Notes to the Group Annual Financial Statements for the year ended 30 June 2009



 

 		                                              2009        2008 
                                                Rm        Rm 

31.

 

Financing cost

 		                  
   Non-financial services businesses                   
   Interest paid on financial liabilities not at fair value through profit or loss        792        734 
   Capitalised to property, plant and equipment        (11)       (19)
   Interest paid on financial liabilities fair valued through profit or loss        253        298 
   Foreign exchange (gains) losses on monetary items        (216)       376 
   Fair value losses (gains) arising from interest-bearing borrowings and interest swap instruments        277        (417)
            1 095        972 
   Finance income on financial assets not fair valued through profit and loss        (172)       (165)
            923        807 
                       

32.

 

Income tax expense

 		                  
   Income tax charge                   
   South African normal taxation                   
   – Current        348        696 
   – Prior year (over)underprovisions        (94)       20 
            254        716 
   Foreign taxation                   
   – Current        153        192 
   – Prior year overprovision        (17)       (4)
            136        188 
   Deferred                   
   – Current        17        (246)
   – Prior year underprovisions        8        10 
   – Tax rate adjustment                 (11)
            25        (247)
   Secondary and withholding taxation        80        16 
   Capital gains                   
   – Current        7        7 
   – Deferred                 27 
            7        34 
   Income tax expense        502        707 
                       
            2009        2008 
            %        % 
   Reconciliation of tax rates:                   
   Profit before taxation, excluding income from associates and joint ventures – effective rate        32,1        38,5 
   Income tax effect of:                   
   – Foreign tax differential        0,5        (0,7)
   – Taxation assets not recognised        (2,3)       (1,1)
   – Disallowable charges/capital losses        (11,9)       (11,2)
   – Exempt/capital income        8,5        6,3 
   – Secondary tax on companies        (5,1)       (0,9)
   – Capital gains        (0,4)       (1,9)
   – Tax rate adjustment                 0,6 
   – Prior year over(under)provision        6,6        (1,6)
            28,0        28,0 
                       
            2009        2008 
            Rm        Rm 

33.

 

Dividends and other distributions

 		                  
   Ordinary shares                   
   Interim                   
   – In the current year a dividend of 80 cents per share was paid on 30 March 2009        150          
   – In the prior year no dividend was declared                   
   Final                   
   – An ordinary dividend of 120 cents per share is payable on 28 September 2009        226          
   – In the prior year an ordinary dividend of 245 cents per share was paid on 29 September 2008.                 461 
   Preferred ordinary shares                   
   Interim                   
   – In the current year a dividend of 267,5 cents per share was made on 27 March 2009        39          
   – In the prior year, instead of an ordinary dividend, a capital distribution of 267,5 cents per share was made on 27 March 2008                 39 
   Final                   
   – An ordinary dividend of 267,5 cents per share is payable on 25 September 2009        39          
   – In the prior year, an ordinary dividend of 267,5 cents per share was paid on 26 September 2008                 39 
   Secondary tax on companies (STC) is payable at a rate of 10% upon payment of the dividends, less any STC credits available.                   
                       

34.

 

Earnings per share

 		                  
   Ordinary shares
Basic earnings per share are calculated by dividing the profit attributable to ordinary shareholders of Imperial Holdings by the weighted average number of ordinary shares in issue during the year. 
                                                           
                                                Discontinued          
                                       Continuing        operations        Total 
                                       Rm        Rm        Rm 
   30 June 2009                         
   Net profit attributable to equity holders of Imperial Holdings     1 011        507        1 518 
   Attributable to preferred ordinary shareholders     78                 78 
   Attributable to ordinary shareholders     933        507        1 440 
   Weighted average number of ordinary shares (million)    185,5        185,5        185,5 
   Basic earnings per share (cents)    503        273        776 
   For diluted attributable earnings per share, the weighted average number of ordinary shares in issue is adjusted by deferred and preferred ordinary shares.
  		                        
   Weighted average number of ordinary shares (million)    185,5        185,5        185,5 
   Adjusted for deferred and preferred ordinary shares (million)    22,5        22,5        22,5 
   Weighted average number of ordinary shares for diluted earnings (million)    208,0        208,0        208,0 
   Diluted earnings per share (cents)    486        244        730 
   Headline earnings and diluted headline earnings per share is calculated as follows:                         
   Net profit attributable to ordinary shareholders     933        507        1 440 
   Impairment reversal of assets     (8)                (8)
   Profit on disposal of property, plant and equipment     (86)       15        (71)
   Exceptional items     431        (571)       (140)
   Exceptional items included in income from associates and joint ventures     4                 4 
   Taxation     21        83        104 
   – Exceptional items                       87 
   – Profit on disposal of property, plant and equipment     19        87        15 
   – Impairment reversal of assets     2        (4)       2 
   Minorities’ share (profit on disposal of property, plant and equipment)    (1)       (1)       (2)
   Headline earnings     1 294        33        1 327 
   Add back earnings attributable to preferred ordinary shareholders     78                 78 
   Diluted headline earnings     1 372        33        1 405 
   Weighted average number of ordinary shares (million)    185,5        185,5        185,5 
   Headline basic earnings per share (cents)    698        17        715 
   Weighted average number of ordinary shares for diluted earnings (million)    208,0        208,0        208,0 
   Headline diluted earnings per share (cents)    660        15        675 
   Preferred ordinary shares                         
   Fixed amount attributable to preferred ordinary shares (cents)    535        535        535 
   30 June 2008                         
   Ordinary shares                         
   Net profit attributable to equity holders of Imperial Holdings     1 245        (2 115)       (870)
   Attributable to preferred ordinary shareholders     78                 78 
   Attributable to ordinary shareholders     1 167        (2 115)       (948)
   Weighted average number of ordinary shares (million)    185,7        185,7        185,7 
   Basic earnings per share (cents)    629        (1 139)       (510)
   For diluted attributable earnings per share, the weighted average number of ordinary shares in issue is adjusted by deferred and preferred ordinary shares.
  		                        
   Weighted average number of ordinary shares (million)    185,7        185,7        185,7 
   Adjusted for deferred ordinary shares (million)    21,6        21,6        21,6 
   Weighted average number of ordinary shares for diluted earnings (million)    207,3        207,3        207,3 
   Diluted earnings per share (cents)    600        (1 020)       ( 420)
   Headline earnings and diluted headline earnings per share is calculated as follows:                         
   Net profit attributable to ordinary shareholders     1 167        (2 115)       (948)
   Impairment of property, plant and equipment     4        1        5 
   Profit on disposal of property, plant and equipment     (78)       54        (24)
   Exceptional items     (1)       2 605        2 604 
   Exceptional items included in income from associates and joint ventures     6                 6 
   Taxation     44        (354)       (310)
   – Exceptional items      25        (336)       (311)
   – Impairment of property, plant and equipment      (1)                (1)
   – Profit on sale of property, plant and equipment      20        (18)       2 
                             
   Headline earnings     1 142        191        1 333 
   Add back earnings attributable to preferred ordinary shareholders     78                 78 
   Diluted headline earnings     1 220        191        1 411 
   Weighted average number of ordinary shares (million)    185,7        185,7        185,7 
   Headline basic earnings per share (cents)    615        103        718 
   Weighted average number of ordinary shares for diluted earnings (million)    207,3        207,3        207,3 
   Headline diluted earnings per share (cents)    588        92        680 
   Preferred ordinary shares                         
   Fixed amount attributable to preferred ordinary shares (cents)    535        535        535 
                             
                                                2009        2008 
                                                Rm        Rm 

35.

 

Notes to the cash flow statements

 		               
  

(a)

 

Cash generated by operations

 		               
      Profit before net financing costs     3 193        1 126 
      – Continuing operations     2 489        2 643 
      – Discontinued operations     704        (1 517)
      Adjustments for non-cash movements                
      – Amortisation of intangible assets, net of recoupments     49        31 
      – Depreciation of property, plant and equipment     425        447 
      – Depreciation of property, plant and equipment – discontinued operations     27          
      – Depreciation of transport fleet, net of recoupments     489        418 
      – Depreciation of leasing assets, net of recoupments              1 153 
      – Depreciation of leasing assets, net of recoupments – discontinued operations     19          
      – Depreciation of vehicles for hire, net of recoupments     349        290 
      – Exceptional items – continuing and discontinued operations     (140)       2 294 
      – Profit on disposal of property, plant and equipment     (75)       (70)
      – Fair value losses (gains) on insurance investment portfolios     138        (253)
      – Impairment of assets     (8)       574 
      – Fair value adjustments     (24)       20 
      – Recognition of share-based payments     55          
      – Net movement in insurance funds     (177)       55 
      – Increase in retirement benefit obligations     4        (8)
      Cash generated by operations before changes in working capital     4 324        6 077 
      Working capital movements                
      – Decrease (increase) in inventories     1 445        (593)
      – Decrease (increase) in accounts receivable     1 633        (93)
      – (Decrease) increase in accounts payable     (1 649)       298 
            5 753        5 689 
                       
  

(b)

 

Acquisition of subsidiaries and businesses

 		               
      Goodwill     173        235 
      Other intangibles     3        11 
      Property, plant and equipment     109        37 
      Transport fleet     203        257 
      Leasing assets              29 
      Vehicles for hire     58          
      Deferred taxation     (45)       (4)
      Other investments and loans     4        6 
      Inventories     7        8 
      Accounts receivable     197        71 
      Cash and cash equivalents     57        16 
      Minority interest     (28)         
      Retirement benefit obligations              (35)
      Interest-bearing borrowings     (181)       (42)
      Provisions     (59)       (48)
      Accounts payable     (117)       (32)
      Taxation asset (liability)    27        (3)
            408        506 
      Less: Cash resources acquired     (57)       (16)
      Cash flow on acquisition     351        490 
                       
  

(c)

 

Disposal of subsidiaries (2008: includes unbundling)

 		               
      Other intangibles     7        11 
      Goodwill     471        204 
      Property, plant and equipment     279        716 
      Transport fleet     2          
      Leasing assets              6 622 
      Vehicles for hire              1 
      Other investments and loans     49        248 
      Inventories     236        1 919 
      Taxation (owing) prepaid     (14)       52 
      Accounts receivable     480        1 670 
      Cash and cash equivalents     58        110 
      Minority interest     (248)         
      Retirement benefit obligations              (33)
      Interest-bearing borrowings     (203)       (5 384)
      Insurance contracts              (8)
      Deferred taxation     (1)       (338)
      Provisions     (26)       (252)
      Accounts payable     (573)       (2 772)
      Net asset value     517        2 766 
      Less: Cash resources disposed of     (58)       (110)
      Less: Repayment on interest bearing debt on unbundling reflected under financing activities              5 226 
      Unbundling distribution              (1 722)
      Profit (loss) on sale of subsidiaries     555        (298)
      Proceeds on disposal     1 014        5 862 
      Proceeds on disposal – discontinued operations     1 003        5 507 
      Proceeds on disposal – continuing operations     11        355 
                       
                       
  

(d)

 

Net replacement capital expenditure

 		               
      Expenditure                
      – Intangibles     (69)       (54)
      – Property, plant and equipment     (570)       (478)
      – Transport fleet     (341)       (276)
      – Leasing assets              (708)
      – Vehicles for hire     (1 295)       (1 176)
                       
            (2 275)       (2 692)
      Proceeds on disposals                
      – Intangibles     1          
      – Property, plant and equipment     191        85 
      – Transport fleet     211        246 
      – Leasing assets              634 
      – Vehicles for hire     757        710 
                       
            1 160        1 675 
      Net                
      – Intangibles     (68)       (54)
      – Property, plant and equipment     (379)       (393)
      – Transport fleet     (130)       (30)
      – Leasing assets              (74)
      – Vehicles for hire     (538)       (466)
                       
            (1 115)       (1 017)
                       
  

(e)

 

Cash and cash equivalents

 		               
      Cash resources     4 655        3 148 
      Short-term loans and overdrafts     (2 024)       (3 488)
            2 631        (340)
                                                           

36.

 

Commitments

  		               
   Capital expenditure commitments to be incurred                
   Contracted      514        480 
   Authorised by directors but not contracted      30        29 
         544        509 
   The expenditure is substantially for the replacement of transport vehicles and the construction of buildings to be used by the group. Expenditure will be financed from proceeds on disposals and existing facilities.  
                                                           
                     More than        One to        Less than                   
                     five years        five years        one year        2009        2008 
                     Rm        Rm        Rm        Rm        Rm 
   Property     790        956        376        2 122        2 111 
   Vehicles     3        70        50        123        57 
   Plant and equipment              7        5        12        22 
   Leasing assets                                         44 
         793        1 033        431        2 257        2 234 
   Leasing assets have been reclassified to vehicles in 2009. 
                                                           
                                                2009        2008 
                                                Rm        Rm 

37.

 

Contingent liabilities

 		               
   The claim from the South African Revenue Services relating to an offshore company has been resolved              382 
   Subsidiaries have entered into buy-back agreements. The maximum exposure is R89 million.  No material losses, other than those for which provision has been made in the financial statements, are anticipated as a result of these transactions     89        117 
   A subsidiary company has guaranteed loans provided to a Driver Empowerment Scheme for a maximum of R39 million     39        35 
                    
   The company has issued a guarantee to the debenture and preference share funders of Lereko Mobility (Pty) Limited amounting to R78 million     78          
   A subsidiary has pledged assets relating to the funders of discontinued operations amounting to R29 million     29          
   A subsidiary has contingent liabilities in respect of suretyships issued to creditors amounting to R13 million     13          
   Subsidiary companies have received summons for claims amounting to R8 million. The group and its legal advisors believe that these claims are unlikely to succeed.     8        61 
   Except for the above claims, there is no current or pending litigation that is considered likely to have a material adverse effect on the group.  
                    

38.

 

Related party transactions


Related party transactions

The company has no holding company. Subsidiaries, associates, joint ventures, and the group pension and provident funds are considered to be related parties. During the year the company and its subsidiaries, in the ordinary course of business, entered into various sale and purchase transactions with associates and joint ventures. These transactions occurred under terms that are no less favourable than those arranged with third parties.

Interest of directors in contracts

The directors have confirmed that they were not interested in any material transaction of any significance with the company or any of its subsidiaries. Accordingly, a conflict of interest with regard to directors’ interest in contracts does not exist.

Subsidiaries

Details of interests in principal subsidiaries are disclosed in Annexure A.

Shareholders

 The principal shareholders of the company are detailed in the analysis of shareholders schedule on page 36 of the annual report.

A director has shareholdings in certain subsidiaries and receives dividends.

Associates and joint ventures

Details of investments in principal associates and joint ventures are disclosed in Annexure B.

Details of revenue derived from associates and joint ventures are outlined in note 27.2.  
                                                           
                                                2009        2008 
                                                Rm        Rm 
   Purchase of goods and services from associates and joint ventures     403        736 
   Management fees received from associates and joint ventures     1        1 
   Key management personnel

Key management personnel are directors and those executives having authority and responsibility for planning, directing and controlling the activities of the group.

The group has many different operations, retail outlets and service centres where the group staff may be transacting.

Often these transactions are minor and are difficult to monitor. Key management have to report any transactions with the group in excess of R100 000. The total value of goods and services supplied to or from key management on an arm’s length basis amounted to R19 million (2008: R17 million).

The group received insurance premiums on an arm’s length basis from the group pension and provident funds to the amount of R49 million (2008: R89 million).

The group pays for legal services on an arm’s length basis to a firm of attorneys in which a director of the company has an interest, amounting to R13 million (2008: R9 million).
  		               
   Key management personnel remuneration comprises:                
   Non-executive directors’ fees     3        1 
   Short-term employee benefits     569        555 
   Long-term employee benefits     43        41 
   Termination benefits     6        2 
         621        599 
   Number of key management personnel     505        484 
   The gains on share options amounted to RNil million (2008: R20 million).                
                    

39.

 

Financial instruments


Financial risk factors

The group’s treasury activities are aligned to the company’s decentralised business model and the Asset and Liability Committee’s (ALCO) strategies. The ALCO is a board subcommittee responsible for implementing best practice asset and liability risk management with its main objectives being the management of liquidity, interest rate, price and foreign exchange risk. The ALCO meets every quarter and follows a comprehensive risk management process. The treasury implements the ALCO risk management policies and directives and provides financial risk management services to the various divisional businesses, coordinates access to domestic and international financial markets for bank as well as debt capital markets funding. The treasury monitors and manages the financial risks relating to the operations of the group through internal risk reports which analyse exposures by degree and magnitude of risks. These risks include market risk (including foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk.

The day-to-day management of foreign exchange risk and credit risk is performed on a decentralised basis by the various business units within the group’s hedging policies and guidelines.

The group’s objectives, policies and processes for measuring and managing these risks are detailed below.

The group seeks to minimise the effects of these risks by matching assets and liabilities as far as possible or by using derivative financial instruments to hedge these risk exposures.

The group does not enter into or trade in financial instruments, including derivative financial instruments, for speculative purposes. The group enters into financial instruments to manage and reduce the possible adverse impact on earnings from changes in interest rates and foreign exchange rates.

MARKET RISK

This is the risk that changes in the general market conditions, such as foreign exchange rates, interest rates, commodity prices and equity prices, may adversely impact on the group’s earnings, assets, liabilities and capital.

The objective of market risk management is to manage and control market risk exposures within acceptable parameters, whilst optimising the return on risk.

The group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates, interest rates and equity prices.

CURRENCY RISK

This is the risk of losses arising from the effects of adverse movements in exchange rates on net foreign currency asset or liability positions.

The group undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. In order to manage these risks, the group may enter into hedging transactions, which make use of derivatives. Derivative instruments are used by the group for hedging purposes. Such instruments include forward exchange contracts and under specific ALCO authorisation, currency options.

The policy of the group is to maintain a fully covered foreign exchange risk position in respect of foreign currency commitments with a few exceptions authorised by the ALCO. Automotive spare parts may be settled in the spot markets and where specific South African Exchange Control authorisation has been obtained, up to 75% of forecast annual sales can be covered. The day-to-day management of foreign exchange risk is performed on a decentralised basis by the various business units within the group’s hedging policies and guidelines. Trade-related import exposures are managed through the use of natural hedges arising from foreign assets as well as forward exchange contracts.

At the year end the settlement dates on open forward contracts ranged up to 12 months. The average exchange rates shown include the cost of forward cover. The amounts represent the net rand equivalent of commitments to purchase and sell foreign currencies, and have all been recorded at fair value.

The group has entered into certain forward exchange contracts that relate to specific balance sheet items at 30 June and specific foreign commitments not yet due. The details of these contracts are as follows:
  
                              Foreign        Average        Contract        Marked to 
                              amount        exchange         value        market 
   Foreign currency     (million)       rate        Rm         Rm  
   2009                                  
   Imports                                  
   US dollar     141        8,42        1 185        1 094 
   Euro     28        11,76        327        306 
   Pound sterling     2        13,41        22        22 
   Japanese yen     1 058        11,14         95        87 
   Other                        198        221  
                           1 827        1 730  
   2008                                  
   Imports                                  
   US dollar     68        7,85        531        537 
   Euro     1        12,48        15        15 
   Pound sterling     1        15,33        15        16 
   Japanese yen     574        13,28        43         43 
   Other                                1 
                           604         612 
                                                           
                                                2009        2008 
                                                Rm        Rm  
   Uncovered foreign currency exposure              297 
   The majority of uncovered exposures in the prior year relate to euro-denominated transactions, where a liability had been raised. These amounts were fully covered by July 2008.

Fair value is calculated as the difference between the contracted value and the value to maturity. The fair value adjustments are included in trade receivables and payables.

The impact of a 1% devaluation of the rand on the uncovered foreign exposure will have a Nil (2008: R3 million) impact on the group after tax profits, and vice versa for a 1% appreciation of the rand. The translation impact of a 1% devaluation in the rand would have a R21 million (2008: R31 million) impact on group equity, and vice versa for a 1% appreciation of the rand.

The sensitivity of profits to changes in exchange rates is a result of foreign exchange gains/losses on translation of foreign denominated financial assets and liabilities translated at spot rate are offset by equivalent gains/losses in currency derivatives.

Divisional currency risk

Logistics international

Currency risk exposure arises from the conclusion of transactions in currencies other than the functional currencies of operations in the Netherlands, Belgium, France, Germany, Poland and Sweden. All material exposures arising from transactions external to the group are covered by forward exchange contracts. Translation risk arises from the net investment in overseas businesses in the United Kingdom, Australia and Sweden. These translation exposures are recognised directly in equity through the translation reserve and only booked to the income statement when the subsidiary is sold. No net investment hedges are in place.

Logistics southern Africa

The risk in this division is modest with certain small transactions in foreign currencies, which result in foreign currency denominated debtors and creditors. In order to mitigate the risks which arise from this exposure, these items are settled immediately.

Distributors

The group’s major currency exposure exists in this division. Risk exposures result from vehicles and aircraft being imported, and invoiced in foreign currency. Forward exchange contracts are used to hedge this exposure, up to 75% of motor vehicle forecast annual sales can be covered should it be deemed necessary. In addition, overseas businesses result in translation exposure, which is naturally hedged by the net asset position of those businesses.

Motor dealerships

Risk exposure is limited to translation risk for investments in dealerships in the United Kingdom and Sweden, operational cash flows in these dealerships are in the functional currencies of those countries, and exposure to currency risk results from translation into our presentation currency (ZAR). This division is also exposed to certain small transactions in foreign currencies, which result in foreign currency denominated creditors. In order to mitigate the risks which arise from this exposure, forward exchange contracts are taken to hedge this exposure.

Insurance

Risk exposures result from foreign operations as well as the division holding investments in foreign equities, which are administered by portfolio managers and monitored by an investment committee.

INTEREST RATE RISK

 This is the risk that fluctuations in interest rates may adversely impact on the group’s earnings, assets, liabilities and equity.

The group is exposed to interest rate risk as it borrows and places funds at both fixed and floating rates. The risk is managed by matching fixed and floating rate assets and liabilities wherever possible and to achieve a repricing profile in line with ALCO directives use is made of interest rate derivatives. The group analyses the impact on profit and loss of defined interest rate shifts – taking into consideration refinancing, renewal of existing positions, alternative financing and hedging.

The group’s treasury follows a centralised cash management process including cash management systems across bank accounts in South Africa to minimise risk and interest costs. The group’s offshore cash management is managed by the treasuries in Germany, the United Kingdom and the Netherlands The interest rate profile of total borrowings is reflected in note 22.

The group has entered into interest rate derivative contracts that entitle it to either receive or pay interest at floating rates on notional principal amounts and oblige it to pay or receive interest at fixed rates on the same amounts.

The insurance division, in addition to its short-term deposits, has fixed rate investments, such as gilts and bonds. The risk is mitigated by the use of fund managers under the guidance of the Investment Committee, which has ultimate responsibility for the investment portfolio’s risk profile and related decisions.

 

The group’s remaining periods and notional principal amounts comprise the following interest rate swap instruments:

 
                                                2009        2008  
                                                Rm        Rm  
   Pay fixed receive floating                
   Less than one year     1 800          
   One to five years     1 000        800  
   More than five years     18        18 
   Pay floating receive fixed                
   Less than one year     300          
   One to five years     2 313        2 613 
   More than five years                
   The impact of a 1% increase in interest rates will have an annualised R26 million (2008: R14 million) effect on group after tax profit and equity.

EQUITY PRICE RISK

The group is exposed to equity price risk as it holds equity securities, which are classified as either available for sale or held for trading.

The group disposed of its 23 564 456 shares in Eqstra Holdings Limited during the year. These shares were received when the Leasing and Capital Equipment division was unbundled from the group in May 2008, and was classified as available for sale.

The impact of a 1% increase in the equity index will have a R4 million (2008: R14 million) effect on group after tax profit and a R4 million (2008: R17 million) impact on equity.

Divisional equity price risk: Insurance

The insurance division has reduced its exposure to equities to minimise the volatility that the equity price risk brings to the group income statement. The equity portfolio consists of high-quality securities. The risk is monitored by the Investment Committee reviewing performance of the portfolio taking cognisance of the group’s risk appetite and cash requirements. The investment portfolios are well diversified and hedges are implemented when approved by the Investment Committee.

Short-term insurance

Risks arise from this division’s investments in the equity markets. Portfolio managers are mandated to achieve maximum returns on investment portfolios in the short term. As such these investments are classified as held for trading and fair valued through profit or loss.

Life assurance

 Risks arise from this division’s investments in the equity markets. The nature of the life business is long-term. As such, portfolio managers are mandated to maintain liquidity in the portfolio on a long-term basis, and thus the equities are not traded with a view on short-term profit taking, but are monitored with a view to maintaining long-term liquidity over claims which may arise. The portfolios within this business are thus designated at fair value through profit or loss.

CREDIT RISK

 Credit risk, or the risk of counterparties defaulting, is controlled by the application of credit approvals, limits and monitoring procedures. Where needed, the group obtains appropriate collateral to mitigate risk. Counterparty credit limits are in place and are reviewed and approved by the respective subsidiary boards.

The carrying amount of financial assets represents the maximum credit exposure on 30 June 2009. None of the financial instruments below were given as collateral for any security provided.

The group only enters into long-term financial instruments with authorised financial institutions of high credit ratings assigned by international credit-rating agencies.

Cash and cash equivalents

It is group policy to deposit short-term cash with reputable financial institutions with high credit ratings assigned by international credit-rating agencies.

Trade accounts receivable

Trade accounts receivable consist of a large, widespread customer base. Group companies monitor the financial position of their customers on an ongoing basis. Creditworthiness of trade debtors is assessed when credit is first extended and is reviewed regularly thereafter. The granting of credit is controlled by the application of account limits. Where considered appropriate, use is made of credit guarantee insurance.
  
         2009         2008 
                                                Rm          Rm  
   Trade and other receivables that are neither past due nor impaired     3 893        5 352 
   Included in the above are amounts for trade and other receivables which would have been past due, had the terms not been renegotiated, amounting to R142 million (2008: R91 million).

Based on past experience, the group believes that no impairment is necessary in respect of trade receivables not past due as the amount relates to customers that have a good track record with the group, and there has been no objective evidence to the contrary.

Past due trade receivables

Included in trade receivables are debtors which are past the original expected collection date (past due) at the reporting date. There has not, however, been a significant change in credit quality and the amounts are still considered recoverable. Those which are not considered to be recoverable have been included in the provision for doubtful debts below. A summarised age analysis of past debtors is set out below.
  
                                                2009        2008 
                                                Rm        Rm 
   Less than 1 month     924        761 
   Between 1 – 3 months     323        341 
   More than 3 months     117        138 
   Past due more than 1 year     39        39 
         1 403        1 279 
   The overdue debtor ageing profile above is considered typical of the various industries in which our businesses operate. Given the existing insurance cover and the nature of the related counterparties, these amounts are considered recoverable.

Provision for doubtful debts for trade receivables

Before these financial instruments can be impaired, they are evaluated for the possibility of any recovery, which includes an examination of the length of time they have been outstanding. Provision is made for bad debts on trade accounts receivable. Management does not consider that there is any material credit risk exposure not already covered by a bad debt provision.

There is no significant concentration of risk in respect of any particular customer or industry segment.
  
                                                2009        2008 
   Provision for doubtful debts for trade receivables     Rm        Rm 
   Set out below is a summary of the movement in the provision for doubtful debts for the year:                
   Balance at beginning of year     240        328 
   Reclassified from (to) discontinued operations, subsidiaries sold and unbundled     6        (146)
   Amounts reversed during the year     (2)       (6)
   Increase in allowance recognised in profit or loss     98        62 
   Amounts written off during the year     (24)       2 
   Balance at end of year     318        240 
   Loans receivable

The group granted employees the right to purchase shares through a share incentive trust. The terms held that the company would lend these employees the funds to acquire shares in Imperial Holdings Limited, holding the shares as collateral for the debt.  Due to share price depreciation, an impairment has been made. An additional impairment loss to the amount of R53 million (2008: R320 million) has been raised, resulting in R53 million (2008: R54 million) of interest not being recognised. The balance of the 2008 impairment, being R260 million, was charged to the income statement in both continuing and discontinued operations.

There are no amounts which are past due.
  
                                                2009        2008 
   Allowance for impairment losses on share incentive trust receivable     Rm        Rm 
   Set out below is a summary of the movement in the allowance for impairment losses for the year:                
   Balance at beginning of year     321        1 
   Increase in allowance recognised in profit or loss     53        320 
   Balance at end of year     374        321 
   Divisional credit risk

Logistics

Risk exposures arise from the granting of credit to customers. The risk is managed by strict monitoring of credit terms. The risk is mitigated by stringent background checks on all new customers, as well as taking legal action against defaulting customers.

Car rental

Risk exposures arise from the granting of credit to customers. Credit is granted to corporate clients after credit checks have been performed. The division maintains credit limits for these clients, which are reviewed periodically. Monthly collections are performed on outstanding amounts. Credit risk is minimised as credit is not usually granted to individual clients.

Distributors

Risk exposures arise from the supply of vehicles to external dealerships and customers. Where vehicles are supplied to external dealerships these are generally covered by a dealer floorplan with a bank, and will usually settle within credit terms, and exposure to credit risk is therefore minimised. When dealing with external customers, the vehicle is required to be fully financed before delivery, thereby mitigating credit risk to the division.

Motor dealerships

Risk exposures arise from the granting of credit to customers for parts and spares. The risk is managed by monthly review of debtors ageing. The risk is mitigated by stringent background checks and credit limits being imposed on all new customers, continuous review of credit limits, as well as taking legal action against defaulting customers. Where our dealerships are transacting with external customers, the vehicles are required to be fully financed before delivery, thereby mitigating credit risk to the division.

Insurance

Risk exposures arise from commission being paid to brokers up to 12 months in advance. The risk arises as the client may lapse a policy at any point during the period. The risk is monitored by the Credit Committee and is mitigated by vetting all brokers, as well as retaining a percentage of the commission.

Guarantees

Guarantees issued to bankers and others, on behalf of subsidiaries, for facilities, as well as guarantees to investors in commercial paper and corporate bond issues, are disclosed in note 13 to the company annual financial statements.

There were no guarantees provided by banks to secure financing during 2009 and 2008.

LIQUIDITY RISK

Liquidity risk is the risk that the group will not be able to meet its financial obligations as they fall due. The group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, under normal and stressed conditions, without incurring unacceptable losses or risking damage to the group’s reputation.

The responsibility for liquidity risk management rests with the ALCO, which has built an appropriate liquidity risk management framework for the management of the group’s short-, medium- and long-term funding requirements. The group accesses the corporate bond market to ensure that there is sufficient long-term funding within the funding mix together with long-term bank facilities.

The group manages liquidity risk by monitoring forecast cash flows in compliance with loan covenants and ensuring that adequate unutilised borrowing facilities are maintained. Unutilised borrowing facilities are reflected in note 22.

To avoid incurring interest on late payments, financial risk management policies and procedures are entrenched to ensure the timeous matching of orders placed with goods received notes or services acceptances and invoices.

Contractual maturities (which includes interest) of financial liabilities are as follows:
  
                              Total                            
                     Carrying        contractual        Less than        One to        More than 
                     amount        cash flows        one year        five years        five years 
                     Rm        Rm        Rm        Rm        Rm 
   2009                                           
   Maturity profile of financial liabilities                                           
   Interest-bearing borrowings*     9 794        11 467        2 852        8 170        445 
   Insurance and investment contracts     1 356        1 356        604        328        424 
   Other non-current financial liabilities     157        157        13        144          
   Trade payables and accruals     7 379        7 379        7 379                   
   Current derivative financial liabilities     119        119        119                   
         18 805        20 478        10 967        8 642        869 
   Percentage profile     100%        100%        54%        42%        4% 
   * This excludes the R441 million non-redeemable, non-participating preference shares (note 20).

Fair value of financial instruments by category 
                              Carrying        Fair        Carrying        Fair 
                              value        value        value        value 
                              2009        2009        2008        2008 
                              Rm        Rm        Rm        Rm 
   Financial assets                                  
   Other investments and loans                                  
   – Designated as fair value through profit and loss
   (held for trading)		    420        420        772        772 
   – Classified as held for trading (held for trading)    412        412        864        864 
   – Available for sale     9        9        308        308 
   – Loans and receivables at amortised cost     295        295        376        376 
   Other non-current financial assets                                  
   – Derivative instruments – fair value through profit and loss                       17        17 
   – Reinsurance debtors – held at amortised cost     203        203        313        313 
   Trade and other receivables                                  
   – Derivative instruments – hedge accounted     22        22        9        9 
   – Trade receivables – amortised cost     5 296        5 296        6 631        6 631 
   Cash and cash equivalents     4 655        4 655        3 148        3 148 
   Financial liabilities                                  
   Interest-bearing borrowings                                  
   – Non-redeemable, non-participating preference shares     441        441        441        441 
   – Classified as held for trading     2 296        2 296        2 280        2 280 
   – Borrowings at amortised cost     7 498        7 434        9 319        9 065 
   Insurance and investment contracts                                  
   – Insurance and investment contracts at amortised cost     1 356        1 356        1 535        1 535 
   Other non-current financial liabilities                                  
   – Derivative instruments – fair value through profit and loss     108        108        98        98 
   – Contingent consideration – at amortised cost     49        49                   
   Trade and other payables                                  
   – Derivative instruments     119        119        17        17 
   – Trade payables and accruals – amortised cost     7 379        7 379        8 272        8 272 
   The directors consider that the carrying amounts of cash and cash equivalents, trade and other receivables and trade and other payables approximates their fair value due to the short-term maturities of these assets and liabilities.

The fair values of financial assets represent the market value of quoted investments and other traded instruments. For non-listed investments and other non-traded financial assets fair value is calculated using discounted cash flows with market assumptions, unless the carrying value is considered to approximate fair value.

The fair values of financial liabilities is determined by reference to quoted market prices for similar issues, where applicable, otherwise the carrying value approximates the fair value.

There were no defaults or breaches in terms of interest-bearing borrowings during either reporting periods.

There were no reclassifications of financial assets or financial liabilities that occurred during the period. There were no financial assets or liabilities that did not qualify for derecognition during the period.

Financial instruments designated as fair value through profit or loss
  
                           2009        2008 
                           Rm        Rm 
   Investments designated as fair value through profit or loss                
   Carrying value of investments designated as fair value through profit or loss     420        772 
   Maximum exposure to credit risk at reporting date     420        772 
   Included in the statement of changes in equity are the following adjustments relating to financial instruments:                
   Amounts included in the hedging reserve                
   Continuing operations                
   – Effective portion of change in fair value of cash flow hedge     (88)       (13)
   – Amount removed from equity on matured contracts     (53)       7 
         (141)       (6)
   Discontinued operations                
   – Hedging reserve movement              (2)
   Total movement on hedging reserve     (141)       (8)
   CAPITAL MANAGEMENT

The group’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns and growth for shareholders and benefits for other stakeholders. The group maintains an appropriate mix of equity and equity like instruments and debt in order to optimise the weighted average cost of capital (WACC) within an appropriate risk profile. Capital allocation is evaluated against the expected and forecast return on invested capital against the appropriate WACC for that division or business.

The group has externally imposed capital requirements in terms of a debt covenant for a syndicated loan. The covenant requires the group to maintain a target net debt to earnings before interest, taxation, depreciation and amortisation (EBITDA) of below 3.5:1. The ratio at 30 June 2009 is 1.5:1 (2008: 2.2:1). Our insurance businesses have externally imposed regulatory capital requirements as set out in Annexure C.

Consistent with others in the industry, the group monitors capital on the basis of its gearing ratio. This ratio is calculated as net debt divided by total equity. Net debt is calculated as interest-bearing borrowings less cash and cash equivalents. Total invested capital includes share capital and borrowings.
  
                                                2009        2008 
                                                Rm        Rm 
   Interest-bearing borrowings*     10 235        12 040 
   Less: cash and cash equivalents     4 655        3 148 
   Net debt     5 580        8 892 
   Total equity     10 361        10 416 
   Gearing ratio     53,9%        85,4% 
   * Includes R441 million non-redeemable, non-participating preference shares.