Seed Co 2012 Annual Report


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Seed Co 2012 Annual Report

  1. 1. The African Seed Company U A L O R T
  2. 2. Seed Co Thm Afriun Seed CompanyAnnual Report 20P Performance Highlights Chairmans Statement Our Brands Croup Chief Executives Review of Operations Financial Overview Report of the Directors Corporate Governance DirectorslApprovalof Group Financial Statements lndependent Auditors Report Consolidated Income Statements Consolidated Statement of Comprehensive Income Consolidated Statements of Financial Position.Consotidated Statement of Cash Flows.Consolidated Statements of Changes in Equity Notes to the Financial Statements Analysis of Shareholders Notice t o Shareholders Board of Directors Group Administration
  3. 3. Performance Highlights The Afvlcan S e d CompamyGroup Revenue US$000s !Group EBITDA US$000s - k IEPS (US cents) . .,:. . ..>..R&0 Expenditure US$000s 4,lW 3.213 1 .w 770
  4. 4. W C o A n d Report 2012Chairmans Statement SEED40 w The African 8 d Company"I am pleased to report that all markets, with the exception of Malawi,registered pleasing growth in sales volumes. Wth a solid productionbase and adequately bahnced seed stocks following two seasons ofsuccessful production, the Group now has Rexibilty in both abilrty tomeet demand and contracting the desired level of production.The demand for cutton seed in new markets like Kenya and Tanzaniacontinues to be strong." 1 INTRODUCTION Dear Shareholders, Iam pleased to reportto you another good set of results for Seed Co Group forthe year ended 31 March 2012. Your Company has continued to invest in both research and development and state of the art seed processing facilities which I am confident will position it strongly given an ever increasing aompetitive environment. ENVIRONMENTAL OVERVIEW The year under review presented enormous challenges in all the major markets that your company operates in. In Zimbabwe, while there has been some improvements in the economic environment, liquidity challenges have remained and most businesses continue to operate signifiwntly below their wpacity as they have failed to recapitalise. The Malawi economy was characterised by shortages and drying up of forex and free fall of the currency which resulted in reduction of donor support for the agricultural inputs programs. The Zambian economy remained steady while in East Afriw, the erratic rains have continued to critically affect farmers. FINANCIAL REVIEW I am pleased to report that all markets, with the excemon of Malawi, registered pleasing growth in sales volumes. With a solid production base and adequately balanced seed stacks following two seasons of sumssful produc- tion, the Group now has flexiblity in both ability to meet demand and contracting the desired level of production. The demand for cotton seed in new markets like Kenya and Tanzania continues to be strong. Revenue increased by 20% on the back of an increase in sales volume of 22% to 67 240 metric tonnes as compared to last year. Group profit after tax grew by 10% to $19m while Group margins eased off from 51% in prior year to 45% in current year largely due to the over supply situation of seed in Zimbabwe which meant the selling war was fought over prices. The Statement of Financial Position shows a 28% growth in total assets from $123m in prior year to $1 57m in the cumnt year.
  5. 5. The AMcan Seed Company I REVENUE 1 Up by 20% 1 PROFIT AFTER TAX Up by 10% to $19m SALES VOLUMES Up by 22%With a very strong stockholding position, the Group is going to use this nat only to take advantage of shbrtages in some markets, but to also improveproduction efficiencies and continue to enhance higher quality standards.The production capacity in the new markets of Tanzania, Kenya and Ethiopia continue to grow.RESEARCH AND DEVELOPMENTStrong collaborative activities with various organizations in West Africa have enabled the Group to identify suitable varieties for multiplication withthe first sale in this market expected in the 2013114 financial ysar. In East Africa, better performing highland varieties are at advanced stages of release. The adoption of improved breeding techniques and trainingcontinue to be a key focus for research. The Group is making impressive progress towards releasing more drought stress tolerant varieties.During the year, the Group released 8 products in different markets, 5 of which were maize, 2 soya beans and 1 wheat.HUMAN RESOURCESThe Group has strengthened the human resources capacity with the appointment of a Group Business Development Executive to spearbead thefootprint expansion and a Managing Director for East Africa to concentrate on growing the business in this region.OUTLOOKThe outlook for the Group looks very positive. In Zimbabwe we have managed to recapture market share which had been affected by years ofshortages. Production has been realigned to meet demand and we will now be able to distribute seed at economic prices with the over supply situationnow corrected. In Malawi, the economic situation is now showing an upward trend and most NGOs that had frozen their activities have been makingvery positive announcements about re-entry and growing their programs in this market. In Zambia, the Governments Farmer Input Support Programis continuing for the foreseeable future. Patchy rains in East Africa which resulted in crop failure in the recently ended season will lead to increaseddemand of seed in the coming year.The new business units for cotton and maize seed in Tanzania are expected to make a significant profit contribution to the Group in the coming year.A new acid-delinting plant will be commissioned in Mwanza this year. The cotton seed fmtprint continues to grow with Malawi expected to comeon-stream this year.Development work in West Africa continues to be intensified with beefing up of resources warking an this project.With the stabilisation of the Malawi *conormy, the Group is expecting to resuscitate plans forthe construction of new processing facilitiss and furtherconsolidate ik market leadership in that country.REWARDING OUR SHAREHOLDERSThe liquidity challenges are forcing some of our shareholders to dispose their precious shares even at uneconomic values. Your Company is commit-ted to looking after you and in order to allow it to unwind its carryover inventory and debt, your board of directors is recommending a dividend of 1,64US cents per share. With the drastic reduction in working capital commitments this coming financial year, the dividend cover is expected to move backtowards historical levels.APPRECIATIONI would lib to take this opportunity to thank my fellow directors for their wise oversight, management and staff for thsir determination and hard workto continue to put Seed Co Limited as one of the top seed houses in Africa. I have great reason to look fomard to continued success in the years tocome.Regards,Chairman24 May 2012.
  6. 6. Our brandsOur products are some of the most known brands by farmers in the markeb we play.The new SC 637 and SC 727 are out yielding most varieties in the hybrid maize space.
  7. 7. mc c h u a l Report 201 2Our brands Thc A W a n good Company
  8. 8. Chief Executive Officers Review The Afdcan Seed Company"Our sewed markets continued to show pleasing results with significantgrowth recorded Zmbabwe, Zambia, Tanzania and Kenya." OVERVIEW The Group had a successkrl tradlng year, delkering steady year on year growth in terms of volumes and turnover. The performance was particularly impres- sive given the following challenges which prevailed in our key markes during the period: *Severe liquidity crisis in Zimbabwe. -Severe downturn of Malawi economy and pull out of major donors. .Very late and erratic rains in East Africa. *Massive price d i m n t l n g by oompetltion to get rid ofexmss Inventories. -Huge carryover inventory levels at ginrters wbich meant reduced cotton seed purchases. GROUP FINANCIAL PERFORMANCE Group turnover i n m s e d by 20% on the back of increased demand in Zimbabwe, Zambia and East Africa, and readily available inventories. The margins were materially compromised by our predetemlned effort to reduce prim as a way of maklng out products more affordable In order to proted market share. Overheads went up by 5% reflecting increased promotional activity and business development activltles coupled w h prudent provisioning for doubfful debts. Finance charges went up by 48% to fund carryover inventories from prior year. Group Profit after Tax went up by $ 4 to US$19.1 06 mlllion. The Group registered growth in assets on the Statement of Finandal Position f o $ 7 2 3 ~ rm to $1 57m. Inventories went up by $23m reflecting a healthy carryover inventory position while trade receivables went up by $tlm due to Increased sales to governments In the region who generally take longer to pay. Bank borrowings went up by $22m due to the need to fund the carryover inventory and lrade receivables.
  9. 9. Seed- Anml Report 2012 SEEDGO LJ The African mu4 CompanyOUR MARKETSOur sewed markets continued to show pleasing results with significant growth recorded Zimbabwe, Zambia, Tanzania and Kenya. Thechallenging eoonomic conditions in Malawi impacted negatively on our performance h that country although our market share remainedlevel with prior year. Zimbabwe, Kenya and Tanzania recorded market share gains. In the year, our business recorded the first seed sales inEthiopiawhile Southern Sudan has shown great interest in our varieties. We expect to maintain the positive momentum in wtton seed salesin Tanzania benefitting fmm a successful local production season to serve market demand. To achieve our strategic objective the businesscontinues to develop new products to service market needs and secure our market leadership gains. Two new top yielding varieties, SC727and SC 637 were officially launched in the year. SC 727 currently out-yields all the competitor varieties in all the high potential markets wesenre, with yidds of over 18 tonnes having been recorded in some instances. I am wnfident these products will differnotiate Our offering toour productive farmers and provide an excellent platform for our growth over the next years.Having been building on our production capacity over the G m u p W h l o n (wrlc@nfi*s)last four years, we have now successfully managed toprcduce enough carryover seed to meet any unfore-seendemand. In line with inventories on hand we have retional-ized production to match anticipated demand. This favour-able inventory position has enabled us to tighten on qualltywith our grower selection being solely based on prductivityand quality of output. The graph shows the adjustment inproduction levels to take advantage of the normalizedprduction capability.OPERATIONSSeed Co ZambiaSales volumes went up by 20% despite the difficult trading conditions and increasing competition. The new integrated plant is now fullyoperatianal and has improved efficiencies. This together with other initiatives has enabled us to qualify for InvestmentPromotionand Protec-tion Agreement (IPPA) investment tax incentives.Seed Co ZimbabweTotal sales volumes went up by 74% resulting in a 34% increase in revenue and a 26% increase in Profit After Tax. The business adoptedselective price reductions to influence sales performance and ward off competitor price discounting. This, however impacted negatively ongross margins in the year under review.Seed Co MalawiThe business held its dominant market position despite the challenging economic fundamentals that resulted in lower volumes. The impactof the weaker Malawian Kwacha against the United States Dollar affected the business unit financial performance. The recent politicalchanges in that country have brought back confidence and we are quite positive about the operation going into the future.Seed Co TanzaniaDemand of our seed continues to increase in Tanzania. Despite the drought in that country, the business registered 41°A increase in ProfitBefore Tax and 22% increase in Pmfit After Tax. Great priority and significance Kill be directed towards extending our distribution network,market coverage and sales reach.Seed Co KenyaVolume of seed sold increased by 50% despite the erratic rains. The business continues to focus on improving sales performance andbroadening the geographic foowrint. Good progress is being made in advancing our interests in the Highland ecological regions where seedsales are high. Significant emphasis will be placed in pushing for release of highland varieties as well as widen our distribution network.Qubn Seed CompanyIn Zimbabwe, significant carryover inventories from prior year held by ginners affected demand which declined by 14%. New marketsparticularly Malawi, Tanzania and Mozambique continue to show a lot of promise. Acid delinting is now standard treatment for all Qutoncotton seeds. The process enhances seed quality given its favourable effect on germination combined with disinfection and disease controlproperties. We are positive that the adopted measures will distinctively position our brand and differentiate Quton seeds against the backof the gin" fuzzy seed which is of poor quality.Other marketsDemand of our seed varieties in the Common Customs Union markets of SouthAfrica, Swaziland, Lesotho and Botswana continue to grow.The performance is attributable to our innovative and oompelling marketing programmes. Our debut sales year in Ethiopia was a S U ~ S Sstory recording a sellout of local production. We continue to expand our footprint in the DRC, Angola and West Africa.
  10. 10. M C o MI ~ e p w2012 t SEEDACQ w The Afrlcan Seed CompanyRESEARCH AND DEVELOPMENTSuperior product performance is not by accident. This has been achieved through innovation and new product advancement coupled withstrong c o l l a h i i v e activities with vatious organisations. The adoption of improved breeding techniques continues to be a key focus areafor m a r c h . The Group is making impressive progress towards releasing more drought stress tolerant v a r i e t i ~ .In West Africa, the Group has already identified suitable varieties for multiplication with the first sale in this m r k e t expected in 2013.In East Africa, better performing highlands varieties are at advanced stages of release.Durlng the year, the Group released: 5 new maize varieties, 2 soya beans varieties, Iwheat variety. .,NEW BUSINESS DEVELOPMENTMarket development work in West Africa is mntinuing thmugh ~llaboration with regional research organizations like International Instituteof Tropical Agriculture (IITA), West Africa Centre for Crop Improvement (WACCI), West Africa Seed Alliance (WASA) and International CropsResearch Institute for the Semi-AridTropics (ICRISAT).We have opened up an office in Nigeria which at the present stage is conmntratlng on pushing for release of new improved varietiesOur short term target is to have a bag of seed on the Nigerian shelf in the 2013114 financial year.ERorts t grow the Ethiopian pmduction base are continuing and two additional varieties have been =leased for this market. oA number of our varieties have been entered for on farm trials in Southern Sudan in preparation of full release.We continue to monitor developments in Angola, DRC, Mozambique and some parts of West Africa were we are not intensely adve.The cation seed footprint continues to grow with the Malawian Strategic Businass Unit having been added on in current year. We continueto monitor developments in Uganda.PEOPLEIn full realization of the fact that the future of this business is going to be heavily influenoed by the quality of people we have, we continue toinvest in top notch human resourcs development and performance management.A new Business Development Executive was engaged to spearhead the Groups new markes expansion M i l e the Human Resourwsfunction was also elevated with a full Gmup Human Resouroe functionary appointed. In East Africa, a Managing Director for the whole regionwas also appointed.A number of our heeders are in the process of completing their Doctoral degrees.We are also in the process of recruiting breeders fromother parts oftfie world to bring dwerslty into our team.OUTLOOKThe business outlook is positive, buoyed by the optimum inventory posmon and improved selling prices across our product portfolio, growthin performance and profitability is expected in all markets. We are confident of our expansion drive and expect growth in the year 2012/13.W i the new politiml dispensation in Malawi, the country has all of a sudden again became the flavor of the times for the donor communityand the subsidy program is expected to continue end grow.Quton Tanzania vvill start contributing positively to group earnings while our efforts in Ethipia and West Africa are showing a lot of promise.East Africa is partiwlarly poised to grow with increased local production and enhanced distribution network.The cotton seed foot print is expected to grow into the future.The tax incentives in Zambia will mean that the marginal tax i-ate will be insignificant for the naxl flve years with all the earnlngs dropping tothe bottom Ilne.WEh all these positive developments. we are quite confident the Group will be able to achieve its aggressive growth targets going foward.ACKNOWLEDGEMENTI acknowledge the tremendous work ethics of Team Seed Co over the year that has just gone by, and my sincere appreciation goes to theSeed Co Board Chairman, Directors and staff for their unwavering support and dedication, whom 4hout, we would not have achieved oursumsss towards placing Seed Co in its righfful place as The African Seed Company.We Can.. . We Will..!!lm NZWEREGroup Chief becutbe
  11. 11. M e 0 Annd R q & 2012 SEED40 w Tho African SeeU tornpony Contrlbutlon to group revenue Conttibutbn to gmup revenue Contribution to gmup revenueMaize Varieties Maize V a r i e t i ~ CottonSC 403, SC 411, SC 513, SC 533,SC 627 SC 403, SC 513, SC 508, SC 621, SC 627 Alba SZ 9314,Alba Plus QM301SC 633, SC 637, S 709, SC 719,sc 727 c SC 637 SC 701,SC 709,SC 719,SC 727Soya Varieties Soya VarietiesSafari, Saga. Santana, Serenada, Squire Safari, S i r m , Soprano, Scone, Solitaire Score, Scribe, Edamame. SambaWheat Varieties Wheat VarietiesNduna, Shield, Shine. Sky, SmaE, Stallion Nduna, Shungu, Shine Malawi Kenya Tanzania Contribution to gmup revenue Contribution to group revenue Conidbutionin group m n u eMalze Varieties Maize Varletles Maize VarietiesSC 403, SC 533,SC 537,SC 627, SC 719 SC Duma 43, SC Punda milia 53, SC 403,SC 513, SC 627Soya Varieties SC Simba 61 Sorghum VariaWSirocco SC SdllaWheat VarietiesShield.Stallion, SahaiGroundnutsMwenje
  12. 12. Quton reve
  13. 13. Financial Uvervlew The Amcan Seed Company Group Finance DirectorOVER. . N,The Group revenue forthe full year of $118m was 20% above prior The sales volumes in metric tones by major product category showsyear while gross margins were 45% comparedto prior year margin that volumes have been on an upward trend over the last four years 3 sof 51%. Group ProfitAflerTaxforthe yearof $ 1 9 , t m w s 10%and and this growth is expected to continue.overheads were 5% above prior year. MaizeRwenue:Revenue increased by 20% on the back of an increase in salesvolumes by 22% to $7 240 mt as compared to lest year, Zimba- 40,OiM rbwe was particularly pleasing with total sales volumes growing by 35,000 -74% as the Gmup fought to increase market caverage taking intoaccount the abundant availability of inventories. In total, the 30,Om -Groups maize seed sales volumes went up 25% to 38 757 m . t 25,000 -The revenue contribution of the various markets as campared toprior year Is shown blow: 20,000 - 15,000 - 1,m 0o - b h n s & CCU 5,000 2009 lolo -201l 2D12 Over the four year period. maize sales volumes have almost doubled from 20 418 rnt in 2009 to 38 757 mt in 2012. 1- ..... Mi 10% Cotton seedFinancial Year Ending 31 March 2012 -Financial Year Ending 31 March 2011 The cotton sales volumes are expected to grow exponentially as new markets are being established.
  14. 14. Financial Wervlew The AMcan Seed Cernpany Earnings Before interest and Taxes Soya, wheat & other Group EBrr $ OOOs 2009 w10 2011 20x2 Earnings before Interest and tax have been growing steadily over the four year period.Margins ProM After TaxGroup margins eased off from 51% In @or yearto 45% In tRe cumnt year Group ProfitAfter Tax rose by 10% to $19,1 m compared to prior yaar.largely due to the over supply sltuatlon of seed In Zimbabwe which meant Earnings per share grew by 9% to 930 cents. Thls growth wasthe selllng war was fought over prices. Coupled wRh prevalllng liquidity despite the downturn in Malawi, the w d losses and reduction of elchallenges, all seed houses in Zimbabwe were sitting on an oversupply margins in Limbabwe as well as delayed rains in East Africa.situation m i n g from a very good prodlrction season in prior year andthewfore In d o r to remaln competitive as well as grow market share, wa Statement o Finanelal PasHion fadjusted our prices downwards. In Malswi the high ln?latlon levels that The Statement of Financial Position showed a 28% growth In totalpersisted owing to the ~mstable ewnbmk a h d o n also affected margins assets from t123m in prior year tn 8157m in current year. This hassignificantly. been driven by 39% growth in current assets as well as the groups continued investment in property, plant and equipment.Overheads Inventories went up due to maize seed production. The expectedOverheads went up 5% as compared to prior year. The Group hashowever continued to Invest in research and development. Thls Is shown maize production for h i s coming season has been rationalised toin the chart blow: wlnd d m the canyovw Inventorh. Trade receivables increased by 36% to $44m.Uqulditychallenges In Zimbabwe have slowed down payments by wstmrs with the bulk of the amounts being owed by the Government. The increase in seed production has caused our net bwrowings to Investmentin Research andDevelopment increase by 83% from $17,9m last year to $32,7mas at year end. T i position Is expected to unwind &is owning year with reduoed h s $0- seed pduction in Zimbabwe, Zambia and Malawi. A large portion of the sales in 2013 will be coming from inventories produced in prior year and currently on the Statement of Financial Podion hence the antldpated huge reduction In borrowings. Cash Flow Statement Net cash flows from operatingactlvltles $millions 15 10Over the four year period, the Groups investment in Research andDevelopment has grown exponentially reflecting intensified breedingefforts to come up with suitable products for various markets.Net Finance ChargesFinance charges increased from 2%of revenue to 3% mainly due tocarryover borrowings used to fund increased production. The borrowingrates have remained competitive for the Group compared to market rates.
  15. 15. . , ..t,:- ., .b.. * ,
  16. 16. Report of the Directors The Atrlcan Seed CampanyThe Directow submit their report to shareholdersforthe year ended 31 March 2012.SHARE CAPITALAuthorlsed :-The authvrised sham capital of the company increased from $210 OM) to USSSOO 000. The authorlsed share capltal Is made up of500 000 000 ordinary shares of $0,001 each.The issued and fully paid share wpital increased during We year as follows: No of sharesIssued and fully paid at 31 March 2011Issued during the year:Share option schemeIssued and fully paid at 31 March 2012At 31 March 2012,305 847 122 unissued shares were under the control of the directors of which 12 911 000 were committed to the shareoption scheme.At 31 March 2012 options for a total of 2 737 307 shares had not been exercised or forfeited.THE CONSOUDATED FINANCIAL STATEMENTSAND DIVIDENDAccounting PoliciesThe consolidated flnanclal statements have been prepared both in accordance with International Financial Reporting Standards (IFRS) and inm p l l a n c e with provisions of the Companies Act (Chapter 24:03) and the relevant regulationsthere-under.The Group Years ResultsThe annexed Financial Statements adequately ctisclose the results of the Groups operations during the year. They should be read inconjundton with the Chairmans statement and Chief Exeutlves revlew of opatfons, both of whkh base thdr comments on the historicalcost accounts.DivihndThe board is recommendinga dividend of 1.B4 US cents per share (2011:2.35 US cents).Capital ExpndltumGroup capital expenditure for the year to 31 March 2012 totalled US$B,801,838 (2011:US$t0,132,863). Capital expenditure for the year to 31March 2013 is planned at $7,555,372.DIRECTORATEThere were no changes to directors during the year.RISK MANAGEMENTThe Group takes a proactive approach to risk management. The Board is responsible for ensuring that risks and also opportunltles areidentifid on a Umely basis and that the Groups objectives are aligned with the risks and the opportunities identified.The following are major risks that we constantly manage that may materially affect our business, financial m d i t i o n or results of ouroperations:1, Financial &ksThe main risks arising from the GroupS use of financial instruments like bank loans, cash and short term deposits mlate to cash flowsinterest, liquidity, foreign wrrency and wedif risks. The Board reviews and agrees policies for managing each of these risks and these havebeen ewlained in more detail in note 24 of this annual report.2. Adverse w e a t b r condMona including climate changeAdverse weather coditlons affect the avaflability, quality and price of agricultural oommodities. Inputs like feNlizer and chemicals a M thecost of seed production. Where these inputs are not available. this affects the yields and ultimately the unit cost of seed.Climate change effects are uncertain and in our markets, this is bringing changing weather pattens and temperatures. We are already at anadvanced stage In breeding shorter season varleUes.3. Fluctuations in agricultural commodity pricesPrices for mast agricultural commodities like soya beans, wheat cotton, fertilizers are volatile and are sensitive to international changes insupply and demand caused by factors outside our conbol. Such volatility affects the volumes of seed uptake by farmers and thus Muse volatilityIn our operating results.
  17. 17. Report of the Directors The African Seed Company 4. Economic and poiWcai lnstabtitty and other rlrks of doing business tn African Markets We are an international business wtth substantial m a t s located In various African countries. One of our key strategies have been to diversify the country risks as much as we can as we expand into Africa. Due to the international nature of our business, we are exposed to currency exchange rate fluctuations. Any policy changes that affect economic and political landscape in these countries that we operate in affect our operations. the 5, Increasing competition We face significant competition in each of our businesses and seed industry is quite profitable. Our products are quite competitive and do betterthan the competition and we continue to exoel in breeding in order to stay ahead of the game. We continue to improve our efficiencies in both production and processing of seed as well as strengthening the distribution network and ensure that every participant In our value chain makes money. 6. Exposureto credit and counter party risks The Group is exposed to credit and counterparty risk relating to our customers in the ordinary course of business. Such customers include Governments of various countries we operate in. We have various credit t e r n with custoomers which have varying degrees of credilworthiness which exposes us to the risk of non payment. In the event that the customers experience significant defaults on their payment commitment to us, our financial condition, results of operations or cash flows could be materially and adversely affected. DIRECTORS INTERESTS At 31 March 2012, tfie directors held beneficial interests in 675 589 (2011 -675 589) shares in the m p a n y as disclosed In note 76.4 to the finandal statements. DlRECTORS FEES Members will be asked to approve the payment of directors fees amounting to $189,715 in respect of the year ended 31 March 2012 (31 March 2011 $199,388). AUDrrORS Members will be a s k 4 to re-appoint Emst 8 Young as Auditors of the company for the ensuing year. For and on behalf of the directors J MATOROFA COMPANY SECRETARY 24 May 2012
  18. 18. Corporate Governance Tks A M t m S a d Company The directors of Seed Go Ltd are committedto the principles of good Comprehensive management reports, including the annual budget corporate governance. The Board is responsibleto the shareholders are presented to the Board regularly. Performance is reviewed for the performance of the Group, its strategy, values and againstthe budget and revisedforecasts. governance. The Board is also committedto acting with ulmostgwd faith in itsdealings with all stakeholders. The wrnpany has adopted a AUDIT COMMITTEE Corporate Governance Manual that sets out in detail, the basic corporate governance principles thatwill be pursued by Seed Co Ltd. The Board delegates certain of its responsibilities to the Audit In addition, all Senior employees of the Group are required to agree Committee, which is mmpwed ofthree non-executivedirectors. The to andsign theGroupsConflictof interest plicy. Audit Committee liaises with the companys external auditors on amunting, internal control and financial reporting matters. The Groups financial statements, including certain disclosures are DIRECTORS reviewedby the Audit Cornmlttee priorto theiradoption by the Board The Board iscomposedof elevendirectors,the rnajorilyof whomare and publication. non-executive. The Chairman of the Board is a Non-Executive Director. Board meetings are held at least quarterly to monitor the The Committee reviews the effectiveness of internalcontrol systems performance of executive management and deliberate on issue.. of and rlsk management processes within the Group and has set up an company strategy and policy. The Board is responsible for the internal audit unit to ensure compliance with rules, regulations and selection and appointment of the Chairman, Directors and the Chief policies. Executive and their remuneration. ,>.. .. , ..-.. , . . Number of Meetings Mended REMUNERATION COMMillEE Group Audit The Board has a remunerationCommittee comprising of three non- Board Committee executivm directors. The Committee meets when required and sets Mr M ~ z w e r e " ( ~ ~ 0 ) 414 314 the remuneration of executive Directors and senior management, Mr F FWodzi (Chairman) 414 includingthegranting of share options. Mr J P Rooney 314 314 Mr D Long 414 414 Dr C Utete 314 NOMINATIBN C D M M W Mr B Mudzirnuirema 314 The Nominations Cornrnitte is made up of a Non-Executive Chairman Mr P St L Devenish 314 and two Non-Executive Directors. It assists with the identification and Mr J Matorofa * 414 recommendation of potential Directols to the Board. Dr D Came 4/4 Mr M.S. Ndoro 314 Mr C Kabaghe 414 ENVIRONMENT * - Executive Seed Co LM believesthat the protectionof the environment is critical to the long-term sustainable future of the region and its people. The FINANCIAL STATEMENTS AND MANAGEMENT REPORTIMO company is committed to acting responsibly in respect of hwlth, The Board is responsible for the preparation of the financial safety and environmental issues. statements and other information presented in the annual report in a balancsd and understandable form, The Board is also responsible for ensuringthat the Groupsacmunting policiesareappropriateand adhereto accounting standardsand that supportingjudgements and estimates madeare reasonable and prudent.
  19. 19. 8eed Go Annual Rqmt 2012Directors Approval of Group Financial Statements Rerponribility The directors of the company are responsible for the preparation and integrity of the annual financial statements and related informat ion contained in this report. The Group and the Company financial statements are required by law and International Financial Reporting Standards (IF RS] t o present fairly the financial position of the Croup and the parent company and the performance for that period. The directors are responsible for keeping proper accounting records that discbse with reasonable accuracy at any time the financial position of the Group and enable them t o ensure that its financial statements comply with the Companies Act. They have general responsibility for taking such steps as are reasonably open t o them t o safeguard the assets of the Group and t o prevent and detect fraud and other irregularities. Compllaner with Conprnies Act [Cbptor 2493)aid Statutory I n r t r u m n t r ($1 W 9and $1 62fB] 9 These finandalstatements which have been prepared undcrthe historial cost cotwention are in agreement with the underlying books and records and have been properly prepared in accordance with the accounting policies set out in note 2 of the financial statements, and comply with the disclosure requirements of the Companies Act (Chapter 24031 and the relevant regulations made there under. Compllana with lFRSs The financialstaternents comply with the requirements of IFRS. Cdngcarstern The Directors have assessed the ability of the Group t o continue operating as a going concern and believe that the preparation of these financial statements on a going concern basis is still appropriate. Significant assumptlaw andestimskianurmrtalntiesrelating toassets and LlaMlities tarried a t falr value The significant assumptions and the estimation uncertainties pertaining t o items that are cam*ed a t fair va lue have been disclosed in note 2 t o these financialstaternents. These financial statements have been approved by the Board of directors and are signed on its behalf by:- 24 May 2012 24 May 2012
  20. 20. Chartered Accountants (Zimbabwe) Pn?,"IEXIYerere way Kwame Nkrumah Avenue P.0 Box 62 or 702 Harare Tel: *263 4 750905 / 750979 Fax: +263 4 750905 1 773842 E-mail: admin@zw.ey.comIndependentAuditorseReport To The Shareholders Of Seed Co LimitedReport on the financial statementsWe have audited the accompanying group and company financial statements of Seed Co Limited, which comprise theconsolidated and company statements of financial position as at 31 March 2012, and consolidated and company incomestatements, and the consolidatedand company statements of comprehensive income. the consolidated and company statementsof changes in equity and statements of cash flows for the year then ended, and a summary of significant accounting policies and~ t h eexplanatory information as set out on pages 22 to 51. rDirectors responsibility for the financial statementsThe groups directors are responsible for the preparation and fair presentation of these financial statements in accordance withlnternationalFinancialReportingStandards (IFRS} and in the manner required by the Companies Act (Chapter 24:03).This respon-sibility also includes: designing, implementing and maintaining internal controls retevant to the preparation and fair presentationof financial statements that are free from material misstatement, whether due to fraud or error; selecting and applyingappropri-ate accounting policies; and making accounting estimates that are reasonable in the circumstances.Auditors responsibilityOur responsibilityi s to express an opinion on these consolidatedfinancial statements based on our audit.We conducted our auditin accordance with lnternational Standards on Auditing.Those standards require that we comply with ethical requirements andplan and perform the audit to obtain reasonable assurance about whether the consolidatd financial statements are free frommaterial misstatement.An audit involves performing proceduresto obtain audit evidence about the amounts and disclosures in the financial statements.The procedures selected depend on the auditors judgment. includingthe assessment of the flsks of material misstatement of thefinancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal controlsrelevant to the entitys preparation and fair presentation of the financial statementr in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entitys internalcontrols. An audit also includes evaluating the appropriateness d accounting policies used and the reasonableness of accountingestimates made by the directors, as well as evaluating the overall presentation of the financial statements.We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.OpinionIn our opinion, the group and company financial statements present fairly, in all material respects, the financial positionof Seed to Limited as at 31 March 2012, and its financial performance and its cash flows for the year then ended in accordancewith lnternationalFinancial Reporting Standards.Report on other legal and regulzltory requirementsIn our opinion, the group and company financial statements have, in all material respects, been properly prepared in compliancewith the disclosure requirements d the Companies Act (Chapter 2403)and the relwant Statutory Instruments.ERNST &YOUNGCHARTERED ACCOUNTANTS (ZIMBABWE)REGISTERED PUBLICAUDITORSHarare27 June 2012
  21. 21. AmUaIRspolt m12Consolidated and Company Income Statement SEED. W w The African Smed Company FOR THE YEAR ENDED 31 MARCH 2012 GROUP COMPANY 2012 2011 2012 2011 Note US$ US$ US$ us$ Revenue Cost of sales Gross profit Other income Operating expenses Selling and distribution expenses Admlnlsb-atrveexpenses Research expenses Finance income Finance CDBf Profit before tax Inmme tax expense Profit for the year Atlributabla to: Equity holders of the parent Non-controllinginterest Profit attributable to ahareholders Earnings per share Basic, profit for the year attributable to ordinary - equity holders of the parent cents Dlluted, profit for the year altrlbutable to ordlnary - equity holders of the parent cents CONSOLIDATED AND COMPANY STATEMENT OF COMPREHENSIVE INCOME FORTHE YEAR ENDED 31 MARCH 2012 GROUP COMPANY 2011 2012 2011 US$ USS US6 Profit for the year M h r r comprehensive lnmme Exchange differences on translation of foreign operations Income tax effect Impairment of property, plant and equipment l ncome tax effect M h r r eomprahenshre loss for the year, net of tax Total comprehensive income for the year Atributabls to: Equity holders o the parent f Non-wnb-olling interm
  22. 22. Consolidated Statements of Financial Position The AMcan Saed Company AS AT 31 MARCH 2012 Group Company 2012 2011 2012 2011 US$ US$ US$ US$ ASSETS Non-current aaretr Properly, plant and equipment Investment property Deferred tax asset Investmentsin subsidiaries Goodwill Financial assets held to maturity Current assets Financial assets at fair value l nventories Amounts owed by gmup companies Biological a m t s Trade and other receivables Cash and cash equivalents Totsl assets EQUITYAND LlABlLlTlES Equity Share capital Changas in cwership reserve Nondistributable reserves Retained earningd(loss) Equity attributable to equity holdem of the parent Nonantrolling interest Total equity Non-current liabilities Deferred tax liability Finance lease liability Current liabilities Bank bormwings Trade and other p q a b l w Provisions Finance lease liability Current tax payable Short term loans Total liabilities Totsl equity and liabilities 24 May 2012 24 May 2012
  23. 23. M C o Amual Report 2072Consolidated Statement of Cash Flows SEEDGO w FOR THE YEAR ENDED 31 MARCH 2012 Group 2012 2011 Note US$ US$ Operating activities I Profit before tax 23,456,252 Non-cash adjustment to reconcile profit before tax to net cash flows. Depreciation Share based payments expense Profit on disposal of property plant and equipment Allowances for credit losses Unrealised exchange losses Fair value adjustment of investments Fair value adjustment of investment property Finance income Finance cost Net cash flows before working capital changes Working capital adjustments: Increase in inventories Increase in trade and other receivables Decrease1(increase) in seed grower advances Decreasd (increase) in prepayments Increase in trade and other payables Cash generated from operations Income tax paid Net cash flows from! (used in) operating activities Investing activities Proceeds from sale of property, plant and equipment Purchase of investment property Purchase of property, plant and equipment Purchase of other non-current financial assets (Increase)l decrease in biological assets Sale of other non-current financial assets Interest received Net cash flows used in investing activities Financing activities Dividend paid Proceeds from issue of share capital Short term loan paid Short term loan received Finance lease liabilities repaid Interest paid Acquisition of minority interest Net cash flaws used in financing activities Net decrease in cash and cash equivalents Effects of exchange rate changes Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year For the company, the cash flow movement mainly relates to the payment of dividends of $4,637,746 (2011: $2,672,5691, as a result no statement of cash flows has been presented.
  24. 24. CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 MARCH 2012 Attributable to owners o the parent f Share Nondiatrlbutable Retalned Changes of ownership Non-contmlllng Total capital ms~wes earnings Resalve Total Internat equity (note 161 (note 17) U S US$ US$ US$ US$ usAs at 31 March 2010Pmfit for the yearOther comprehensive IbssTotal comprehensive i n m eDlvldendsRedenomination of sham capitalShare options exercisedDepreciation transfer for property. plant and equipmentReclasslflcatlonof NDR to retaln6d earnlngsShare basad paymentsAcquisition of additional interest in subdiaryAa at 31 March 2011Profit for the yearOther comprehensive lassTotal comprehensive incomeDlvldendsRealisation of m l u a t i o n resewShare options exercisedDepreciation transfer for property. plant and equipmentShare based paymentsChange o m e r s h i p fAs at 31 March 2012Changes In wmership m w e is uwd to rewgnise the difference between fair value of additional interests acquimd and U awnslderatlon paid. ?Cmpany Statements Of C hanges In EquityFor the p a r ended 31 March M I 2 Sham Nondlstributable Retained capital WBNeS earnings Total (nots 16) (note 17) US$ usl US$ US$As at 31 March 2010Profit for the yearTotal m p r e h e n s k incomeRedenomination of share capitaRealisation of reraluation reserveDividendsIssue dsham capitalShare based paymentsAs at 31 March 2011Profit for the parlo6Total mprehensive incomeDividendsShare based paymentIssue of share capltalAs at 31 March 2012
  25. 25. SesdCo ml 2012 Notes to the Financial Statements SEEDAco w Tho Afrlcan Wad Camparry 1 Cotparate InformatIan . Seed Co Llmited is a company whlch is Incorporated and domiciled In Zimbabwe and is llsted on the Zimbabwe Stock exchange, acts as a holding company for a group of companies domiciled in Botswana, Kenya, Malawi, Tanzania, Zambia and Zimbabwe whose principal activities are the processing of agricultural seed on a commercial basis. The consolidated financial statements of Seed Co Limited for the year ended 31 March 2012 were authorised for issue in accordance with a resolution of the directors on 24 May 2012. 2. Accounting policies The financial statements are based on the statutory records that are maintained on the historical cost convention, except for property, plant and equipment and financial assets at fair value through profit and loss which are measured at fair value.2.1. W i s of preparation The consolidated financial statements have been prepared in conformity with International Financial Reporting Standards (IFRS), promulgated by the InternationalAccounting Standards Board (IASB). Basis of consolidation The consolidated financial statements comprise the financial statements of Seed Co Limited and its subsidiaries as at 31 March 2012. Subsidiaries are fully consolidated from date of acquisition, being the date that the Group obtains oontml and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-gmuptransactions and dividends are eliminated in full. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. Losses are attributable to nan-controllingintersst even if that results in a deficit8 balance. If the Group losses control over a subsidiary, it: Derecugnises the assets (including goodwill) and liabilities of the subsidiary Dereccgnises the carrying amount of any non-controlling interest Derecognises the cumulative translation differences, recorded in equity R-nises the fair value of the consideration received Recognises the fair value of the investment retained Recognises any surplus or deficit in profit or loss Reclassifiesthe parents share of components previously recognised in other comprehensive income to profit or loss 2.2 Changes In Accounting pollciss and dlsctosuras The accounting policies adopted are consistent with those of the previous financial year. Amendments resulting from Improvements t IFRSs to the fallewing standards did not have any impact an the accounting policies, financial o position or performance of the Group: IFRS 1 First-time Adoption transitional provisions of IFRS 7 disclosures (Amendment) - 1 July 2010 IAS 24 Related party disclosures (Amendment} - 1 January 2011 IAS 32 Financial Instruments: Presentation- Classificatian of Rights Issues (Amendment) - 1 February 2010 IFRlC 19 Extinguishing Financial Liabilities with Equity Instruments - 1 July 2010 IFRlC 14 Prepayments of a minimum funding requirement (Amendment) Improvements to IFRSs (issued in May 2010) The edoptlon of the standards or interpretations is described below: IAS 24 Related Party Disclosures (Amendment) The amended standard is effective for annual periods beginning on or after 1 January 2012. It clarified and dmplifies the definition of a related party to slrnpllfy the identification d such relationships end to eliminate inconsistencies in its application. The wvlsed standard introduces a partial exempbon of disclosure requirements for government related enttbles. The Group does not expect any impact o its financial positlon o n r perfmance.
  26. 26. Seedh AmualR%polt 2012 Notes to the Financial Statements cont... SEED. w w The Afrlean Saad bmpany IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments IFRlC 19 is effective for annual pericds beginning on or ailer 1 July 2010. The interpretation clarifiesthe amunting by an entitywhen the terms of a financial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the financial liability (debt for equity swap). The interpretation clarifies that equity instruments issued to a creditor to extinguish a financial liability qualify as consideration paid. The equity instruments issued are measured at their fair value. In case that this cannot be wliably measured, the instruments are measured at the fair value d t h e liability extinguished. Any gain or loss is recognised immediately in profit o loss. The adoption r of this interpretation will have no effect on the financial position or performance of the Group. IFRlC 14 Prepayments of a mldmlrm firndlng requimmnt (Amendment) The amendment to IFRIC 14 is effective forannual periods beginning on or afler 1 January 2011 with retrospectiveapplication. The amendment corrects an unintended consequence of IFRlC 14, IAS 19 -The limit on a defined benefit asset, minimum funding requirements and their interaction. Without the amendments, entities are not permitted to recognise as an asset some voluntary prepayments for minimum funding contributions. The amendment provides guidanu?on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement 8s an asset. The amendment is deemed to have no impact on the financial statements of the Group. Improvements issued in May 2010 IFRS 3 Business Combinations (effective from 1 July 2010): Transition requirementsfor contingent wnsideration from a business combination that occurred before the effective date of the revised IFRS. -The amendment clarifies that the amendments to IFRS 7 Financial Instruments: Disclosures, IAS 32 Financial Instruments: Presentationand IAS 39 Financial Instruments: Recognition and Measurement, that eliminate the exemption for contingent consideration, do not apply to contingent consideration that arose from business combinations whose acquisition dates precede the application of IFRS 3 (as revised in 2008). The amendment is applied retrospectively. Measurement of non-controlling interests (NCI) - The amendment limits the scope of the measurement choices only to the components of NCI that are present ownership interests which entitle their holders to a proportionate share of the entitys net assets, in the event of liquidation. Other components of NCI are rneasurd at their acquisition date fair value, unless another measurement basis is required by another IFRS. Un-replaced and voluntarily replaced share-based payment awards - The amendment requires an entity (in a business combinatton) to account for the replacement of the acquirees share-based payment tran~ctions (whether by obligation or voluntarily), i.e., split between consideration and post-combination expenses. However, if the entity replaces the acquirees awards that expire as a consequence of the business combination, these are recognised as post-combinationexpenses. IFRS 7 Financial Instruments - Disclosures: The amendment was intended to simplify the disclosures provided by reducing the volume of disclosures around collateral held and improving dis~losures requiring qualitative information to put the quantitative information in context. by The Group reflects the revised disclosure requirements in the notes. IAS 1 Presentation of Financial Statements: The amendment clarifies that an entity will present an analysis of other COmprehens~e income for each component of equity, either in the statement of changes in equity or in the notes to the financial statements. The amendment is applied rekospectively.2.3 Standards and Interpmtatlons In Issue not yet efFectlve. Standards issued but not yet effective up to the date of issuancedthe Groups financial statements are listed below. This listing is of standards and interpretations issued, which the Group reasonably expects to be applicable at a future date. The Group intends to adopt hose standards when they become effective. The Group expects that adoption of these standards, amendments and interpretations in most cases not to have any significant impact on the Groups financial position or performane in the period of inma1 applimtion but additional disclosures will be required. In cases where it dl have an impact the Group is still assessing the possible impact. l IAS 1 Financial statement presentation (Amendmeno - Presentation of items of Other Comprehensive Income The amendment is effective for annual periods beginning on or after 1 January 2012 and requires that items of other comprehensive income be grouped in Items that would be reclassified to profit or loss at a future point and items that will never be reclassified. This amendment only effects the presentation in the financial statements. IAS 12 Income taxes (Amendment) The amendment is effective for annual periods beginning on or after 1 January 2012 and introduces a rebuttable presumption that deferred tax on investment properties measured at fair value will be recognised on a sale basis, unless an entity has a business &el that would indicate the investment property will be consumed in the business. If consumed a use basis should be adopted. IAS 19 Posf emplope h e f i t s (Amendment) The amendments are effective for annual periods beginning on or afler 1 January 2013. There are changes to post employee benefits in that pension surpluses and deficits are to be recognised in full (no more deferral mechanisms) and all actuarial gains and losses recognised in other oomprehensive income as they occurwith no recycling to profit or loss. Past service costs as a result of plan amendments are to be m n i z e d immediately. Short and long-term benefts will now be distinguished based on the expected timing of settlement, rather than employe entitlement. IAS 27 Separate Financial Sfetements (as revieed in 2011) As a consequence of the new IFRS 10 and IFRS 12, what remains of IAS 27 is limited to amounting for subsidiaries,jointly controlled entities, and associates in separate financial statements. The Group does not p r e n t separate financial statements. The amendment becomes effective for annual periods beginning on or after 1 January 2013.
  27. 27. Notes to the Financial Statements ant... The Afrlcan S w d Company IAS 28 Investments in Associates and Joint Ventures (as revised in 2011) As a consequence of the new ARS 11 and IFRS 12. IAS 28 has been renamed IAS 28 Investments in Associates and Joint Ventures, and describes the application of the equity method to invesiments in joint ventures in addition to associates. The amendment becomes effectivefor annual periods beginning on or afler 1 January 2013. IFRS 7 Financial Instruments: Disclosums -Transfer of financial assets (Amendment) The amendment is effective for annual periods beglnnjng on or M e r 1 duly 2011. The amendment requires addttional quantitative and q ~ l i t a - the disclosures relating to transfers of financial assets, where: Financial assets are deremgnised in their entirely, but where the enbty has a continuing involvement in them (e.g., options or guarantees on the transferred assets) - Financial assets are not derecognised in their entirety The amendments may be applied earlier than the effective dab and this fact must be disclosed. Comparative disclosures are not required for any period beginning before the effectlve date. IFRS 9 Financial hskuments: Classifi~tlan Measurement and IFRS 9 as issued reflects the first phase of the IASBs work on the repla-ment of IAS 39 and applies to classification and measurement of financial assets and liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subse- quent phases, the Board will address impairment and hedge accounting. The completion of this project is expected during 2012. The adoption of the first phase of IFRS 9 will primarily have an effect on the classification and measurement of the Groups financial assets butwill potentially have no impact on classmcation and measurements of financial liabilities. The Gmup is currently assessing the impact of adopting IFRS 9, however, the impact of adoption depends on the assets held by the Group at the date of adomon, it is not practical to quantify the effect. IFRS $0Consolidated Financial Statements; IFRS 11 Jolnl Arrangalwnts; IFRS 22 Disclosum d Interest In OWler Ewities. IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for cunsolidated financial statements. It also includes the issues raised in SIC 12 Consolidation - Special Purpose Entities. IFRS 10 establishes a single control model with a new definition of conlrol that applies to all entities. The changes will require management to make significant judgement to determine which entities are controlled and therefore required to be consolidated by the parent. Therefore, IFRS 10 may change which entities are within a Group. IFRS 11 replaces IAS 31 Interest in Joint Ventures and SIC 13 Jointly Controlled Entities - Non-monetarj Contributions by Ventures. IFRS 11 uses some of the terms that were used in IAS 31 but with different meanings which may create some confusion as to whether there are signifi- cant changes. IFRS 11 focuses on the nature of the rights and obligations arising from the arrangement compared to the legal form in IAS 31. IFRS 11 uses the principle of control in IFRS 10 to determine joint control which may change whether joint oontrol exists. IFRS 11 addresses only two form$ of joint 8mngements; joint operations where the entity tecognises its assets, liabilities, revenues and expenses andlor it$ relative share of those items and joint ventures which is accounted for on the equity method (no more proportional consolidation). IFRS 12 includes all the disclosures thatwere previously required relating to an entitys interests in subsidiaries, joint arrangements, associates and structured entities as well as a number of new disclosures.An entity is now required to disclose the judgements made to determine whether it controls another entity. The Group All need to consider the new definition of control to determine which entities are conlrolled or jointly controlled and then to account for them under the new standards. IFRS 10, I 1 and 12 will be effective for the Group 1 July 2013. IfRS 13 Fdlr Value Measurement IFRS 13 establishes a single framework for all fair value measurement (financial and non-financial assets and liabilities) when fair value is required or permitted by IFRS. IFRS 13 does not change when an entity is required to use fair ~ l u but rather describes how to measure fair e value under IFRS when it is p e m i t t d or required by IFRS. There are also consequential amendments to other standards to delete specific requirements for determining fair value. The Group will need to consider the new requirements to determine fair values going forward. IFRS 13 will be effective fot the Gmup on IJuly 2013. IFRlC 20, Stripping Costs in the Production Phase of a Surface Mine This new interpretation provides guidanoe on how to account for stripping cost in the development phase of a sutface mine and requires such costs to be capitalised as part of an asset (the stripping activity ass&) if certain criterla are met. The stripping activity asset is to be depreciated on a unit of production basis uflless another method is mote appropriate. IFRlC 20 All be effective for the Gmup 1 January 2043.2.4 Significant rccountlng judgments, estimates and assumptions The prepamtion of financial statements requires management to make judgments, estimates and assumptions that affect the applicahn of the accounting policies and the reported amounts, assets, Ilabilities, income and expenses. However, uncertainty about these assumptions and estimates could results In oummes that require a rnaterlal adjustment to the canying amount of the asset or liability affected in future periods. In the process of applying the Groups accounting policies, management has made the following judgment, which have the mast significant effect on the amounts recognised in the consolidated financial sta€ements: Operating Isase crrmmitments - group as lessor The Group has entered into commercial property leases on its Investment property portfolio. The Group has determined, based on an evalua- tion of the terms and conditions of the arrangements, that it retains all the significant risks and rewards of ownership of these properties and accounts for the omtracts as operating leases.
  28. 28. Notes to the Financial Statements cont... The African Seed Company Estimates and assumptions The key assumptions concerning the future and other key resources of estimation uncertainty at the statement of financial position date. that have a significant risk of causing a material adjusbnent to the carrying amounts of assets and liabilities within the next financial year are discussed blow:1 Useful llves and resldual values of property, plant and equipment. The Group assesses useful lkes and reslduel values of property, plant and equipment each year taking Into wnsldemtion past experience, technology changes and the local operating environment. No ahanges to the useful lives have been considered necessary during the year. Residual values will be assessed each year and adjustments for depreciation will be done in future perids if there is indicationof impairment in Revatuation of property, plant and equipment and Investment property In assessing the carrying amounts of property, plant and equipment management has mnstdered the condition of the assets and their life span on an item by item basis in determining hi?market values. The following methods and assumptions were adopted by the professional valuer: Land: Active market by reference to recent property transactions of slmllar properties, mmplemented by periodic property valuations done by Local Authorities for rating purposes. m i c e space and industrial: a level of subjectiwty has been applied in determining market values owing to a lack of market evidence arising from a relative1y inactive market. Plant and equipment: by reference to obsewable prices In acNve markets or recent market Waansactions on arms length terms. In the absence of market based evidence of fair value m u s e of spscialised nature of an item, lack of recent transaclions, item rarely sold or inactive market, a fair value was estimated using depreciated replaoement cost approach. Investment property: The Group measures investment property at fair value with changes in fair value being recognised in the i n m e sfatement. The Groups directors, with guidance from independent professional valuers, determined fair value as 8t 31 March 2012, with reference to market tranaction prices of similar propemes, adjusted for any differences in location and condition.Ill.Allowanma for crsdlt losses Allowances for credit losses are a specific provision which is review4 on a monthly basis.Iv. Share based payments The Gmup measures the cost of equity-settled transactions wt employees by references to the fair value of equ~ty ih instruments at the date at which they are granted. Estimating fair value for share-based payment transactions requires determining the most appropriate inputs to the valuation model, which is dependent on the terms and conditionsd the grant. This estimate also requires determining the most appropriate inputs to the vsluatian model includ- ing the expected Ilfe of the share option, volatility and dividend yield and making assumptions about them. The value of the share options granted is determined using the Black Scholes model.v Taxer . Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax Income and expense already recorded. The Group establishes provisions, based on reasonableestimates, for possible consequencesof audits by the tax authori- ties of the respective wuntries in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group companys domicile. As the Group assesses the probability for litigation and subsequent cash oulflow with respect to taxes as remote, no contingent liability has been rewgnised. Deferred tax assets are reccgnised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be remgnised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies.
  29. 29. 8eedCo ArxwJalF4€pM2012 Notes to the Financial Statements cont... SEEDGO u t h r African 8 n d Companyvi. Fair value of financiab instruments When the fair value of financial assets and financial liabilities recorded in the statement of financial position cannot be derived from active markets, their fair mlue is determined using valuation techniques including the discounted cash flow model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. The judgements include consider- ations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments.2.5 Summary of Significant Accounting Policies Buslness Comblnatlons and Goodwllla) Business wmblnation Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date, fair value and the amount of any non-controlling interest in the acquiree. For each business combination, the acquirer measures the non-controlling interest in the acquiree either at fair wlue or at the proportionate share of the acquirees identifi- able net assets. Acquisition costs incurred are expensed. When the Group acquires a business it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisitions date. This includes the separation of embedded derivatives in host contracts by the acquiree. If the business combination is achieved in stages, the acquisition date fair value of the Groups previously held equity interest in the acquiree is remea- sured to fair value as at acquisition date through profit and loss. Any contingent consideration to be transferred by the Group will be recclgnised at the fair value at the acquisition date. Subsequent changes to the fair mlue of the contingent consideration which is deemed to be an asset or liability will be reoognised in accordance with IAS 39 either in the profit or loss or as change to other comprehensive inoorne. If the contingent consideration is classified as equity, it shall not be remeasured until it is finally settled within equity. Goodwill is initially measured at cost, being the excess o the consideration transferred and the amount recognised for non-controlling interest over the f Groups net identifiable assets acquired and liabilities assumed. If this consideration is lowerthan fair value of the net assets of the subsidiary acquired, the difference is rewgnised in profk or loss. After initial recognition, goodwill is measured at mst less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allomted to each of the Groups cash generating units that are expected to benefit from the combi- nation, irrespective of whether other assets or liabilities of the acquire are assigned to those units. Where goodwill forms part of the cash-generating unit and part of the operation within the unit is disposed of, the goodvvill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in b) Foreign currency translation The consolidated financial statements are presented in United States Dollars which is also the parent companyk presentation currency. Eacfi entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using the functional currency. The Group has elected to recycle the gain or loss that arises from the direct method of consolidation, w h i h is the method the Group uses to complete its consolidation. i. Transactions and balances Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate of exchange ruling at the reporting date. All differencesare taken to the income statement with the exception of all monetary items that provide an effective hedge for a net Investment in a foreign operation. These are r e w g n i d in other comprehensive income until the dispogal of the net investment, at which they are recognised in the income statement. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in other comprehensive inmme. Non-monetaryitems that are measured in terms of historical oast in a foreign currency are translated using the exchange rates as at the dates of the initlal transactions. Non-monetary items measured at fair value in a forelgn currency are translated using the exchange rates at the date when the fair value Is determined. The gain o loss arising on retranslation of non-monetary items is treated in line with the recognition of gain or loss on change in fair value of r the item (i.e., translation dibrences on items M o s s fair value gain or loss is recognked in other comprehensiveincome or profit or loss is also recognised in other comprehensive income orprofit or loss, respecfively). Priorto 1 January 2005 the Group treated goodw(ll and any fair value adjustments to the carrying amounts to assets and liabilities arising on the acquisi- C[on, as assets and liatdities of the parent. Therefore, those assets and liabil* are already expressed in the reporting currency or non-monetary items and hence no further translation differenoes occur. il.Group Companies The assets and liabilities of foreign operations are translated to US$ at exchange rates prevailing at the reporting date and their income statements are translated at the exchange rates prevailing at the date of the transactions. The exchange differences arising an the translation are recognised in other comprehensive income. On disposal of a foreign operation, the component of other comprehensive income relating to that patbicular foreign operation is recognised in the income statement. Any goodwill arising on the acquisition of a foreign operation subsequent to 1 January 2005 and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at closing rate.