These reviewed financial results have been prepared in accordance with South African Statements of Generally Accepted Accounting Practice, and the accounting policies used are consistent with those applicable for the 2004 annual financial statements except in the case of accounting for goodwill (which is no longer amortised but is subject to an annual impairment test), operating leases and obligations to employees in terms of share appreciation rights as described below. These results have been reviewed by KPMG Inc. and their unqualified review report is available for inspection at the company's registered office.
On 2 August 2005 the South African Institute of Chartered Accountants issued Circular 7/2005 dealing with the requirements of AC105 – Leases, in respect of operating leases which include fixed rental increases. AC105 states that lease expense/income should be recognised on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user's benefit. It is now considered that the definition of a "user's benefit" is only affected by factors that impact the physical usage of the property. The straight-line method results in an equal charge in the income statement in each reporting period irrespective of the fact that the cash payments for rent differ.
The impact of this change in interpretation on opening distributable reserves and current year performance is set out below:
|Effect on opening distributable reserves||(53 542)||(47 568)|
|Effect on current year net profit before taxation||(9 018)||(8 534)|
|Taxation||2 615||2 560|
|Effect on current year net profit/(loss)||(6 403)||(5 974)|
|Effect on earnings and headline earnings per share (cents per share)||(1.9)||(1.7)|
|Effect on diluted earnings and diluted headline earnings per share|
|(cents per share)||(1.8)||(1.6)|
The effects disclosed are net of deferred taxation at the rates prevailing during the relevant year. Comparatives have been restated.
The group issued share appreciation rights to certain employees during the year in terms of an incentive programme. The value of the obligation in terms of the share appreciation rights is expensed over the vesting period of the rights and the related liability raised. Any change in the fair value of the liability is recognised in profit/loss for the period. A hedge was acquired to limit the group's exposure in respect of this obligation. The derivative acquired to serve as the hedge is fair valued in accordance with AC133, with changes in fair value being recognised in profit/loss for the period.
Change in comparatives
For segmental reporting purposes, Clicks and Pharmacy, which were previously reported as separate segments, have been combined into a single segment referred to as Clicks. This is to reflect the operating philosophy and future strategy of the Clicks brand. Comparatives have been restated accordingly. The results of the Pharmacy business are therefore included in the comparative results of Clicks for a period of six months.
An amount of R24.7 million has been reallocated from cost of merchandise to turnover in 2004 in respect of New United Pharmaceutical Distributors (UPD). This amount relates to discounts granted by UPD which were previously included in cost of merchandise. This has resulted in turnover reducing from R8 048.8 million to R8 024.1 million and cost of merchandise reducing from R6 301.5 million to R6 276.8 million. The reallocation was necessary in order to correctly state the group's turnover.