Notes to the annual financial statements
for the year ended 31 August 2011

   Group
    2011 2010
    R'000 R'000

1

Revenue

    
  Turnover 14 102 919 13 276 277
  Financial income 8 235 10 304
  Other income 688 935 626 092
    Distribution and logistics fees 361 324 328 475
    Rental income 401 917
    Cost recoveries and other 327 210 296 700
         
      14 800 089 13 912 673
       

2

Net financing costs

    
  Recognised in profit or loss  
  Interest income on bank deposits 5 098 3 110
  Interest income on loans and receivables measured at amortised cost 3 137 7 194
  Financial income 8 235 10 304
  Interest expense on financial liabilities measured at amortised cost 41 600 47 858
  Cash interest expense 29 003 34 851
  Non-cash interest expense 12 597 13 007
  Change in fair value of financial assets designated at fair value through profit or loss 261 1 197
  Financial expense 41 861 49 055
  Net financing cost (33 626)  (38 751) 
       

3

Depreciation and amortisation

    
  Depreciation on property, plant and equipment (see note 9) 143 107 119 484
  Amortisation of intangible assets (see note 10) 15 178 17 291
  Total depreciation and amortisation 158 285 136 775
  Depreciation included in cost of merchandise sold (8 571) (8 680)
  Depreciation and amortisation included in expenses 149 714 128 095
       

4

Occupancy costs

    
  Lease charges    
  Operating leases 388 369 355 449
  Turnover rental expense 24 923 24 836
  Movement in operating lease liability (see note 23) 10 331 9 471
  Movement in provision for onerous contracts (see note 25) (1 027) (10)
    422 596 389 746
       

5

Employment costs

    
  Directors’ emoluments 23 309 23 052
  Non-executive fees 1 978 1 639
  Executive 21 331 21 413
    Salary and bonus 18 842 19 317
    Other benefits 2 489 2 096
  Cash-settled share appreciation rights costs (see note 22) 2 787 53 591
  Equity-settled share option costs (see note 18) 15 326 51
  Long-term incentive scheme (see note 22) 40 994 58 239
  Staff salaries and wages 1 300 986 1 145 284
  Contributions to defined contribution plans 77 783 71 349
  Leave pay costs (see note 22) 13 625 8 184
  Bonuses (see note 22) 85 401 97 321
  Increase in liability for defined benefit plans (see note 22) 2 069 1 815
  Total employment costs 1 562 280 1 458 886
  Employment costs included in cost of merchandise sold (65 789) (59 508)
  Employment costs included in expenses 1 496 491 1 399 378
 
For further detail of directors’ emoluments refer to the Remuneration Report.

Included in total employment costs are the following aggregate amounts (including directors’ emoluments) relating to transactions with key management personnel:		    
      56 087 115 005
  Short-term  employee benefits 28 455 25 737
  Post-employment  benefits 1 915 1 290
  Other benefits 710 106
  Long-term  incentive scheme 22 220 36 980
  Share-based payments 2 787 50 892
    Non-executive directors’ fees 1 978 1 639
    58 065 116 644
 

6

Other costs

    
  Other operating costs include:    
  Auditor’s remuneration 3 334 3 080
  Audit fees 2 828 2 776
  Other services and expenses 506 304
  Fees paid for outside services    
  Technical services 26 119 41 065
  Foreign exchange losses – realised 17 641 22 367
  Foreign exchange losses – unrealised (see note 16) 3 237 7 414
  Foreign exchange options losses – unrealised (see note 16) – 331
  Share option hedge gains (see note 16) (41 840) (123 311)
  Fuel hedge contracts losses/(gains) 43 (43)
  Impairment of trade and other receivables (see note 29.5) 152 25 139
  Water and electricity 83 354 63 652
  Retail 78 897 60 582
  Distribution 4 457 3 070
       
      Group Company
    2011 2010 2011 2010
    R’000 R’000 R’000 R’000

7

Income tax expense

        
  South African normal tax        
    Current tax          
       Current year 261 382 181 728 – –
       Prior-year overprovision (1 888) (961) – –
  Deferred tax        
    Current year (22 466) 18 527 – –
    Prior-year overprovision (443) (1 296) – –
  Foreign tax        
    Current tax        
      Current year 9 644 6 673 – –
      Prior-year under provision 59 1 359 – –
    Withholding tax 975 876 – –
    Deferred tax        
      Current year (514) (356) – –
  Taxation per income statement 246 749 206 550 – –
    Current year (290) – – –
      Cash flow hedge recognised in other
  comprehensive income		 819 – – –
      Equity-settled transaction (1 109) – – –
 
  Total income tax expense 246 459 206 550 – –
  Reconciliation of rate of tax % % % %
  Standard rate – South Africa 28.00 28.00 28.00 28.00
  Adjusted for:        
  Capital gains tax – (0.29) – –
  Disallowable expenditure 0.19 0.29 – –
  Exempt income and allowances (0.66) (1.18) (28.00) (28.00)
  Foreign tax rate variations 0.15 0.14 – –
  Foreign withholding tax 0.11 0.11 – –
  Prior-year overprovision (0.30) (0.12) – –
    Other – (0.14) – –
  Effective tax rate 27.49 26.81 – –
 
Subsidiaries of the group have estimated tax losses of R9.3 million (2010: R7.9 million) available for set-off against future taxable income of those subsidiaries. A deferred tax asset of R2.6 million (2010: R2.2 million) has been recognised in respect of the total estimated tax losses (see note 12).
             
    Group
    2011 2010
    R’000 R’000

8

Earnings per share

    
  Reconciliation of headline earnings    
  Profit  attributable to equity holders of the parent 650 932 565 413
  Adjustments:    
    Loss on disposal of property, plant and equipment 4 500 4 663
      Loss before tax 6 250 6 476
      Tax (1 750) (1 813)
    Impairment of intangible asset – 5 533
      Impairment of intangible asset – 7 685
      Tax – (2 152)
 
  Headline earnings 655 432 575 609
       
    2011 2010
    cents cents
  Earnings per share 248.3 208.6
  Headline earnings per share 250.1 212.3
  Diluted earnings per share 248.0 207.7
  Diluted headline earnings per share 249.7 211.4
       
    2011 2010
    ’000 ’000
  Reconciliation of shares in issue to weighted average number of shares in issue    
  Total number of shares in issue at the beginning of the year 284 007 302 841
  Treasury shares held for the full year and/or cancelled (17 724) (26 535)
  Treasury shares purchased during the year weighted for period held (4 374) (6 158)
  Treasury shares utilised for share options weighted for period in issue 209 925
  Weighted average number of shares in issue for the year 262 118 271 073
  Reconciliation of weighted average number of shares to weighted average diluted number of shares in issue    
  Weighted average number of shares in issue for the year (net of treasury shares) 262 118 271 073
  Dilutive effect of share options and forward purchase of shares (net of treasury shares) 397 1 204
  Weighted average diluted number of shares in issue for the year 262 515 272 277
       
    Group 
      2011     2010  
      Accumulated     Accumulated  
      depreciation     depreciation  
      and     and  
      impairment Carrying   impairment Carrying
    Cost losses amount Cost losses amount
    R’000 R’000 R’000 R’000 R’000 R’000

9

Property, plant and equipment

            
  Land 25 809 – 25 809 25 809 – 25 809
  Buildings 331 656 33 861 297 795 322 468 30 332 292 136
  Computer equipment 223 811 120 255 103 556 167 926 87 955 79 971
  Equipment 160 198 92 002 68 196 145 972 71 691 74 281
  Furniture and fittings 776 635 342 337 434 298 667 839 273 636 394 203
  Motor vehicles 38 948 18 696 20 252 38 673 17 020 21 653
    1 557 057 607 151 949 906 1 368 687 480 634 888 053
       
 

A register of land and buildings containing the required statutory information is available for inspection on request at the registered office of the company.

All group property is owner-occupied.

Motor vehicles with a net carrying value of Rnil million (2010: R0.1 million) are encumbered in terms of a finance lease with a carrying amount of Rnil million (2010: R0.1 million) as detailed under note 21.

Computer equipment with a net carrying value of Rnil million (2010: R8 million) is encumbered under finance leases with a carrying amount of Rnil million (2010: R1.7 million) as detailed under note 21.

The carrying amount of the group’s property, plant and equipment is reconciled as follows:

 
  Computer   Furniture Motor  
Land Buildings equipment Equipment and fittings vehicles Total
R’000 R’000 R’000 R’000 R’000 R’000 R’000
Carrying amount at 1 September 2009  25 809 285 688 58 760 76 977 363 193 19 086 829 513
Additions  – 9 921 44 765 15 648 102 967 12 715 186 016
Disposals  – (125) (381) (1 804) (1 660) (4 022) (7 992)
Depreciation  – (3 348) (23 173) (16 540) (70 297) (6 126) (119 484)
Carrying amount value at 31 August 2010  25 809 292 136 79 971 74 281 394 203 21 653 888 053
Additions  – 7 560 56 224 7 843 135 531 5 586 212 744
Disposals  – (459) (734) (393) (3 786) (2 412) (7 784)
Depreciation  – (3 521) (32 100) (17 032) (85 063) (5 391) (143 107)
Transfers  – 2 079 195 3 497 (6 587) 816 –
Carrying amount value at 31 August 2011 25 809 297 795 103 556 68 196 434 298 20 252 949 906
               
Group
2011 2010
Accumulated Accumulated
amortisation amortisation
and and
impairment Carrying impairment Carrying
Cost losses amount Cost  losses amount
R’000 R’000 R’000 R’000 R’000 R’000

10

Intangible assets
  Clicks trademark (see note 10.1) 272 000 – 272 000 272 000 – 272 000
  Link trademark 6 000 6 000 – 6 000 5 970 30
  Unicorn trademark 35 1 34 – – –
  Capitalised software development 67 744 50 415 17 329 64 822 38 727 26 095
  Contractual rights 17 018 4 802 12 216 17 814 1 466 16 348
    362 797 61 218 301 579 360 636 46 163 314 473
 
The carrying amount of the group’s intangible assets is reconciled as follows:
               
          Capitalised    
    Clicks Link Unicorn software Contractual  
    trademark trademark trademark development rights Total
    R’000 R’000 R’000 R’000 R’000 R’000
  Carrying amount at 1 September 2009 272 000 680 – 29 633 – 302 313
  Additions – – – 19 322 1 140 20 462
  Amortisation – (650) – (15 175) (1 466) (17 291)
  Impairment (see note 10.2) – – – (7 685) – (7 685)
  Acquisition of business (see note 10.3) – – – – 16 674 16 674
  Carrying amount at 31 August 2010 272 000 30 – 26 095 16 348 314 473
  Additions – – 35 2 922 – 2 957
  Amortisation – (30) (1) (11 650) (3 497) (15 178)
  Disposals – – – (38) – (38)
  Adjustments to purchase price – – – – (635) (635)
  Carrying amount at 31 August 2011 272 000 – 34 17 329 12 216 301 579
 
10.1 The Clicks trademark is considered to have an indefinite useful life. There is no apparent legal or other restriction to the use of the trademark or risk of technical or other obsolescence. Given the strategic importance of the trademark to the future sustainability of the group, the group’s intention is to continue to use the trademark indefinitely. The directors consider that there is no foreseeable limit to the period over which this asset is expected to generate cash inflows for the group and, on this basis, the directors have concluded that the indefinite useful life assumption is appropriate.

In accordance with the group’s accounting policy, an impairment test was performed on the carrying values of intangible assets with indefinite useful lives at year-end.

Budgeted operating cash flows for the related business units were projected and discounted at the group’s weighted average pre-tax cost of capital. The impairment calculations performed indicated that the trademarks were not impaired.
10.2 During the prior year the group discontinued the development of the Clicks Healthcare System (CHC).

An impairment loss of R7.7 million was included in the impairment of intangible asset line in the statement of comprehensive income in 2010.
10.3 During the prior year the group acquired the pharmacy business of Amalgamated Pharmacy Group (Proprietary) Limited. As part of the acquisition, the group acquired the contractual rights to certain medical aid contracts. These contractual rights are being amortised over five years. The adjustment to purchase was made in respect of licences not received by year-end.