1.

GENERAL INFORMATION

Mvelaphanda Group Limited is the holding company of the Mvelaphanda Group (“the Group”) and is incorporated in the Republic of South Africa. The financial statements incorporate the following principal accounting policies, which are, except where otherwise disclosed, in terms of International Financial Reporting Standards (“IFRS”) and are consistent with those applied in the previous year.

2.

Statement of compliance

The financial statements have been prepared in accordance with IFRS, AC 500 series of interpretations as issued by the Accounting Practices Board or its successor, the JSE Listings Requirements and the South African Companies Act No. 71 of 2008, as amended.

3.

Basis of preparation

The financial statements are prepared on the historical cost convention, modified by the restatement of financial instruments to fair value where applicable.

4.

4.1

4.1.1

PRINCIPAL ACCOUNTING POLICIES

Basis of consolidation

Investments in subsidiaries

The Group financial statements incorporate the assets, liabilities and results of the operations of the Company and its subsidiaries. Subsidiaries are all entities, including special purpose entities, controlled by the Group. Control exists when the Group, directly or indirectly, has an interest of more than one half of the voting rights or otherwise has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired and disposed of during a financial year are included from the date on which control is transferred to the Group and deconsolidated from the date that control ceases.

The acquisition method of accounting is used to account for business combinations by the Group. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by-acquisition basis, the Group recognises any minority interest in the acquiree either at fair value or at the minority interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred and the amount of any minority interest in the acquiree and the acquisition date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill in accordance with accounting policy note 4.2. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of comprehensive income.

The Group’s Share Incentive Scheme is included in the consolidated financial statements as a subsidiary.

The Group applies a policy of treating transactions with minority interests as transactions with equity owners of the Group. Disposals to minority interests result in gains and losses for the Group which is recorded in equity. For purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of a subsidiary is recorded in equity.

Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

4.1.2

Investments in associates

An associate is an entity over whose financial and operating policies the Group has the ability to exercise significant influence, but not control, and is neither a subsidiary nor a jointly controlled entity of the Group. Investments in associates are accounted for using the equity method of accounting, except for investments that are managed and whose performances are evaluated on a fair value basis in accordance with the Group’s investment strategy, in which case it is accounted for as designated as at fair value through profit and loss in accordance with IAS 39 of the International Financial Reporting Standards, as per accounting policy note 4.14.2.

Equity accounting involves recognising, in the statement of comprehensive income, the Group’s share of the associates’ earnings for the year. The results of associate companies acquired and disposed of during the year are included from the effective dates of acquisition to the effective dates of disposal.

Where the fair value of the consideration paid exceeds the fair value of the identifiable assets acquired and liabilities and contingent liabilities assumed, the difference is recorded as goodwill and is included as part of the carrying value of the investment in associates.

The Group’s interest in associates is carried in the statement of financial position at an amount that reflects its share of the net assets of the associate and goodwill identified on acquisition of the associate, net of accumulated impairment loss. The total carrying amount of associates is evaluated annually for impairment.

The most recent financial information of associates is used. Adjustments are made to the associate’s financial results for material transactions and events in the intervening period. Losses of associates in excess of the Group’s interest are not recognised unless there is a binding obligation to contribute to the losses.

4.1.3

Investments in jointly controlled entities

Jointly controlled entities are those entities over which the Group exercises joint control in terms of a contractual agreement. Investments in jointly controlled entities are accounted for by way of the proportionate consolidation method whereby the Group’s proportional share of the assets, liabilities, revenue and expenses of jointly controlled entities are combined on a line-by-line basis, with similar items in the financial statements of the Group. The results of jointly controlled entities are included from the effective dates when joint control commences to the effective dates when joint control ceases. Any goodwill arising on the acquisition of the Group’s interest in a jointly controlled entity is accounted for in terms of accounting policy note 4.2.

4.1.4

Transactions eliminated on consolidation

Intra-group balances and transactions, and unrealised gains arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains resulting from the transactions with associates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity.

Unrealised gains resulting from transactions with associates are eliminated against the investment in associates. Unrealised losses on transactions with associates are eliminated in the same way as unrealised gains, except that they are only eliminated to the extent that there is no evidence of impairment.

4.2

Goodwill

Goodwill represents amounts arising on acquisition of subsidiaries and joint ventures. All business combinations are accounted for by applying the acquisition method.

Goodwill arising from a business combination for which the agreement date is prior to 31 March 2004, is included in the statement of financial position at its deemed cost, being its cost less accumulated amortisation up to 31 March 2004, as previously recorded under SA GAAP.

Goodwill arising from a business combination, for which the agreement date is on or after 31 March 2004, is not amortised but is carried at cost less accumulated impairment losses.

Goodwill is tested at least annually for impairment. For the purpose of impairment testing, goodwill is allocated to the cash-generating unit(s) expected to benefit from the business combination in which the goodwill arose. An impairment loss is recognised if the carrying amount of the cash-generating unit, including the associated goodwill, exceeds its recoverable amount.

On disposal of a subsidiary or a jointly controlled entity, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.

4.3

Intangible assets

Intangible assets, other than goodwill (refer to policy note 4.2) are recognised if it is probable that future economic benefits will flow to the entity from the intangible assets and the costs of the intangible assets can be reliably measured.

4.3.1

Trademarks

Trademarks are classified as indefinite useful life intangible assets as they are inherent to the continuous operation of the businesses to which they relate, and are stated at cost less accumulated impairment losses.

Trademarks are tested for impairment at least annually.

4.3.2

Computer software

Direct software development costs that enhance the benefits of computer software programs and are clearly associated with an identifiable and unique software system, which will be controlled by the Group and has a probable benefit exceeding one year, are recognised as intangible assets. Computer software, including software development costs recognised as intangible assets, is amortised on the straight-line basis over the expected useful lives of the assets, being between three and five years.

Capitalised computer software is carried at cost less accumulated amortisation and impairment losses. Computer software is tested annually for impairment or changes in estimated future benefits.

4.3.3

Manufacturing and distribution rights

Manufacturing and distribution rights are classified as indefinite useful life intangible assets as they are inherent to the continuous operation of the businesses to which they relate, and are stated at cost less accumulated impairment losses.

Manufacturing and distribution rights are tested at least annually for impairment.

4.4

Property, plant and equipment

Furniture, fittings, computer equipment, plant and equipment, improvements to leasehold premises, office equipment and motor vehicles are stated at cost less accumulated depreciation and impairment calculated on the component method, and on a straight-line basis, at the rates set out below, which rates are considered appropriate to write off the cost of the asset to the estimated residual value over the estimated useful life of the asset thereof. The estimated useful lives and residual values are reviewed at each financial year-end. The current rates used are:

Land and buildings owned and occupied by Group companies are classified as own use property. Land is carried at cost. Buildings are carried at cost less depreciation calculated on a straight-line basis, at rates considered appropriate to write off the cost thereof to the estimated residual value over the estimated useful life of the buildings.

The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between sales proceeds and the carrying amount of the asset and is recognised in the statement of comprehensive income.

Property, plant and equipment are tested annually for impairment.