Accounting Standards ahead of the 2006
deadline prescribed by the JSE. The impact of the adoption of IFRS on thefinancial statements is not material and full details are set out in the
supplementary information to the financial statements. Our reported results will
now be comparable internationally.
Trading conditions domestically were generally solid with consumer demandboosted by lower interest and inflation rates, the emerging black middle class
and high real salary and wage increases. Although demand in our markets has not
benefited to the same extent as other consumer categories, which are more
interest rate sensitive, we were pleased with our volume growth. The currencyhas continued to be a major factor in our business driving deflation in most of
our categories and in particular in Irvin & Johnson Group (`I&J`), but has also
contributed to lower input costs.
The Group performed well during the period in spite of a lower contribution fromI&J. Turnover from continuing operations was up 7% to R2.5 billion primarily
driven by volume growth, with acquisitions contributing R128 million.
Operating profit from continuing operations increased by 22% to R239 million
with the operating margin lifting from 8.3% to 9.4%. The improvement in marginis attributable to the favourable impact of the volume growth, a continued focus
on efficiencies and cost management across all business units as well as lower
raw material input costs flowing from the stronger Rand and lower commodity
prices. These improvements were partially offset by deflation in selling pricesas well as the Rand impact on export realisations.
In October 2004 AVI took advantage of the opportunity to acquire the minority
interest in Consol on favourable terms at a cost of R526 million. While this
cash flow was partially recovered from the sale of Vector in December itresulted in a significant outflow for the Group. This outflow, together with the
share buy back program in the second half of the 2004 financial year (R124
million at an average price of 1772 cents per share) and the acquisition of
Denny Mushrooms (Pty) Limited (`Denny`) and Sir Juice, resulted in the netfinance income position in the prior year reversing to a net cost in the current
period.
The effective rate of taxation on continuing operations has remained above the
official rate of taxation due to the Secondary Tax Companies (`STC`) charge onthe final dividends paid. The increase from 33.5% to 34.8% related to the
reversal of certain deferred tax assets in Argentina. The contingent tax
liability of R219 million noted last year has not yet been resolved. The issues
in dispute are of a complex nature and it is anticipated that the matter willremain unresolved for an extended period.
The Group`s diluted headline earnings per share increased by 19% to 108.0 cents
(2003: 91.1 cents).
Cash flow from continuing operations remains strong benefiting from the increasein operating performance, with cash generated by operations increasing by 19% to
R340 million. The Group has continued to invest in its operations, and during
the period R53 million was spent on maintenance projects, while R48 million was
spent on expansion. The major area of expansion expenditure was the biscuitcategory where a new baking line was installed which will support our innovation
initiatives. Working capital remained well managed with the working capital to
the rolling 12 month sales ratio constant at 16.3%.
In addition to the capital expenditure program, the Group continued to invest innew business opportunities. AVI acquired Denny, South Africa`s leading fresh to
market mushroom producer and processor for a total consideration of R202 million
and Sir Juice, a premium out of home fresh juice business for a total
consideration of R25 million. The acquisitions contributed R15 million tooperating profit for the period.
Segmental review
For the six months ended 31 December
Turnover Unaudited IFRS
2004 2003*
Rm Rm % change
Continuing operations- Branded consumer products 2,539.1 2,369.4 7
- Corporate - - -
Discontinued operations
- Packaging 1,237.1 1,195.0 4- Logistics* 200.4 204.5 (2)
Total 3,976.6 3,768.9 6
Operating profit
before capital items Unaudited IFRS
2004 2003*
Rm Rm % change
Continuing operations- Branded consumer products 239.0 201.5 19
- Corporate 0.3 (5.8) -
Discontinued operations
- Packaging 279.9 253.7 10- Logistics# 32.8 35.6 (8)
Total 552.0 485.0 14
(*) Restated in terms of IFRS
(#) Logistics results are for the five month period ended 30 November 2004. Theprior year represents the six months to 31 December 2003.
CONTINUING OPERATIONS
National Brands Limited (`NBL`)
NBL was the outstanding performer for the Group over the six month period withoperating profit increasing by 33%. Turnover was up 5% to R1.3 billion on the
back of a 6% volume growth.
Although deflation was experienced in most categories, the favourable impact of
lower input costs driven by the strong currency and improved commodity pricestogether with the volume growth contributed to operating profit increasing to
R171 million with the overall margin increasing to 13% (2003: 10%). The biscuit
category in particular traded well with volume growth of 9% contributing
strongly to the increase in operating profit.Good progress has continued to be made in turning around the snacks category
which benefited from a combination of lower operating and raw material costs and
improved quality. NBL has continued to focus on the development of export
markets, notwithstanding the levels of the currency and it was pleasing to see arecovery in export volumes, although off a low base.
I&J
Turnover for the I&J group declined by 8% to R734 million. Although core volume
growth was 5% this was offset by the impact of the stronger Rand, whichnegatively impacted realisations, as well as a significant reduction in high
margin shrimp sales from Alpesca. Operating profit declined by 40% to R26
million. This was mainly as a result of the Alpesca performance as well as a
loss from the pelagic operation.Within the South African fishery, operational efficiencies and cost saving
initiatives resulted in an increase in operating profit, notwithstanding a
decline in catch rates in the freezer fleet.
The Argentine shrimp resource yielded extremely poor catch rates causing theauthorities to suspend fishing in mid November 2004. The new season is due to
commence in mid-March and early indications of the recovery in the resource are
positive. Alpesca experienced a strike by all seagoing staff, which was industry
wide, from November to January. The strike was settled with no significantfuture cost implications. Notwithstanding the strike, Alpesca`s hake business
performed well over the period with a material improvement in operating profit
in US$ terms.
The pelagic operation recorded a loss due to poor fishing and a major breakdownby one of the vessels. This vessel was sold for US$4.25 million in October 2004,
at a profit of R20 million. Although it remains I&J`s intention to exit from
this fishery, these operations
are not expected to incur a loss in the second half of the financial year.AVI announced last year that it had sold 25% of I&J to Black Economic
Empowerment (`BEE`) shareholders. This transaction was restructured during the
period resulting in BEE shareholders now owning 20% of the I&J group. AVI is in
the process of finalising the increase in the BEE shareholding to 25% and thisshould be completed by April 2005.
Indigo Cosmetics (Pty) Limited (`Indigo`)
Turnover in the first six months grew by 7% to R264 million driven by volume
growth with no price increases having been implemented since October 2002.Notwithstanding the price restraint, gross margins have been maintained as a
result of the favourable impact of the Rand on raw material and packaging costs.
The domestic business increased turnover by 4% with continued innovation and new
launches proving successful. Exports grew by 76% largely due to the entry intothe Australasian markets under the Lentheric brand which was purchased in 2004.
Operating profit growth of 1% was lower than the comparative sales growth as a
result of the investment in marketing of R8 million to support the Lentheric
launch into Australasia. Although the roll out in Australasia has been slowerthan anticipated, we remain excited by this opportunity.
Real Beverage Company (Pty) Limited (`RBC`)
RBC grew turnover by 59% to R117 million as it continued to expand its national
market presence and benefited from further acquisitions.The Quali range launched successfully into Gauteng and KZN and RBC acquired Sir
Juice effective 1 August 2004. This acquisition has enabled RBC to gain access
to the Gauteng out of home market and has also created the opportunity to expand
this business nationally through its existing national customer base.The company achieved an operating profit of R1 million (2003: operating loss of
R2 million). Teething problems with the commissioning of a new line in Gauteng
as well as significant investment in brand development over the period,
constrained operating profit growth when compared to the increase in turnover.Denny
Denny increased turnover by 11% compared to the same period in the prior year.
Volume growth in the fresh mushroom category was up 4% but constrained by
adverse production at the Deodar facility in Gauteng during November andDecember 2004. Sales growth at Dining In, the value adding subsidiary, was
excellent with volume growth of 67%. Overall volume growth was 9%.
Due to the adverse production at Deodar and the resulting under-recovery of
overheads, operating profit for the period was in line with the prior year.DISCONTINUED OPERATIONS
Consol, which was separately listed on 28 February 2005, will continue to be
consolidated into AVI until the end of February 2005. Consol`s turnover
increased by 3.5% to R1.2 billion and consolidated operating profit increased by10% to R280 million. Consol reported its detailed results for the six months
ended 31 December 2004 on 2 March 2005.
Following the sale of Vector, AVI ceased consolidating its results with effect
from 1 December 2004. The turnover and operating profit of Vector for the fivemonths ended 30 November 2004, which have been included in discontinued
operations for the interim period, were R200 million and R33 million
respectively.
DIVIDENDSOn 28 February 2005, a special payment of 64 cents per share was made to
shareholders. The payment was in lieu of the interim dividend that would have
been paid in April in accordance with AVI`s traditional timetable. In terms of
the Group policy, the normalised interim dividend would have been 31 cents pershare. The additional 33 cents per share or R104 million was paid out in order
to improve the efficiency of the Group`s balance sheet.
OUTLOOK
The outlook for trading conditions in the second half of the financial yearremains positive for continued volume improvements. The strong growth in the
middle LSM consumer groups is a positive influence on all our businesses.
Management will continue to focus on cost and efficiencies particularly in light
of the low inflationary environment in which South African businesses are nowoperating. The strong Rand remains a net negative influence on our operations
due to the large exposure to exports within I&J, more than offsetting the
benefit in respect of imported raw materials.
The Department of Environmental Affairs and Tourism has recently published adraft policy for the allocation and management of Commercial Fishing Rights in
the Hake Deep-Sea Trawl. Although this is a draft policy which is still open for
comment and subsequent amendment, the implication for I&J would be a loss of at
least 10% of its existing hake quota. While I&J would be restructured tominimise any impact, this would unfortunately include job losses in the Western
Cape.
AVI, post its successful restructuring as a focused, branded consumer products
group, is well-positioned, both structurally and financially, to groworganically and through acquisition in an economy which we believe is favourable
to our branded products strategy.
Supplementary notes to the consolidated interim financial statements
1. Basis of preparationThe Group has elected to adopt IFRSs for the year ending 30 June 2005. The
interim results have been prepared and presented in accordance with IAS 34 -
Interim financial reporting.
The financial statements for the year ending 30 June 2005 will be the Group`sfirst consolidated IFRS-compliant financial statements and hence IFRS 1 - First
time adoption of IFRS has been applied in preparing this interim report. The
Group has early adopted all IFRS issued or revised up to 31 December 2004.
An explanation of how the transition to IFRS has affected the reported financialposition and performance of the Group is provided in supplementary note 7.
A summary of significant changes to the Group`s accounting policies as result of
the adoption of IFRS follows.
2. Significant changes to the Group`s accounting policies as a result of theadoption of IFRS
Deferred taxation
The Group has adopted the requirements of the interpretation statement AC501 -
Accounting for Secondary Tax on Companies whereby a deferred taxation asset isrecognised on all unutilised STC credits held by the Group.
Previously unutilised STC credits were only brought to account when they were
utilised upon declaration of dividends payable.
Defined benefit plansThe Group made an election in terms of IFRS 1 that previously unrecognised
actuarial gains and losses on defined benefit plans as at 1 July 2003, the date
of transition to IFRS, were recognised directly against retained income in
determining the opening IFRS balance sheet at that date. Actuarial gains andlosses that arose subsequent to 1 July 2003 and any future actuarial gains and
losses are recognised in accordance with the existing accounting policy in this
regard.
Financial statements of foreign operationsThe assets and liabilities of all foreign operations, including goodwill and
fair value adjustments arising on consolidation, are translated to Rands at
foreign exchange rates ruling at the balance sheet date. The revenues and
expenses of foreign operations are translated to Rands at rates approximatingthe foreign exchange rates ruling at the date of the transactions. Foreign
exchange differences arising on translation are recognised directly in a
separate component of equity - foreign currency translation reserve. The foreign
currency translation reserve applicable to a foreign operation is released tothe income statement upon disposal of that foreign operation.
The Group has made an election in terms of IFRS 1 that cumulative foreign
currency translation reserves in existence at the transition date, 1 July 2003,
arising from the previous application of South African Generally AcceptedAccounting Practice (`SA GAAP`) have been recognised in retained income in
determining the opening IFRS balance sheet at that date.
Previously, the non-monetary assets and liabilities of all foreign subsidiaries
considered to be integrated foreign operations were translated at historicexchange rates, and the foreign exchange gains and losses arising on translation
of monetary assets and liabilities were recognised in the income statement as
investment income/(losses).
GoodwillAll business combinations are accounted for by applying the `purchase method`.
Goodwill represents amounts arising on acquisition of subsidiaries, associates
and joint ventures. In respect of business combinations that have occurred since
the IFRS transition date, 1 July 2003, goodwill represents the differencebetween the cost of the acquisition and the fair value of the net identifiable
assets and contingent liabilities acquired.
The Group made an election in terms of IFRS 1 that in respect of acquisitions
prior to this date, goodwill is included on the basis of its deemed cost, whichrepresents the amount recorded under SA GAAP. The classification and accounting
treatment of business combinations that occurred prior to 1 July 2003 has not
been reconsidered in preparing the Group`s opening IFRS balance sheet at 1 July
2003.Goodwill is stated at cost less accumulated impairment losses. Goodwill is
allocated to cash-generating units and is no longer amortised but tested
annually for impairment. Negative goodwill arising on an acquisition is
recognised directly in the income statement.Previously goodwill arising on each acquisition was amortised over its estimated
useful life on a straight line basis and subjected to annual impairment testing.
Intangible assets
Where the useful life of an intangible asset is assessed as indefinite, theintangible asset is not amortised, but is tested annually for impairment.
Previously, amortisation in respect of intangible assets was charged to the
income statement on a straight line basis over the useful life of the intangible
asset, but generally not exceeding 20 years.Premiums and discounts arising on subsequent purchases from or sales to minority
interests in subsidiaries
Following the presentation of minority interests in equity any increases and
decreases in ownership interests in subsidiaries without a change in control arerecognised as equity transactions in the consolidated financial statements.
Accordingly, any premiums or discounts on subsequent purchases of equity
instruments from or sales of equity instruments to minority interests are
recognised directly in the equity of the parent shareholder.Previously premiums or discounts on subsequent purchases of equity instruments
from minorities were recognised as goodwill and premiums or discounts on
subsequent sales of equity instruments to minorities were taken to profit or
loss as a capital item in the income statement.Property, plant and equipment
Where parts of an item of property, plant and equipment have different useful
lives, they are accounted for as separate items of property, plant and
equipment. Residual values and useful lives of all assets are reassessedannually. In addition, depreciation of an item of property, plant and equipment
is to begin when it is available for use and ceases at the earlier of the date
it is classified as held for sale or the date that it is derecognised upon
disposal.Previously parts of an item of property, plant and equipment were accounted for
as a combined unit and were depreciated over the estimated useful life of the
item. Depreciation commenced when the item of property, plant and equipment was
commissioned for use and suspended when the asset was taken out of use.Share-based payment transactions
The fair value of share options, deferred delivery shares and convertible
preference shares granted to Group employees is recognised as an employee
expense with a corresponding increase in equity. The fair value is measured atgrant date and expensed over the period during which the employee becomes
unconditionally entitled to the equity instruments. The fair value of the
instruments granted is measured using generally accepted valuation techniques,
taking into account the terms and conditions upon which the instruments aregranted. This accounting policy has been applied to all equity instruments
granted after 7 November 2002 that had not yet vested at 1 July 2003, the date
of transition to IFRS. The fair value of share based payments was not recognised
under the Group`s previous accounting policies.3. Determination of headline earnings
Unaudited Unaudited Audited
IFRS IFRS IFRS
restated restated results results results
Half-year Half-year Year
ended ended Increase / ended
31 December 31 December (decrease) 30 June 2004 2003 2004
Rm Rm % Rm
Determination of
headline earningsEarnings
Profit for the period
attributable to
equity holders of AVI 669.3 289.3 131 587.5Adjustments for
capital items:
Gain on disposal of
discontinuedoperation 311.1 - -
Net surplus/(deficit) on
disposal and write
down of investments,properties, vessels
and plant and equipment 21.5 0.2 (2.2)
Impairment of trademark - - (4.5)
Impairment of plantand equipment - - (1.0)
332.6 0.2 (7.7)
Attributable taxation (2.6) (0.8) (0.2)
Attributable tominority interests - 0.1 0.4
Total capital items
included in earnings 330.0 (0.5) (7.5)
Headline earnings 339.3 289.8 17 595.04. Investment activity
The principal changes during the period were as follows:
AVI purchased 100 percent of Denny Mushrooms, a mushroom producer and processor.
The effective date of the acquisition was 1 August 2004.The Real Juice Company Holdings (Pty) Limited acquired the assets and
liabilities of Mama Zambi (Pty) Limited, trading as Sir Juice, a short-life
fruit juice product manufacturer. The effective date of the acquisition was 1
August 2004.The Group purchased the 19.26% of Consol held by Owens-Illinois Inc. effective
11 October 2004. Subsequent to the year end the Group unbundled its entire
interest in Consol Limited to its shareholders. The effective date of the
unbundling was 28 February 2005.AVI acquired the 10% minority shareholding in I&J which it did not already own
on 1 July 2004, and thereafter entered into a transaction with a BEE consortium
in which 20% of the ordinary shares in the I&J group were sold to the
consortium, effective 1 December 2004.The Group sold its interest in Vector Logistics to Rainbow Farms (Proprietary)
Limited, a subsidiary of Rainbow Chicken Limited effective
2 December 2004. The profit realised on this sale was R311 million.
5. Discontinued operations Unaudited Unaudited Audited
IFRS IFRS IFRS
at restated at restated at
31 December 31 December 30 June 2004 2003 2004
Rm Rm Rm
Discontinued operations
ASSETSNon-current assets
- Packaging 1,131.0 847.4 1,126.2
- Logistics - 142.5 150.0
1,131.0 989.9 1,276.2Current assets
- Packaging 854.0 745.5 818.0
- Logistics - 527.5 515.6
854.0 1,273.0 1,333.6Assets of discontinued
operations 1,985.0 2,262.9 2,609.8
EQUITY
Amounts recognised directly inequity (213.9) - -
LIABILITIES
Non-current liabilities
- Packaging 194.1 168.9 193.1- Logistics - 23.4 25.7
194.1 192.3 218.8
Current liabilities
- Packaging 302.7 298.0 260.8- Logistics - 385.1 446.4
302.7 683.1 707.2
Liabilities of discontinued
operations 496.8 875.4 926.0The presentation formats prescribed by IFRS do not allow for comparability of
continuing operations on the face of the balance sheet. The balance sheets of
the comparative periods, restated to remove the assets, liabilities and equity
of discontinued operations consistent with the disclosure in the balance sheetfor the six months ended 31 December 2004 are set out below:
CONTINUING OPERATIONS Unaudited Unaudited Audited
IFRS IFRS IFRS
at restated at restated at 31 December 31 December 30 June
2004 2003 2004
Rm Rm Rm
ASSETSNon-current assets
Property, plant and equipment 1,104.5 1,023.8 1,037.1
Intangible assets 424.5 219.7 262.5
Investments 403.5 354.9 358.9Deferred taxation 74.5 92.2 86.0
2,007.0 1,690.6 1,744.5
Current assets
Inventories 475.9 409.3 410.2Trade and other receivables 935.2 885.0 921.1
Cash and cash equivalents 252.9 410.5 274.9
Assets of discontinued
operations 1,985.0 2,262.9 2,609.8 3,649.0 3,967.7 4,216.0
TOTAL ASSETS 5,656.0 5,658.3 5,960.5
EQUITY AND LIABILITIES
EquityShare capital/premium, retained
earnings and reserves 3,606.5 3,089.9 3,159.6
Amounts recognised directly in
equity relatingto discontinued operations (213.9) - -
Total equity attributable to
equity holders of AVI 3,392.6 3,089.9 3,159.6
Minority interest 184.4 396.0 432.4Total equity 3,577.0 3,485.9 3,592.0
Non-current liabilities
Interest-bearing borrowings 139.7 67.7 155.8
Deferred taxation 118.6 39.6 72.7Post-retirement medical aid
provision 253.3 242.9 233.1
511.6 350.2 461.6
Current liabilitiesTrade and other payables 864.7 837.6 831.5
Corporate taxation 58.2 74.3 77.0
Short-term borrowings 147.7 34.9 72.4
Liabilities of discontinuedoperations 496.8 875.4 926.0
1,567.4 1,822.2 1,906.9
TOTAL EQUITY AND LIABILITIES 5,656.0 5,658.3 5,960.5
6. Commitments and contingent liabilities in respect of continuing operations Unaudited Audited
31 December 30 June
2004 2003 2004
Rm Rm RmCommitments
The capital expenditure commitments for property,
plant and equipment are set out below:
Contracted for 42.2 23.1 207.3Authorised but not contracted for 63.0 39.5 50.0
105.2 62.6 257.3
There were no other commitments entered into other than in the ordinary course
of business.Contingent liabilities
The South African Revenue Service (`SARS`) has issued revised assessments on a
foreign subsidiary for taxes plus penalties and interest in respect of the tax
years previously assessed, 1998 through 2003. The additional taxes assessed bySARS amount to R49.4 million. The total additional amount in terms of the
assessments, including penalties and interest, is R208.2 million.
The 2004 tax year has not yet been assessed. If an assessment was to be issued
on the same basis applied in the assessments received, the total amount of taxpayable in respect of the year would be R11.3 million, excluding penalties and
interest.
The company has lodged its objections to these assessments. However, as the
issues in dispute are of a complex nature it is anticipated that the matter willremain unresolved for an extended period.
7. Explanation of transition to IFRS
As stated in supplementary note 1, these are the Group`s first consolidated
financial statements prepared in accordance with IFRS. The accounting policiesset out in supplementary note 2 have been applied in preparing the interim
report for the six months ended 31 December 2004, the comparative information
presented in this interim report for the six months ended 31 December 2003 and
for the year ended 30 June 2004, and in the preparation of the opening IFRSbalance sheet at 1 July 2003 (the Group`s date of transition).
In preparing the opening IFRS balance sheet, the Group has adjusted amounts
previously reported in financial statements and interim reports prepared in
accordance with its previous basis of accounting, SA GAAP. An explanation of howthe transition from SA GAAP to IFRS has affected the Group`s financial position
and performance is set out in the following tables and the notes accompanying
the tables. The adjustments arising from the adoption of IFRS did not have an
effect on the cash flows of the Group.Reconciliation of equity
In Rm Note 30 June 31 Dec 1 July
(7.#) 2004 2003 2003
Increase/ Increase/ Increase/ (decrease) (decrease) (decrease)
Equity previously reported
under SA GAAP 3,555.3 3,452.7 3,464.0
Adjustment
