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Notes to the Annual Financial Statements
for the year ended 31 August 2009

    Group
    2009 2008
    R'000 R'000
31 Capital commitments    
  Capital expenditure approved    
    Contracted 11 156 11 252
    Not contracted 213 299 235 348
      224 455 246 600
  The capital expenditure will be financed from borrowings and internally generated funds.    
   
32 Financial guarantees
  The company has furnished guarantees to bankers in respect of liabilities of R216.5 million recognised on the balance sheets of certain subsidiary companies. The net liability recognised on the group balance sheet in respect of these liabilities is R16 million.

The company has guaranteed a R40 million facility given to Intercare by their bankers as detailed in notes 14.3 and 21.1.
 

Group companies provide surety for other group companies to the value of R866 million with respect to facilities held with various banks. At year-end none of these facilities had been drawn down by group companies.

A group subsidiary has issued a deed of suretyship on behalf of another subsidiary in relation to a trade payable in the amount of R585 million.

In the opinion of the directors, the possibility of loss arising from these guarantees is remote.
 
33 Related party transactions
  Group
Clicks Group Limited is the ultimate holding company of the group.

Transactions between group subsidiaries
During the year, in the ordinary course of business, certain companies within the group entered into transactions. These intragroup transactions have been eliminated on consolidation. For a list of the group’s subsidiaries, see here.

Directors and key management
A number of directors of the company hold positions in other entities, where they may have significant influence over the financial or operating policies of these entities. Accordingly, the following is considered to be such an entity:
 
Director Entity
DM Nurek Investec Bank Limited (“Investec”)


Transactions between the group and this entity have occurred under terms and conditions that are no more favourable than those entered into with third parties in arm’s length transactions.

These transactions include:

 i) Investec manages certain cash on call on behalf of group companies.
ii) Investec has provided funding to group companies.
iii) A group company held an investment in an Investec Bank Limited group company. Refer to note 30.
iv) A group company has purchased a derivative instrument from Investec. Refer note 17.


Certain non-executive directors are also non-executive directors of other public companies which transact with the group. Except as disclosed above, the relevant directors do not believe that they have control, joint control or significant influence over the financial or operating policies of those companies. Those entities are not disclosed above.

Executive directors’ employment contracts do not provide for a defined period of employment, but specify a notice period for the chief executive officer of 12 months and six months for the other executive directors. During this notice period, all standard benefits accrue to the directors in question. Contracts do not provide for predetermined compensation on termination other than that accorded to employees in terms of the group’s remuneration policies.

Employee benefits paid to directors and key management personnel are detailed in note 5.

Shares held by directors and their related entities
The percentage of shares held by directors of the company and their related entities at year-end are disclosed in the Remuneration Report.

Company
A schedule of the loans and investments in related parties is included here

The company received dividends to the value of R354.7 million (2008: Rnil million) from New Clicks South Africa (Proprietary) Limited, a wholly-owned subsidiary, and in turn paid distributions on treasury shares held by that subsidiary to that subsidiary of R17.4 million (2008: R14.6 million).

In addition, the company paid distributions to the Share Trust on shares held by the Share Trust of R2.8 million (2008: R1.5 million). Details regarding distributions relating to treasury shares are included in note 26.
 
34 Borrowing powers
  In terms of the articles of association, the borrowing powers of the company are unlimited.
 
35 Business acquisition
  The group acquired 60% of the shares of Clicks Direct Medicines (Proprietary) Limited and Direct Patient Support (Proprietary) Limited (“Direct Medicines”), effective 1 December 2008, for an amount of R13.2 million. At that date, the fair value of Direct Medicines’ identifiable assets and liabilities was R28.8 million and R24 million respectively. The carrying amount of those assets and liabilities were equal to its fair value. Management performed an exercise considering the fair value versus the carrying amount of Direct Medicines, however, the difference between fair value and carrying amount was not considered material.

Direct Medicines had no significant contingent liabilities at that date.

The following reflects Direct Medicines’ balance sheet at 1 December 2008 together with the fair value of the identifiable assets and liabilities:
    Carrying  
    amount Fair value
    R’000 R’000
  Assets    
  Non-current assets 3 890 3 890
  Property, plant and equipment 1 269 1 269
  Loan receivable 2 611 2 611
  Shareholders’ loans 10 10
  Current assets 24 934 24 934
  Inventories 7 147 7 147
  Trade and other receivables 14 511 14 511
  Cash and cash equivalents 3 276 3 276
       
  Total assets 28 824 28 824
  Equity and liabilities    
  Equity 4 813 4 813
  Share capital 1 1
  Distributable reserve 4 812 4 812
  Current liabilities    
  Trade and other payables 24 011 24 011
  Total equity and liabilities 28 824 28 824
  The group has entered into a put and call option to acquire the remaining 40% of the shares in Clicks Direct Medicines (Proprietary) Limited and Direct Patient Support (Proprietary) Limited, exercisable on or after 31 August 2011.

The amount to be paid for the outstanding shares is a factor of the net profit after tax as reflected in the audited financial statements of the year before the option is exercised.

The liability raised is discounted over a period of 33 months.		    
  Option price   7 514
  “Net profit after tax” (R’000)   2 348
  “Multiplied by 8” (R’000)   18 784
  Shareholding acquired (%)   40
  Multiplied by % shareholding acquired (R’000)   7 514
  Present value (R’000) (see note 20)   4 987
  Unwinding of discount (R’000)   589
  Put/call option liability relating to Direct Medicines (R’000) (see note 21)   5 576
       
36 Impact of adoption of IFRIC 13
  IFRIC 13 “Customer Loyalty Programmes”, effective for periods beginning on or after 1 July 2008, addresses accounting by entities that operate or otherwise participate in customer loyalty programmes for their customers.


IFRIC 13 applies to sales transactions in which the entities grant their customers award credits that, subject to meeting further qualifying conditions, the customers can redeem in the future for free or discounted goods or services. The interpretation requires that an entity recognises credits that it awards to customers as a separately identifiable component of revenue, which would be deferred at the date of the initial sale.

The impact of IFRIC 13 is as follows:
    Previously IFRIC 13 Restated
    reported adjustment amount
  Consolidated income statement      
  Sales 11 281 156 (87 579) 11 193 577
  Cost of merchandise sold (9 070 132) 85 865 (8 984 267)
  Gross profit 2 211 024 (1 714) 2 209 310
  Other income 499 209 – 499 209
  Expenses (2 118 071) – (2 118 071)
  Operating profit 592 162 (1 714) 590 448
  Profit on disposal of capital items 15 169 – 15 169
  Net financing cost (51 184) – (51 184)
  Net profit before taxation 556 147 (1 714) 554 433
  Income tax expense (147 377) 480 (146 897)
  Net profit 408 770 (1 234) 407 536
  Consolidated balance sheet      
  Equity and liabilities      
  Distributable reserves 1 459 381 (2 875) 1 456 506
  Non-current liabilities      
  Deferred tax liabilities 81 334 (1 118) 80 216
  Current liabilities      
  Trade and other payables 1 780 089 47 909 1 827 998
  Provisions 51 546 (43 916) 7 630