1. GENERAL
Primedia Limited is a limited company incorporated in South Africa. These financial statements are presented in South African Rands, as it is the currency of the primary economic environment in which the group operates.
2. BASIS OF PREPARATION
The financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice. The principal accounting policies are consistent in all material respects with those applied in the previous year, except where disclosed elsewhere (refer note 31 and 32).
The financial statements are prepared under the historical cost convention, except for financial instruments recorded at fair value.
The principal accounting policies adopted in the preparation of the financial statements are set out below.
3. CONSOLIDATION
3.1 Basis of consolidation
The consolidated financial statements include the consolidated financial position, results of operations and cash flows of Primedia Limited, its subsidiaries and jointly controlled entities up to 30 June 2005.
3.2 Business combinations
The group has adopted AC 140 – Business combinations for acquisitions concluded after 31 March 2004. Details of the changes are disclosed in note 31.
Business combination acquisitions are accounted for using the purchase method of accounting, whereby the acquisition is accounted for at its cost plus any costs directly attributable to the acquisition.
On acquisition, the identifiable assets, liabilities and contingent liabilities of the relevant subsidiaries, jointly controlled entities or associated companies are measured at their fair values at the date of acquisition. The interest of minority shareholders is stated at the minorities' proportion of the fair value of the assets, liabilities and contingent liabilities. Any losses attributable to the minorities in excess of their interest are allocated against the group's interest.
On subsequent disposal, the profit or loss on disposal is the difference between the selling price and the fair value of the net assets and liabilities disposed of, adjusted for any related carrying amount of goodwill in accordance with the accounting policies.
3.3 Subsidiaries
Subsidiaries are those entities whose financial and operating policies the group has power to control, so as to obtain benefits from their activities.
Investments in subsidiaries are consolidated from the date on which the group has the power to exercise control up to the date on which the power to exercise control ceases.
Where necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those of the group.
All significant inter-company transactions, balances and unrealised profits and losses are eliminated on consolidation.
3.4 Jointly controlled entities
Jointly controlled entities are those entities over which the group has joint control through a contractual arrangement with one or more other parties.
Jointly controlled entities are included in the consolidated financial statements using the proportionate consolidation method, whereby the group's share of the assets, liabilities, income, expenses and cash flows are combined on a line-by-line basis with similar items in the consolidated financial statements.
Investments in jointly controlled entities are proportionately consolidated from the date on which the group has the power to exercise joint control up to the date on which the power to exercise joint control ceases.
Where necessary, adjustments are made to the financial statements of jointly controlled entities to bring their accounting policies in line with those of the group.
The group's proportionate share of all significant inter-company transactions, balances and resulting unrealised profits and losses are eliminated on consolidation.
3.5 Investments in associated companies
Associated companies are those entities over which the group is in a position to exercise significant influence, but not control, through participation in their financial and operating policy decisions.
The results, assets and liabilities of associates are incorporated in the consolidated financial statements using the equity method of accounting. Interests in associates are carried in the balance sheet at cost adjusted by post-acquisition changes in the group's share of the net assets of the associate, less any impairment in the value of individual investments.
Investments in associated companies are incorporated in the consolidated financial statements from the date on which the group has the power to exercise significant influence up to the date on which the power to exercise significant influence ceases.
Where necessary, adjustments are made to the financial statements of associated companies to bring their accounting policies in line with those of the group.
Where a group entity transacts with an associate of the group, unrealised profits and losses are eliminated to the extent of the group's interest in the relevant associate.
4. GOODWILL
Goodwill arising on consolidation represents the excess of the cost of acquisition over the group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of subsidiaries, associates or jointly controlled entities at the date of acquisition.
Goodwill arising on the acquisition of an associate is included within the carrying amount of the associate, while the goodwill arising on the acquisition of subsidiaries and jointly controlled entities is included in intangible assets.
Goodwill is reviewed annually for impairment and is carried at cost less accumulated impairment losses. Impairment losses are recognised as an expense for the year and impairment losses previously recognised are not reversed.
On disposal of a subsidiary, associate or jointly controlled entity, the carrying amount of any related goodwill is included in the determination of the profit or loss on disposal.
Negative goodwill represents the excess of the group's interest in the fair value of the identifiable assets, liabilities and contingent liabilities of a subsidiary, associate or jointly controlled entity at the date of acquisition over the cost of acquisition. Negative goodwill is recognised in the income statement immediately.
5. INTANGIBLE ASSETS
Intangible assets with a finite useful life are measured initially at cost and amortised on a straight-line basis over their estimated useful lives. The estimated useful lives and residual values are reviewed on an annual basis. Intangible assets with an indefinite useful life are reviewed annually for impairment and are carried at cost less accumulated impairment losses. Impairment losses are recognised as an expense for the year.
The estimated useful lives of intangible assets are currently as follows:
Useful life in years | |
| Tradename | Indefinite |
| Copyrights and trademarks | 10 |
| Licence | Indefinite |
| Software | 3 – 5 |
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at historical cost less accumulated depreciation and recognised impairment losses. With the exception of land, all property, plant and equipment is depreciated on a straight-line basis estimated to write each asset down to residual value over the term of its useful life.
The estimated useful lives of depreciable property, plant and equipment are as follows:
| Useful life in years | |
| Buildings | 50 |
| Advertising structures | 10 |
| Motor vehicles | 4 – 5 |
| Plant and equipment | 5 |
| Office furniture, equipment, décor and computers | 3 – 10 |
Costs incurred in the construction of advertising structures are capitalised. This includes all costs incurred in developing the structures up to the date of commissioning and are subsequently depreciated.
The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the income statement in the year in which it occurs.
Maintenance and repairs, which neither materially add to the value of the assets nor appreciably prolong their useful lives, are recognised in the income statement in the year incurred.
Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease.
7. LEASED ASSETS
Leases are classified as finance leases where the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
Assets held under finance leases are capitalised as property, plant and equipment, at their cash equivalent cost. The corresponding liability is included in the balance sheet as a finance lease obligation. The cash equivalent cost is the lower of the fair value of the asset and the present value of the minimum lease payments at inception of the lease.
Lease payments are apportioned between finance charges and reduction of the lease obligation, so as to achieve a constant rate of interest on the remaining balance of the liability.
Rentals in respect of operating leases with fixed escalations are recognised as an expense on a straight-line basis over the term of the lease so as to account for the time pattern of the lessee's benefit. Previously the operating lease payments were recognised in the income statement in the period incurred. Details of the change are disclosed in note 32.
8. IMPAIRMENT OF ASSETS
Goodwill and intangible assets with indefinite useful lives are annually reviewed for impairment.
Assets that are subject to amortisation or depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.
An impairment loss is recognised if the carrying amount of an asset is greater than the recoverable amount. The recoverable amount is the greater of fair value less cost of disposal and its value in use. In assessing its value in use, the estimated future pre-tax cash flows are discounted to their present value using an appropriate pre-tax discount rate that reflects the current market assessment of the time value of money and the risk specific to the asset.
An impairment loss is recognised as an expense immediately.
Other than when it relates to goodwill, where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount. This is done to such an extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised in prior years. A reversal of an impairment loss is recognised as income immediately.
For an asset that does not generate cash inflows largely independently of those from other assets, the recoverable amount is determined for the cash-generating unit to which the assets belongs. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets. The impairment loss is allocated against the carrying value of the asset within the cash-generating unit; first to goodwill (if any) and then to the remaining assets on a pro-rata basis, based on their carrying values. The carrying values of individual assets are not reduced below the greater of value in use, fair value less cost of disposal and zero.
After the recognition of an impairment loss, any depreciation or amortisation charge for the asset is adjusted for future periods to allocate the asset's revised carrying value, less estimated residual value, on a systematic basis, over its remaining useful life.
9. TAXATION
9.1 Current tax
The charge for current tax is the amount of income taxes payable in respect of the taxable profit for the current period. It is calculated using tax rates and laws that have been enacted or substantially enacted at the balance sheet date.
9.2 Deferred tax
Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. Such assets and liabilities are not recognised if the temporary difference arises from goodwill, negative goodwill or the acquisition of an asset which does not affect either taxable or accounting income.
Deferred tax liabilities are recognised for taxable temporary differences arising on investments in subsidiaries and associates, except where the group is able to control the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. The carrying amount of a deferred tax asset is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.
Notwithstanding the foregoing, the group's policy is to raise deferred tax, at the statutory rate, on 50% of the cost of the trademarks that have not been assessed by or are in dispute with the South African Revenue Service.
Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled.
10. INVENTORIES
Inventories are valued at the lower of cost and net realisable value. Cost is determined using the first-in first-out basis and includes all costs of purchase and conversion and other costs incurred in bringing the inventory to its present location and condition. All damaged or sub-standard materials and obsolete, redundant or slow moving inventories are written down to their net realisable value.
Net realisable value represents the estimated selling price less all estimated costs to be incurred in marketing, selling and distribution.
11. FINANCIAL INSTRUMENTS
Financial instruments are recognised on the group's balance sheet when the group becomes a party to the contractual provisions of the instrument.
11.1 Financial assets
The group's principal financial assets are trade and other receivables, equity investments and cash and cash equivalents.
Trade and other receivables
Trade and other receivables are stated at their nominal value as reduced by appropriate allowances for estimated irrecoverable amounts based on estimated future cash flows.
Investments
Investments in securities are recognised on a trade date basis and are initially measured at cost. At subsequent reporting dates, where the group has the intention and ability to hold the investments to maturity, the investments are measured at amortised cost less any provision for impairment.
Where securities are held for trading purposes, gains and losses arising from changes in fair value are included in net profit or loss for the period. Gains and losses arising from changes in fair value of available-for-sale investments are included in net profit or loss for the period.
Non-current assets held for sale
Non-current assets are classified as held for sale if their carrying value will be recovered through a sale transaction rather than through continuing use. An asset is held for sale if the sale is probable, the asset is available for immediate sale in its present condition (subject to the usual and customary terms) and it is probable that the transfer will qualify for recognition as a completed sale within one year from classification.
Non-current assets classified as held for sale are measured at the lower of the assets' previous carrying value and fair value less cost to sell.
Cash and cash equivalents
Cash and cash equivalents are measured at fair value, based on the relevant exchange rates at balance sheet date.
11.2 Financial liabilities
The group's principal financial liabilities are interest bearing and non-interest bearing borrowings, trade and other payables, bank loans and overdrafts.
Borrowings
Significant financial liabilities include term loans, finance leases and other secured or unsecured obligations. These liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisations. Finance charges are accounted for on an accrual basis and added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise.
Trade and other payables
Trade payables and other payables are stated at their nominal value.
Bank loans and overdrafts
Bank loans and overdrafts are measured at fair value, based on the relevant exchange rates at balance sheet date.
11.3 Equity instruments
Equity instruments issued by the company are recorded at the proceeds received net of any direct issue costs.
11.4 Derivative financial instruments
Derivative financial instruments are initially recorded at cost and are re-measured to fair value at subsequent reporting dates. Gains and losses from changes in the fair value are included in net profit or loss in the period in which the change arises.
11.5 De-recognition
Financial assets are de-recognised when the group's right to the cash flows expires or when the group transfers substantially all the risks and rewards related to the financial asset or when the group loses control of the financial asset. On de-recognition, the difference between the carrying amount of the financial asset and the proceeds receivable and any prior adjustment to reflect fair value that had been reported in equity are recognised in the income statement.
Financial liabilities are de-recognised when the obligation specified in the contract is discharged, cancelled or expired. On de-recognition, the difference between the carrying amount of the financial liability and settlement amount paid is recognised in the income statement.
11.6 Fair value methods and assumptions
The fair value of financial instruments traded in an organised market is measured at the applicable quoted prices.
The fair value of financial instruments not traded in an organised market is determined using a variety of methods and assumptions that are based on market conditions and risks existing at balance sheet date, including independent appraisals and discounted cash flow models.
The carrying amounts of financial assets and liabilities with a maturity of less than twelve months are assumed to approximate their fair value.
11.7 Offset
Where a legally enforceable right of offset exists for recognised financial assets and financial liabilities and there is an intention to settle the liability and realise the asset simultaneously, or to settle on a net basis, all related financial effects are offset.
12. PROVISIONS
Provisions are recognised when the group has a present or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions are adjusted to reflect the time value of money where the effect of the discounting to present value is material.
13. REVENUE RECOGNITION
Revenue is measured at the fair value of the consideration received or receivable and represents the net invoice value of goods and services provided to third parties after deducting sales and value added taxes. Revenue arising from services, commission, royalties and rebates is recognised on the accrual basis in accordance with the substance of the relevant agreements. Sales of goods are recognised when goods are delivered and title has passed.
Interest income is accrued on a time basis, by reference to the principal amount outstanding and the effective interest rate applicable. Dividend income is recognised when the shareholders' rights to receive payment have been established.
14. FOREIGN CURRENCY TRANSACTIONS
14.1 Foreign entities
The annual financial statements of foreign entities are translated into South African Rands for incorporation in the consolidated financial statements. Assets and liabilities are translated at the exchange rate prevailing at the balance sheet date. Income, expenditure and cash flows are translated at the average exchange rates for the period. Material exceptional items are translated at the rate on the date of the transaction.
Exchange differences on the translation of the net assets of foreign entities, less offsetting exchange differences on foreign currency loans financing these assets, are recognised in equity. On subsequent disposal, the cumulative amounts of unrealised exchange differences are recognised in the income statement as part of the gain or loss on disposal.
14.2 Foreign transactions and balances
Foreign currency transactions are translated, on initial recognition, at the foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated at the foreign exchange rate ruling at the settlement date or balance sheet date. Exchange differences on the settlement or translation of monetary assets or liabilities are recognised in the income statement in the period in which they are incurred.
Where appropriate, in order to hedge its exposure to foreign exchange risks, the group enters into forward exchange contracts. See note 11 above for details in respect of the group's accounting policy in respect of such derivative financial instruments.
The group used the following exchange rates for financial reporting purposes:
| 2005 | 2004 | |
|---|---|---|
| Closing exchange rate: | ||
| ZAR to USD | 6,631 | 6,221 |
| ZAR to GBP | 12,229 | 11,278 |
| ZAR to EUR | 8,019 | 7,579 |
| Average annual rate: | ||
| ZAR to USD | 6,182 | 6,853 |
| ZAR to GBP | 11,460 | 11,894 |
| ZAR to EUR | 7,854 | 8,161 |
15. BORROWING COSTS
Borrowing costs are recognised in the income statement in the period in which they are incurred.
16. EMPLOYEE BENEFITS
16.1 Post-employment benefits
Various employee retirement funds exist within the group to meet the requirements of individual operating companies. Contributions to defined contribution plans in respect of service during a particular period are recognised as an expense in the relevant period. Past service costs, experience adjustments, the effects of changes in actuarial assumptions and plan amendments in respect of existing employees in defined benefit plans are recognised as an expense or income over the expected remaining working lives of those employees. The effects of plan amendments in respect of retired employees in defined benefit plans are measured at present value and recognised as an expense or income in the period in which the plan amendment is made. Where there is uncertainty as to the group's entitlement to any surplus arising from a reassessment of the group's defined benefit plans, no asset or income is recorded.
16.2 Post-retirement medical benefits
The group's policy is not to provide post-retirement medical benefits for any employee. The obligation in respect of future post-retirement medical benefits payable to pensioners and employees of certain subsidiary companies relating to the period before the new policy become effective is accounted for as a defined benefit.
16.3 Short-term and long-term benefits
The cost of all short-term employee benefits, such as salaries, employee entitlements to leave pay, bonuses, medical aid and other contributions, are recognised during the period in which the employee renders the related service.
17. RESEARCH AND DEVELOPMENT COSTS
Expenditure on research activities is recognised as an expense in the period in which it is incurred.
An internally generated intangible asset arising from development expenditure is recognised only if all of the following conditions are met:
- An asset is created that can be separately identified;
- It is probable that the asset created will generate future economic benefits; and
- The development cost of the asset can be measured reliably.
Internally generated assets are amortised on a straight-line basis over their estimated useful lives. Where no internally generated intangible asset can be recognised, development expenditure is recognised as an expense in the period in which it is incurred.
18. SHARE PURCHASES
Own shares purchased by the company are cancelled. Shares held by group entities are treated as treasury shares and are presented as a reduction of equity. Gains or losses on disposal of treasury shares are accounted for directly in equity.
The Primedia Trust is consolidated and, accordingly, the number of shares held by The Primedia Trust is deducted from the total shares in issue as set out in note 17.
19. USE OF ESTIMATES
The preparation of financial statements in accordance with South African Statements of Generally Accepted Accounting Practice requires the use of certain accounting estimates. It also requires management to exercise its judgement in the process of applying the group's accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in the relevant sections of the financial statements. Although these estimates are based on management's best knowledge of current events and actions they may undertake in future, actual results ultimately may differ from those estimates.