NOTES TO THE ANNUAL FINANCIAL STATEMENTS
for the year ended 31 August 2010

    Group
    2010 2009
    R'000 R'000

1

Revenue

   
  Turnover 13 276 277 12 175 312
  Financial income 10 304 14 408
  Other income 626 092 564 482
    Distribution and logistics fees 328 475 339 023
    Rental income 917 2 231
    Cost recoveries and other 296 700 223 228
         
      13 912 673 12 754 202
       

2

Net financing costs

   
  Recognised in profit or loss    
  Interest income on bank deposits 3 110 5 848
  Change in fair value of financial assets designated at fair value through profit or loss 3 861
  Interest income on loans and receivables measured at amortised cost 7 194 4 699
  Financial income 10 304 14 408
  Interest expense on financial liabilities measured at amortised cost 47 858 61 924
  Cash interest paid 34 851 42 683
  Non-cash interest paid 13 007 19 241
  Change in fair value of financial assets designated at fair value through profit or loss 1 197 7 257
  Financial expense 49 055 69 181
  Net financing cost (38 751) (54 773)
       

3

Depreciation and amortisation

   
  Depreciation on property, plant and equipment (see note 9) 119 484 109 676
  Amortisation of intangible assets (see note 10) 17 291 12 241
  Total depreciation and amortisation 136 775 121 917
  Depreciation included in cost of merchandise sold (8 680) (8 252)
  Depreciation and amortisation included in expenses 128 095 113 665
       

4

Occupancy costs*

   
  Lease charges    
  Operating leases 355 449 314 285
  Turnover rental expense 24 836 18 130
  Movement in operating lease liability (see note 22) 9 471 7 747
  Movement in provision for onerous contracts (see note 24) (10) (1 376)
    389 746 338 786
 
       

5

Employment costs

   
  Directors’ emoluments 23 052 21 086
  Non-executive 1 639 1 983
    Fees 1 639 1 683
    Consulting services 300
  Executive 21 413 19 103
    Salary and bonus 19 317 17 669
    Other benefits 2 096 1 434
  Cash-settled share appreciation rights costs (see note 21) 53 591 18 980
  Equity-settled share option costs (see note 18) 51 717
  Long-term incentive scheme (see note 21) 58 239 43 306
  Staff salaries and wages 1 145 284 971 200
  Contributions to defined contribution plans 71 349 60 377
  Leave pay costs (see note 21) 8 184 16 270
  Bonuses (see note 21) 97 321 82 268
  Increase in liability for defined benefit plans (see note 21) 1 815 3 794
  Total employment costs 1 458 886 1 217 998
  Employment costs included in cost of merchandise sold (59 508) (61 070)
  Employment costs included in expenses 1 399 378 1 156 928
  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:    
    115 005 39 760
    Short-term employee benefits 25 737 20 736
    Post-employment benefits 1 290 1 229
    Other long-term benefits 106 98
    Share-based payments 87 872 17 697
    Non-executive directors’ fees and consulting services 1 639 1 983
    116 644 41 743
       

6

Other costs*

   
  Other operating costs include:    
  Auditor’s remuneration 3 080 3 153
    Audit fees 2 776 3 150
    Other services and expenses 304 3
  Fees paid for outside services    
    Technical services 41 065 27 795
  Foreign exchange losses/(gains) – realised 22 367 (20 127)
  Foreign exchange losses – unrealised (see note 16) 7 414 16 537
  Foreign exchange options losses – unrealised (see note 16) 331 429
  Share option hedge gains – unrealised (see note 16) (87 234) (28 053)
  Impairment of trade and other receivables (see note 28.5) 25 139 12 746
  Water and electricity 63 652 49 262
    Retail 60 582 47 176
    Distribution 3 070 2 086
       
 
       
    Group   Company  
    2010 2009 2010 2009
    R’000 R’000 R’000 R’000

7

Income tax expense

       
  South African normal tax        
    Current tax        
      Current year 181 728 178 342
      Prior-year (over)/underprovision (961) 1 112
    Secondary tax on companies        
      Current year 23 23
    Capital gains tax        
      Current year 103
    Deferred tax        
      Current year 18 527 (10 211) 1 176
      Prior-year (over)/underprovision (1 296) (767) 26
    Foreign tax        
      Current tax        
        Current year 6 673 5 666
        Prior-year underprovision 1 359 91
      Withholding tax 876 502
      Deferred tax        
        Current year (356) (151)
        Prior-year overprovision (91)
  Total income tax expense 206 550 174 619 1 225
  Reconciliation of rate of tax % % % %
  Standard rate – South Africa 28.00 28.00 28.00 28.00
  Adjusted for:        
    Capital gains tax (0.29) (0.29)
    Disallowable expenditure 0.29 0.56
    Exempt income and allowances (1.18) (1.55) (28.00)
    Foreign tax rate variations 0.14 0.12
    Foreign withholding tax 0.11 0.08
    Prior-year overprovision (0.12) (0.13)
    Secondary tax on companies deferred 0.19
    Other (0.14)
    Effective tax rate 26.81 26.98 28.00
  Subsidiaries of the group have estimated tax losses of R7.9 million (2009: R23.9 million) available for set-off against future taxable income of those subsidiaries. A deferred tax asset of R2.2 million (2009: R6.7 million) has been recognised in respect of the total estimated tax losses (see note 12).
   
    Group
    2010 2009
    R’000 R’000

8

Earnings per share

   
  Reconciliation of headline earnings    
  Profit attributable to equity holders of the parent 565 413 472 387
  Adjustments:    
    Loss on disposal of property, plant and equipment 4 663 6 100
      Loss before tax 6 476 7 177
      Tax (1 813) (1 077)
    Impairment of intangible asset 5 533
      Impairment of intangible asset 7 685
      Tax (2 152)
       
  Headline earnings 575 609 478 487
       
    2010 2009
    cents cents
  Earnings per share 208.6 165.6
  Headline earnings per share 212.3 167.7
  Diluted earnings per share 207.7 163.8
  Diluted headline earnings per share 211.4 165.9
       
    2010 2009
    ’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 302 841 324 139
  Treasury shares held for the full year and/or cancelled (26 535) (33 814)
  Treasury shares purchased during the year weighted for period held (6 158) (7 629)
  Treasury shares utilised for share options weighted for period in issue 925 2 553
  Weighted average number of shares in issue for the year 271 073 285 249
  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 271 073 285 249
  Dilutive effect of share options and forward purchase of shares 1 204 3 100
  Weighted average diluted number of shares in issue for the year 272 277 288 349
       
        Group    
      2010     2009  
      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 322 468 30 332 292 136 312 671 26 983 285 688
  Computer equipment 167 926 87 955 79 971 146 128 87 368 58 760
  Equipment 145 972 71 691 74 281 135 321 58 344 76 977
  Furniture and fittings 667 839 273 636 394 203 584 563 221 370 363 193
  Motor vehicles 38 673 17 020 21 653 33 472 14 386 19 086
    1 368 687 480 634 888 053 1 237 964 408 451 829 513
  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 book value of R0.1 million are encumbered in terms of a finance lease with a carrying amount of R0.1 million as detailed under note 20.
   
  Computer equipment with a net book value of R8 million is encumbered under finance leases with a carrying amount of R1.7 million as detailed under note 20.
   
  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 2008  25 809 249 221 56 384 87 852 296 008 19 211 734 485
  Additions 40 124 30 027 7 561 128 497 6 061 212 270
  Disposals (163) (843) (1 974) (5 217) (580) (8 777)
  Depreciation (3 529) (27 365) (16 462) (56 670) (5 650) (109 676)
  Acquisition of business 35 557 575 44 1 211
  Carrying amount value at 31 August 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
                 
          Group    
        2010     2009  
        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   272 000 272 000 272 000 272 000
  Link trademark   6 000 5 970 30 6 000 5 320 680
  Capitalised software development 64 822 38 727 26 095 57 116 27 483 29 633
  Contractual rights   17 814 1 466 16 348
      360 636 46 163 314 473 335 116 32 803 302 313
   
  The carrying amount of the group’s intangible assets is reconciled as follows:
          Capitalised    
        Clicks Link software Contractual  
        trademark trademark development rights Total
        R’000 R’000 R’000 R’000 R’000
  Carrying amount at 1 September 2008 272 000 1 330 28 811 302 141
  Additions     12 355 12 355
  Amortisation     (650) (11 591) (12 241)
  Acquisition of business     58 58
  Carrying amount at 31 August 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
               
 
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 current year the group decided to discontinue the development of the Clicks Healthcare System (CHC).
   
  The value of the intangible asset on impairment was R7.685 million.
   
  The impairment loss has been included in the impairment of intangible asset line in the statement of comprehensive income.
   
10.3 During the year the group acquired the pharmacy business of Amalgamated Pharmacy Group (Proprietary) Limited (see note 26.5.2). 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.