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AFR
AFR
Afgri-Audited consolidated financial results for the year ended 28 February 2006
Afgri Limited
(Incorporated in the Republic of South Africa)
(Registration number 1995/004030/06)
ISIN number: ZAE000040549
Share code: AFR
("AFGRI" or "the Company")
AUDITED CONSOLIDATED FINANCIAL RESULTS FOR THE YEAR ENDED 28 FEBRUARY 2006
Group earnings up 19,6%
Continuing operations headline earnings up 144%
Capital distribution of 21,18 cents per share
Disposal of cotton ginning interests
Acquisition of a broiler business
Group balance sheet on 28 February
(All amounts in R millions) Note Actual Pro forma Actual
2006 2005 2005
ASSETS
Non-current assets
Property, plant and equipment 2 710 683 683
Intangible assets 2 105 78 78
Investments in associates 9 20 20
Available-for-sale financial assets 3 96 96
Financial receivables 269 100 100
Deferred income tax assets 160 120 120
1 256 1 097 1 097
Current assets
Inventories 1 038 1 081 1 081
Trade and other receivables 7 776 907 907
Derivative financial instruments 61 68 68
Current income tax assets 120 121 121
Cash and cash equivalents and cash 577 614 614
collateral deposits
Cash collateral deposits 382 343 343
Cash and cash equivalents 195 271 271
2 572 2 791 2 791
Non-current assets classified as held- 86 - -
for-sale
Total assets 3 914 3 888 3 888
EQUITY AND LIABILITIES
Capital and reserves attributable to
the Company"s equity holders
Share capital - - -
Treasury shares (155) (155) (155)
Incentive trust shares (122) (59) (59)
Share premium 73 - -
Fair value and other reserves 7 (42) (42)
Retained earnings 1 370 1 254 1 300
1 173 998 1 044
Minority interest 531 559 514
Total equity 1 704 1 557 1 558
Non-current liabilities
Borrowings 116 13 13
Deferred income tax liabilities 100 94 94
Provisions for other liabilities and 18 23 23
charges
234 130 130
Current liabilities
Trade and other payables 1 459 1 744 1 743
Derivative financial instruments 10 24 24
Current income and other tax 12 8 8
liabilities
Short-term borrowings 492 425 425
1 973 2 201 2 200
Liabilities directly associated with 3 - -
non-current assets classified as held-
for-sale
Total liabilities 2 210 2 331 2 330
Total equity and liabilities 3 914 3 888 3 888
Net tangible asset value per share 308 281 295
attributable to equity shareholders
(cents)
Group income statement for the year ended 28
February
(All amounts in R millions) Note Actual Pro forma Actual
2006 2005 2005
Continuing operations:
Sales 5 431 5 358 5 358
Cost of sales (4 182) (4 192) (4 192)
Gross profit 1 249 1 166 1 166
Other operating income 66 55 55
Other operating expenses (987) (999) (999)
Operating profit 328 222 222
Share of profit of associates (1) 3 3
Finance costs (103) (93) (93)
Profit before income tax 224 132 132
Income tax expense (22) (74) (83)
Profit for the year from continuing 202 58 49
operations
Discontinued operations:
(Loss)/profit for the year from 3 (30) 106* 113*
discontinued operations
Profit for the year 172 164 162
Profit for the year attributable to:
Equity holders of the Company 129 108 149
Minority interest 43 56 13
Profit for the year 172 164 162
Weighted average number of shares in 330,6 331,1 331,1
issue (m)
Earnings per share from continuing 45,0 8,4 12,2
operations attributable to the equity
holders of the Company during the year
(expressed in cents per share)
(Loss)/earnings per share from (6,0) 24,2 32,9
discontinued operations attributable
to the equity holders of the Company
during the year (expressed in cents
per share)
Earnings per share from all operations 39,0 32,6 45,1
attributable to the equity holders of
the Company during the year (expressed
in cents per share)
Headline earnings per share from 41,0 16,8 22,5
continuing operations
Headline (loss)/earnings per share (3,8) 17,4 24,4
from discontinued operations
Headline earnings per share from all 6 37,2 34,2 46,9
operations
* Included in the profit from discontinued operations are the net profits
on the sale of Earlybird Farm and Bester Voer and Graanbeurs, as well as
the once off profit on the fair value adjustment of the Pioneer shares
which were disposed during March 2005.
Group cash flow statement for the year ended
28 February
Actual Actual
(All amounts in R millions) 2006 2005
Operating activities
Cash generated from operations 133 188
Changes in working capital (145) (27)
Other non-cash flow items 56 (44)
Income tax paid (26) (92)
Net cash generated from operating activities 18 25
Net cash (utilised in)/generated from investing (217) 19
activities
Net cash generated from/(utilised in) financing 56 (133)
activities
Net decrease in cash and cash equivalents (143) (89)
Cash and cash equivalents at beginning of year (154) (65)
Cash and cash equivalents at end of year (297) (154)
Cash collateral deposits 382 343
Cash and cash equivalents and cash collateral 85 189
deposits
Group statement of changes in equity
(All amounts in R Share Share Reserves Retained
millions) capital premium earnings
Balance 29 February - 89 372 1 134
2004
Reclassification of - - (459) 459
reserves
Restatement of - - (42) -
translation reserves
IFRS impact:
- Adoption of the - - - 95
historical cost
method and fair value
valuation method for
assets (Note 2)
- Share-based - - 1 (1)
payments (Note 4)
- Operating leases - - - (1)
(Note 6)
- Transfer of foreign - - 127 (127)
currency reserves on
transition date (Note
3)
Adjusted balance 29 - 89 (1) 1 559
February 2004
Profit for the year - - - 149
BEE purchase of share - - - -
in business
Currency translation - - (42) -
differences
Dividends paid - - - (137)
Special dividend paid - (89) - (272)
Disposal of incentive - - - -
shares
Purchase of treasury - - - -
shares
Balance 28 February - - (43) 1 299
2005
IFRS impact:
- Business - - - (8)
combinations (Notes 1
and 5)
- Adoption of the - - (1) 12
historical cost
method and fair value
valuation method for
assets (Note 2)
- Operating leases - - - (1)
(Note 6)
- Share-based - - 2 (2)
payments (Note 4)
Adjusted balance 28 - - (42) 1 300
February 2005
Profit for the year - - - 129
Payment to minorities - - - -
Currency translation - - 42 -
differences
Cash flow hedge - - 1 -
revaluation
differences
Share-based payments - - 6
Dividends paid - - - (59)
Issue of shares to - 73 - -
share incentive trust
Disposal of incentive - - - -
shares
Balance 28 February - 73 7 1 370
2006
Retained earnings
comprise:
- Distributable 1 182
reserves
- Self-insurance 188
reserve
Group statement of changes in
equity (Continued)
(All amounts in R Treasury Incentive Minority Total
millions) shares Trust interest
shares
Balance 29 February (122) (93) - 1 380
2004
Reclassification of - - - -
reserves
Restatement of - - - (42)
translation reserves
IFRS impact:
- Adoption of the - - - 95
historical cost
method and fair value
valuation method for
assets (Note 2)
- Share-based - - - -
payments (Note 4)
- Operating leases - - - (1)
(Note 6)
- Transfer of foreign - - - -
currency reserves on
transition date (Note
3)
Adjusted balance 29 (122) (93) - 1 432
February 2004
Profit for the year - - 13 162
BEE purchase of share - - 501 501
in business
Currency translation - - - (42)
differences
Dividends paid - - - (137)
Special dividend paid - - - (361)
Disposal of incentive - 34 - 34
shares
Purchase of treasury (33) - - (33)
shares
Balance 28 February (155) (59) 514 1 556
2005
IFRS impact:
- Business - - - (8)
combinations (Notes 1
and 5)
- Adoption of the - - - 11
historical cost
method and fair value
valuation method for
assets (Note 2)
- Operating leases - - - (1)
(Note 6)
- Share-based - - - -
payments (Note 4)
Adjusted balance 28 (155) (59) 514 1 558
February 2005
Profit for the year - - 43 172
Payment to minorities - - (26) (26)
Currency translation - - - 42
differences
Cash flow hedge - - - 1
revaluation
differences
Share-based payments - - - 6
Dividends paid - - - (59)
Issue of shares to - (73) - -
share incentive trust
Disposal of incentive - 10 - 10
shares
Balance 28 February (155) (122) 531 1 704
2006
Retained earnings
comprise:
- Distributable
reserves
- Self-insurance
reserve
Business segment results
28 February 2006 (All amounts in R millions)
Sales Headline Net Headline Assets Liabilities
operating interest operating
profit and profit
before dividends after
interest interest
and and
dividends dividends
AFGRI Services 3 963 201 (46) 155 2 326 970
Producer
Services
Primary 925 (33) (11) (44) 148 74
inputs
Retail 2 172 (27) (21) (48) 933 372
Financial 572 57 (12) 45 924 470
Services
Logistics 294 204 (2) 202 321 54
Services
AFGRI Products 1 466 74 (8) 66 623 284
Foods 375 - (5) (5) 258 70
Protein 1 091 74 (3) 71 365 214
Other 2 - - - 500 694
Continuing 5 431 275 (54) 221 3 349 1 848
operations
Discontinued 357 (26) (15) (41) 465 262
operations
Total 5 788 249 (69) 180 3 914 2 210
Capital Depre- Amorti-
expen- ciation sation
diture
AFGRI Services 56 22 5
Producer
Services
Primary 6 1 2
inputs
Retail 16 9 2
Financial 20 3 1
Services
Logistics 14 9 -
Services
AFGRI Products 43 15 1
Foods 21 6 -
Protein 22 9 1
Other - 3 6
Continuing 99 40 12
operations
Discontinued 7 8 3
operations
Total 106 48 15
28 February 2005 (All amounts in R millions)
Sales Headline Net Headline Assets Liabilities
operating interest operating
profit and profit
before dividend after
interest s interest
and and
dividends dividends
AFGRI Services 3 916 145 (31) 114 2 101 964
Producer
Services
Primary 988 (4) (4) (8) 96 22
inputs
Retail 2 255 (81) (18) (99) 1 105 649
Financial 413 60 (8) 52 574 244
Services
Logistics 260 170 (1) 169 326 49
Services
AFGRI Products 1 433 70 (3) 67 636 350
Foods 134 (10) - (10) 224 85
Protein 1 299 80 (3) 77 412 265
Other - - - - 722 817
Continuing 5 349 215 (34) 181 3 459 2 131
operations
Discontinued 890 68 (10) 58 429 199
operations
Total 6 239 283 (44) 239 3 888 2 330
Capital Depre- Amorti-
expen- ciation sation
diture
AFGRI
Services 30 16 1
Producer
Services
Primary 1 1 -
inputs
Retail 17 6 -
Financial 2 1 1
Services
Logistics
Services 10 8 -
AFGRI Products 69 11 -
Foods 24 3 -
Protein 45 8 -
Other 8 2 -
Continuing 107 29 1
operations
Discontinued 18 13 3
operations
Total 125 42 4
Note 1
Included in AFGRI Financial
Services is a preference dividend
received of R25 million as a
result of a change in the debtor
financing structure. To ensure
comparability with the prior year
an adjustment of R10 million was
made to sales and headline
operating profit. This restatement
was made to ensure the after-tax
operating interest earned in the
prior year is comparable to the
after-tax dividend received in the
current year.
Note 2
The pre-tax business segment
results are presented after taking
into account the pre-tax headline
earnings adjustments and before
allocation of the BEE share in
profits. This methodology resulted
in the restatement of the
segmental analysis of the previous
year. This restatement makes the
segmental profit more comparable
after adjustments for the
profit/(loss) of discontinued
operations and disposal of
businesses and assets.
Headline operating profit is shown
after the allocation of cost of
capital based on each division"s
net assets. The prior year pro
forma sales have been restated to
reflect the gross sales from
debtor financing to be comparable
with the current year.
Notes to the Group annual results
1 Basis of Preparation and
Accounting policies
These consolidated financial
statements have been prepared in
accordance with International
Financial Reporting Standards
("IFRS") and the South African
Companies Act, (Act 61 of 1973),
as amended ("Companies Act").
These consolidated financial
statements have been prepared
under the historical cost
convention, as modified by the
revaluation of available-for-sale
financial assets and financial
liabilities (including derivative
financial instruments) at fair
value through profit or loss. The
accounting policies correspond
with those applied in prior years.
The effect of the adoption of IFRS
is discussed under the heading
"Impact of IFRS" and disclosed in
the Group Statement of Changes in
Equity.
2 Property, plant and equipment
and intangible assets
(R millions) Property, Intangible
plant and assets
equipment
Carrying value beginning of year 683 78
Additions 106 48
Disposals at book value (18) -
Foreign currency differences 14 -
Depreciation/amortisation and impairment (49) (15)
Net purchase of subsidiaries 42 13
Held-for-sale (68) (19)
Carrying value end of year 710 105
3 Discontinued operations
The Western Free State and North
West retail branches and the
retail distribution centre were
closed in the current year. The
net results of the cotton ginning
interests of the Group have also
been included as these have been
reported as a disposal group.
Earlybird Farm, Bester Voer and
Graanbeurs, AFGRI Fresh Cut and
ANB Vet were all discontinued in
the prior year. The profit
resulting from the fair value
adjustment of the Pioneer shares,
which were disposed during March
2005, have also been included.
4 Directors" remuneration
(R millions) 28 Feb 2006 28 Feb 2005
Non-executive
- As directors 0,9 0,7
- As members of sub-committees 0,3 0,2
- Other services 3,3 2,5
4,5 3,4
Executive
- Basic salaries and allowances 6,5 4,2
- Bonus payments 1,2 4,7
- Gain on unimplemented share options 3,6 1,3
valued in terms of IFRS 2
- Company contributions 1,6 1,2
12,9 11,4
5 Shares and share options of
directors
Executive Directors are allocated
share options on approval by the
Board to link them to the net
worth of the Company and to retain
executive personnel. These options
are exercised in terms of a
deferred share option scheme. The
following are the unimplemented
contracts of executive and former
executive Directors.
Balance New Contracts Balance
unimplemented options implemented unimplemented
contracts 28 exercised contracts 28
Feb 2005 Feb 2006
Number Number Number Number
JD Wright 3 400 000 3 128 000 (900 000) 5 628 000
(Executive)
DM Sewela 350 000 2 733 000 - 3 083 000
(Executive)
I de W Goosen 1 947 740 1 373 000 (747 640) 2 573 100
(Executive)
GAL Ebedes 1 400 000 - (1 200 000) 200 000
(former
Executive)
7 097 740 7 234 000 (2 847 640) 11 484 100
The direct interests of executive
Directors in the issued share
capital of the Company are as
follows:
28 Feb 28 Feb
2006 2005
JD Wright 700 000 -
I de W Goosen 524 802 -
6 Reconciliation of headline earnings per share
28 Feb 28 Feb
2006 2005
Cents Cents
Earnings 39,0 32,6
Loss from discontinued operations 2,2 6,0
Impairment of assets - 4,2
Negative goodwill and impairment of goodwill (3,0) 5,0
Profit on disposal of businesses and assets (1,0) (13,6)
Headline earnings 37,2 34,2
The headline earnings of the prior year have
been adjusted to take into account the pro
forma effect of the BEE transaction and once
off STC.
Headline earnings previously reported 46,9
BEE and STC effect (12,7)
Pro forma headline earnings for 2005 34,2
7 Trade and other receivables
Included in receivables are the
following receivables which have
been financed through the Land and
Agricultural Development Bank:
(R millions) 28 Feb 2006 28 Feb 2005
Liability Land & Agricultural (2 229) (2 513)
Development Bank
Asset Trade receivables 2 323 2 488
Net 94 (25)
The above asset and liability have
been offset and the net amount
disclosed in the balance sheet as
there is a legally enforceable
right to set-off the recognised
amounts and the intention is to
realise the asset and settle the
liability simultaneously. The
Group"s liability for bad debts is
limited to a maximum of 10% of the
gross trade receivables financed
through the Land & Agricultural
Development Bank. The net interest
income from this structure is
included in the operating profit
of AFGRI Financial Services.
8 Agency agreements
The Group manages agri debtors on
behalf of a third party financial
institution to the amount of R523
million (2005: R563 million).
Management fees are paid by these
third parties. The Group is liable
for bad debts to a maximum of
between 10% to 15% of the value of
debtors administered.
The Group receives a fee for the
handling, grading, storing and
administration of commodities on
behalf of third parties. The value
of these commodities is R2 050
million (2005: R1 210 million).
9 Corporate governance and JSE
Limited ("JSE") compliance
The principles of corporate
governance were adhered to during
the financial year ended 28
February 2006. The Group complied
with the JSE Listing Requirements
regarding the contents of the
annual financial results.
10 Going concern
The Board is confident that, after
taking into account the current
bank facilities, its utilisation
thereof and the budgeted profit
for the year ended 28 February
2007, the working capital
available to AFGRI will be
sufficient to meet its present
requirements.
11 Audit opinion
These consolidated results have
been audited by our auditors,
PricewaterhouseCoopers Inc., who
have performed their audit in
accordance with International
Standards on Auditing. A copy of
their unqualified audit report is
available for inspection in the
registered office of the Company.
Commentary
The Directors of AFGRI present the
annual financial results of the
AFGRI Group of companies ("the
Group") for the year ended 28
February 2006.
The Board is pleased to report an
overall increase in earnings of
19,6% and headline earnings of
8,8% on the pro forma results of
the prior year. This was made
possible by the significant
improvement in headline operating
profit after interest and
dividends from continuing
operations of 19%, in what can
best be described as a
particularly challenging year for
agriculture. This was achieved on
continuing sales of R5,4 billion,
which was largely unchanged from
the previous year. The
strengthening of the South African
rand, the sharp drop in realised
maize prices and the resultant 45%
decrease in planted hectares
directly impacted the results of
both the Producer Services and
Financial Services businesses.
Maize prices fell from a high of
R1 800 a ton three years ago to
below R600 a ton during the
financial year, at which price
maize farming is uneconomic for
most farmers. This volatility
shows the extreme price risk to
which South African maize farmers
and others in the agricultural
supply chain are exposed. The
volatile swings in maize plantings
and prices have had a marked
effect on AFGRI"s business.
OPERATIONAL REVIEW
Sales
The large over supply of maize and
low agricultural commodity prices
have continued to affect farmer
confidence. Crops planted in place
of maize require significantly
less inputs and as a result
customers have spent less with
AFGRI. This and the disposal of
the broiler business, Earlybird
Farm, in the prior year were the
main contributors to sales
declining by 7%.
The sales achieved from continuing
operations were slightly ahead of
the prior year. However, when
adjusted for the effective date of
the Natalagri acquisition,
continuing revenue of the Group
decreased by 2%.
The Producer Services business
sales were negatively impacted as
a result of the above mentioned
conditions. A restructuring
strategy resulted in the
discontinuance of operations in
the Western Free State and the
North West and the closure of the
distribution centre. Primary
inputs sales were 6% down on the
prior year, due largely to the
lower plantings translating into
reduced demand for fertiliser,
chemicals, seed and fuel. Despite
the strong rand, lower maize
plantings had a negative impact on
equipment sales. Plans are well
advanced for the introduction of
new products tailored to the
specific needs of the farming
community and more FarmCity
outlets are currently in the
planning stage.
The Products business sales from
continuing operations increased
over the prior year, mainly as a
result of the acquisition of the
remaining interest in Nedan Oil.
Sales in Animal Feeds were down
mainly due to lower maize prices.
Sales in the Logistics Services
business continued to be
positively impacted by a higher
capacity utilisation of the silo
complexes, which resulted in a
strong trading performance.
Earnings per share up 19,6%
Headline earnings per share up
8,8%
Earnings per share of 39,0 cents
is up 19,6% compared to the prior
year pro forma earnings per share
of 32,6 cents due to improved
performances by Handling and
Storage as well as Producer
Services" Retail and Equipment
business. The prior year earnings
were also impacted by the once off
R35 million STC charge on the
special dividend paid as a
consequence of the BEE
transaction.
There was a 52% improvement in the
performance of the Producer
Services" Retail and Equipment
business following a 25% reduction
in fixed costs, substantial
lowering of stock levels and the
phasing out of unviable retail
branches. All remaining branches
are now profitable and this
business is expected to make a
positive contribution to earnings
in the coming financial year.
The margins in the Financial
Services business remained under
pressure as a result of the
significantly reduced plantings
and subsequent lower utilisation
of grain debtor facilities, but
were slightly improved by lower
bad debt provision requirements.
The lower plantings also impacted
negatively on the insurance
business.
Headline earnings per share of
37,2 cents is 8,8% higher than the
pro forma earnings per share in
the previous year. The headline
earnings from continuing
operations improved by 144% over
the prior year pro forma results.
As mentioned in the interim
results, the previous year"s
earnings and headline earnings per
share have been restated from
those previously reported, to take
into account the effect of the BEE
transaction from 1 March 2004 and
the STC impact of the special
dividend paid in January 2005.
Cash generated from operating
activities - R18 million
The operating cash flow is lower
than that recorded in the prior
year due to the higher investment
in working capital of R145
million. The decrease in cash and
cash equivalents reflects the net
investment in expansion and
investments described below and
R59 million in dividends paid to
shareholders. The net cash,
including the bank collateral
deposits, is R85 million.
Acquisitions and major investments
During the year, the Group
invested R153 million in
acquisitions, facility upgrades,
new technology and the
establishment of an animal feed
plant in the Western Cape, which
will enable it to further grow its
core operations. The feed plant
was commissioned on 1 October
2005. The additional utilisation
of R64 million reflects the net
outflow of the preference share
investment and the proceeds on
disposal of the Pioneer shares.
The acquisition, after year end,
of Daybreak Farms for a
consideration of R120 million
marks the Group"s re-entry into
the broiler industry following the
sale of AFGRI"s 50% interest in
Earlybird Farm in 2004. This
acquisition has the dual advantage
of furnishing AFGRI with a solid
foothold in an expanding market
segment and providing it with the
opportunity for expansion. All of
the suspensive conditions relating
to this acquisition were fulfilled
during March 2006.
Disposals
Subsequent to the financial year
end the cotton ginning interests
within Clark Cotton ("Clark
Cotton") were sold to Cargill
Incorporated ("Cargill"), with
South Africa and Zambia already
concluded and delivered and the
delivery of Malawi pending
regulatory approval in Malawi.
Clark Cotton was not part of
AFGRI"s core business and the
decision to sell is consistent
with its philosophy of exiting
businesses that fail to meet its
required rate of return. Clark
Cotton has suffered considerable
financial losses in recent years
due to its exposure to multi-
currency risks and international
cotton commodity markets. Cargill
has the international presence and
reputation to make a success of
this business. The total proceeds
from the sale of the cotton
ginning interests is approximately
R259 million.
CAPITAL DISTRIBUTION
The Board has evaluated the
Group"s cash flow requirements for
the year ahead after taking into
consideration the sale of the
cotton ginning interests and the
acquisition of Daybreak Farms and
has decided to declare a capital
distribution of 21,18 cents per
share. This capital distribution
and the interim dividend of 9,05
cents per share are in excess of
the normal dividend of two times
cover and is 15% higher than the
normal dividend for the prior
year.
Prospects
Given the excellent rains over the
last few months, the country"s
dams are almost all full compared
to 68% a year ago. This, coupled
with firming agricultural
commodity prices, points to a much
improved performance for farmers
in the year ahead. Early
indications are that farmers will
increase maize plantings over the
coming season and this together
with a bullish broiler market and
the disposal of Clark Cotton"s
ginning interests, should result
in another year of positive
earnings growth for the Group.
By order of the Board
PF Erasmus
(Non-executive Chairman)
JD Wright
(Managing Director)
16 May 2006
DECLARATION OF CAPITAL
DISTRIBUTION
Notice is hereby given that the
directors of AFGRI have declared a
capital distribution, out of share
premium in lieu of a dividend, of
21,18 cents per share for the year
ended 28 February 2006, subject to
shareholder approval to be
obtained at the annual general
meeting to be held on 23 June
2006. In accordance with the
settlement procedures of STRATE,
the following dates will apply to
the capital distribution:
Last day to trade cum the
distribution Friday, 30
June 2006
Trading ex distribution commences
Monday, 3 July 2006
Record date
Friday, 7 July 2006
Distribution payment date
Monday, 10 July 2006
There will be no dematerialisation
or rematerialisation of AFGRI
share certificates between Monday,
3 July 2006 and Friday, 7 July
2006, both dates inclusive.
By order of the board
SL Reynolds
Group Company Secretary
16 May 2006
Johannesburg
IMPACT OF IFRS
Introduction
In line with the Listing
Requirements of the JSE, the AFGRI
Group is adopting International
Financial Reporting Standards
("IFRS") with effect from 1 March
2005. As the Group publishes
comparative information for one
year in its financial statements,
the date of transition to IFRS is
effectively 1 March 2004, which
represents the start of the
earliest period of comparative
information presented.
Basis of presentation
The financial information has been
prepared in accordance with IFRS
statements that are currently
effective together with expected
amendments.
Transitional arrangements
The key principle of IFRS 1- First-
time adoption of International
Financial Reporting Standards is
full retrospective application of
IFRS. This statement however
provides exemptions from
retrospective application in
certain instances due to cost and
practical considerations. The
impact of changing from SA GAAP to
IFRS is summarised below. The
quantification of the adjustments
is shown in the Group Statement of
Changes in Equity.
Note 1: IFRS 1/IFRS 3 - Business
combinations
The Group is electing not to apply
the requirements of IFRS "Business
Combinations" retrospectively for
business combinations that
occurred prior to 1 March 2004.
Therefore, only business
combinations that occurred after 1
March 2004 have been accounted for
in accordance with the
requirements of IFRS 3.
Note 2: IAS 16 - Reassessment of
economic useful lives and residual
values of property, plant and
equipment
In calculating the depreciation
charge, an entity reduces the cost
of an asset by its residual value.
IAS 16 requires that the economic
useful lives and residual values
of the assets should be reassessed
at each balance sheet date.
Annual increases in asset values
result in annual upward
adjustments of residual values.
The continuous reassessment of
residual values typically leads to
a reduction in depreciation
charges and these charges cease
when the carrying value of an
asset equals the residual value.
With respect to the buildings" and
plants" carrying values that were
previously fully depreciated, they
are now re-instated to reflect the
applicable residual value. Where
buildings are not fully
depreciated, there has generally
been a reduction in depreciation
as the economic useful lives and
residual values are reassessed.
The depreciation previously
recognised in the income statement
has accordingly been reversed or
reduced, resulting in a
corresponding increase in equity.
Note 3: IAS 21/IFRS 1 - Cumulative
translation differences
The Group accounts for foreign
exchange differences in accordance
with IAS 21 "The Effects of
Changes in Foreign Exchange Rates"
which requires the classification
of certain translation differences
as a separate component of equity
and on disposal of a foreign
operation, to transfer the
cumulative translation difference
for that foreign operation to the
income statement as part of the
gain or loss on disposal.
However, a first time adopter need
not comply with these requirements
for cumulative translation
differences that existed at the
date of transition to IFRS. In
line with the IFRS 1 exemption,
AFGRI has elected at the date of
transition to IFRS to zero all the
cumulative translation differences
for all foreign operations. This
adjustment has been recognised in
retained earnings.
Note 4: IFRS 2 - Share-based
payments
The Group grants share options to
employees under employee share
incentive schemes. Other than
costs incurred in administering
the schemes, which were expensed
as incurred, the schemes did not
result in any expense in the
income statement. In accordance
with the requirements of IFRS 2,
the Group now recognises an
expense in the income statement,
with a corresponding credit to
equity, representing the fair
value of employee share options
granted, recognised on a straight-
line basis over the vesting period
of the options.
Note 5: IAS 36/IFRS 3 - Goodwill
Previously, the Group recognised
acquired goodwill at cost and
amortised it on a straight-line
basis over its expected useful
life. Goodwill was subject to
regular review for indications of
impairment and any impairment
charges were recognised in the
income statement. In terms of IFRS
3 - Business Combinations,
goodwill is not amortised but is
subject to impairment reviews,
both annually and where there are
indications that the carrying
value may not be recoverable. The
2005 goodwill amortisation
previously recognised in the
income statement has been
reversed, resulting in a
corresponding increase in equity.
All goodwill has accordingly been
tested for impairment at 1 March
2004, 28 February 2005 and 28
February 2006.
Note 6: IAS 17 - Leases
Payments due under operating
leases are recognised in the
income statement on a straight-
line basis over the term of the
lease. Past practice in South
Africa, whereby operating lease
payments were expensed on the
basis of the cash flows in the
lease agreement, was considered as
being more representative of the
time pattern of the entity"s
benefit obtained from leased
property. Because of the worldwide
transition to IFRS, currently
accepted South African practices
are being compared to
international practices and it has
become clear that the cash flow
basis is not consistent with the
requirements of IAS 17 Leases as
applied globally. As such, the
Accounting Practices Committee has
issued a guideline which requires
local entities to adopt the
straight-line basis.
Note 7: IAS 12 - Deferred tax
applicable to changes in the
economic useful lives and residual
values of property, plant and
equipment
IAS 12 - Income Taxes defines the
difference between the carrying
amount of a depreciable asset and
its tax base as a temporary
difference and therefore gives
rise to a deferred tax liability
or asset.
Business address and registered
office 33 Sloane Street
Knightsbridge Manor Block B2
Bryanston Fax (011) 463 4139 Tel
(011) 706 7897 Company Secretary
SL Reynolds PO Box 3559 Cramerview
2060 Bankers ABSA Bank Limited
First National Bank Limited Land
and Agricultural Development Bank
of SA Limited Nedcor Bank Limited
Standard Bank of SA Limited
Auditors PricewaterhouseCoopers
Incorporated Transfer secretaries
Computershare Investor Services
2004 (Proprietary) Limited
70 Marshall Street Johannesburg
2001 PO Box 61051 Marshalltown
2107 Tel (011) 370 5320
Sponsor Rand Merchant Bank, (A
division of FirstRand Bank
Limited)
1 Merchant Place Cnr Fredman Drive
and Rivonia Road Sandton 2196 PO
Box 786273 Sandton 2146
Directorate Non-executive PF
Erasmus (62) Chairman BSc Agric
GAL Ebedes (58) Joint Deputy
Chairman BSc Agric MM Moloele
(50) Joint Deputy Chairman Dipl
Business Management
CA Apsey (58) BSc, MBA JJ
Claassen (56) NO Davies (70)
CA(SA) JJ Ferreira (53) BSc
(Hons) (Civ Eng) JT Jansen van
Rensburg (60) KL Thoka (42)
BAdmin, Hons (BA), MBA FJ van der
Merwe (48) LLB, MA
Executive JD Wright (48) BAcc,
CA(SA) DM Sewela (40) BSc Chem
Eng I de W Goosen (58) BCom,
CA(SA) Alternate director JH
Mooney (58) BCom, CA(SA)
www.afgri.co.za
Date: 17/05/2006 12:00:50 PM Produced by the JSE SENS Department
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