ChemSpec Ltd FY 2012 results

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ChemSpec Ltd FY 2012 results

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ChemSpec Ltd FY 2012 results

  1. 1. |new company new promise annual financial statements
  2. 2. ChemSpec annual financial statements 2012B Directors’ responsibility statement 01 Preparer of financial statements 01 Certificate by the company secretary 01 Independent auditor’s report 02 Directors’ report 03 Statements of financial position 05 Statements of financial performance 06 Statements of comprehensive income 06 Statements of cash flows 07 Statements of changes in equity 08 Accounting policies 10 Notes to the annual financial statements 25 General information 66 Index Chemical Specialities Limited (Formerly RZT Zelpy 4547 and then Chemical Specialities (Pty) Limited) (Registration number 2005/039947/06) (the “company”, the “group” or “ChemSpec”) Annual financial statements for the year ended 31 March 2012 Index
  3. 3. ChemSpec annual financial statements 201201 Directors’ responsibility statement The directors are responsible for the preparation and fair presentation of the consolidated annual financial statements and separate annual financial statements of Chemical Specialities Limited, comprising the statements of financial position at 31 March 2012, the statements of financial performance, the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes and the directors’ report, in accordance with International Financial Reporting Standards, the AC 500 standards issued by the Accounting Practices Board, the Listings Requirements of the JSE Limited and in the manner required by the South African Companies Act, 2008. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management as well as the preparation of the supplementary schedules included in these financial statements. The directors have made an assessment of the ability of the company and its subsidiaries to continue as going concerns and have no reason to believe that the businesses will not be going concerns in the year ahead. The auditor is responsible for reporting on whether the consolidated annual financial statements and separate annual financial statements are fairly presented in accordance with the applicable financial reporting framework. Approval of consolidated annual financial statements and separate annual financial statements The consolidated annual financial statements and separate annual financial statements of Chemical Specialities Limited, as identified in the first paragraph, were approved by the board of directors on 4 June 2012 and signed on its behalf by: IAJ Clark BR Mackinnon Chairman Chief executive officer 4 June 2012 Certificate by the company secretary Preparer of financial statements These consolidated annual financial statements and separate annual financial statements have been prepared under the supervision of Mr JG Maehler CA (SA). JG Maehler Financial Director 4 June 2012 This serves to confirm that in terms of section 88 (2)(e) of the Companies Act 71 of 2008, as amended (the Act), I hereby certify that the company has filed the required returns and notices in terms of the Act for the financial year ended 31 March 2012 and that, to the best of my knowledge and belief, all such returns and notices are true, correct and up to date. Statucor (Pty) Limited Company Secretary 4 June 2012
  4. 4. ChemSpec annual financial statements 201202 Independent auditor’s report To the shareholders of Chemical Specialities Limited Report on the financial statements We have audited the consolidated and separate annual financial statements of Chemical Specialities Limited, which comprise the statements of financial position at 31 March 2012, and the statements of comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements which include a summary of significant accounting policies and other explanatory notes, and the directors’ report, as set out on pages 3 to 65. Directors’ responsibility for the financial statements The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, 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. Opinion In our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Chemical Specialities Limited at 31 March 2012, and its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act of South Africa. Other reports required by the Companies Act As part of our audit of the financial statements for the year ended 31 March 2012, we have read the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports we have not identified material inconsistencies between these reports and the audited financial statements. However, we have not audited these reports and accordingly do not express an opinion on these reports. KPMG Inc. Registered Auditor Per Jay Datadin Chartered Accountant (SA) Registered Auditor Director 4 June 2012 20 Kingsmead Boulevard Kingsmead Office Park Durban 4000
  5. 5. ChemSpec annual financial statements 201203 The directors are pleased to present this report on the annual financial statements of the group and the company for the year ended 31 March 2012. NATURE OF BUSINESS The company was incorporated on 10 November 2005 and obtained its certificate to commence business on the same day. A special resolution was passed on 18 May 2006 to change the name from RZT Zelpy 4547 (Pty) Limited to Chemical Specialities (Pty) Limited. RZT Zelpy 4547 (Pty) Limited was dormant until 1 January 2006. On 1 January 2006, the group started trading after a management buyout in which the assets and liabilities of Chemical Specialities (Pty) Limited (registration number 1961/000395/07) and its subsidiaries; ChemSpec (Botswana) (Pty) Limited (incorporated in Botswana), ChemSpec (Coatings) (Pty) Limited (incorporated in Australia) and Chemical Specialities Namibia (Pty) Limited (incorporated in Namibia), were acquired. On 14 September 2007, the company was converted to a public company and on 6 November 2007, the company listed on the AltX after raising R110 million through a private placing of its shares. FINANCIAL RESULTS Main business and operations The group is engaged in the manufacture, distribution and supply of paint and ancillary products and operates principally in South Africa, Australia, Botswana, Europe, Namibia and the United States of America. The international offices in the USA and Australia are supported by distribution networks in Canada, Mexico, Puerto Rico, New Zealand, Fiji and the Solomon Islands. This represents no change since the prior year. Further details of the group’s operations and actions are set out in the integrated annual report 2012. STATED CAPITAL Details of the authorised and issued capital, together with details of the shares issued during the year, can be found in note 12 to the annual financial statements. The company has no unlisted securities. POST YEAR END EVENTS The directors are not aware of any material matter or circumstance arising since the end of the financial year that is not disclosed in the integrated annual report 2012 and these annual financial statements. DIVIDENDS No dividends were declared or paid during the year (2011: nil). COMPOSITION OF THE BOARD The directors of the company during the current year and prior period and to the date of this report are as follows: IAJ Clark Appointed 1 April 2011 BR Mackinnon Appointed 31 March 2007 S van Niekerk Appointed 1 April 2011 JG Maehler Appointed 1 June 2011 NA Page Appointed 10 May 2010 DJ Coyle-Dowling Appointed 1 April 2011 TP Dykins Appointed 1 June 2011 JG Jones Appointed 15 August 2011 TJT McClure Appointed 15 August 2011 IBB Buchan Appointed 9 January 2012 ZM Buchan (alternate to IBB Buchan) Appointed 9 January 2012 SE Sono Appointed 12 March 2012 RD Simpson Resigned 9 January 2012 GE Ferns Appointed 10 May 2010 Resigned 31 May 2011 Brief curricula vitae of the current directors are disclosed on pages 16 to 19 of the integrated annual report 2012. Details of directors remuneration and the share option scheme can be found in notes 34 and 38 of these annual financial statements. Directors’ report
  6. 6. ChemSpec annual financial statements 201204 DIRECTORS’ INTERESTS Material directors’ interests in contracts are detailed in note 33 to the annual financial statements. HOLDING COMPANY The company is not a subsidiary of another company and does not have an ultimate holding company. INTEREST IN SUBSIDIARIES Interests in subsidiary companies are detailed in note 4 to the annual financial statements. The aggregate loss after tax attributable to the company from its subsidiaries was R207 573 (2011: R15 679 939). AUDITORS KPMG Incorporated have indicated their willingness to continue in office as auditors of the company. A resolution to reappoint the auditors will be proposed at the next annual general meeting of shareholders scheduled to take place on 28 September 2012. COMPANY SECRETARY Statucor (Pty) Limited BDO House, Richefond Circle Ridgeside Office Park Umhlanga, 4319 PO Box 47, La Lucia 4153 REGISTERED OFFICE 2029 Old Mill Road Canelands Verulam, 4339 PO Box 2359, Verulam 4340 GOING CONCERN The directors are of the opinion that the company has adequate resources to continue operating for the foreseeable future, and that it is therefore appropriate to adopt the going concern basis in preparing the company’s financial statements. The directors are satisfied that the company is in a sound financial position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. BORROWINGS Details of the group’s borrowings are set out in note 17 to the annual financial statements. In terms of the articles of association, the borrowing powers of the company are unlimited; however, annual debt covenant proofs are required by our financiers whose credit lines are structured and limited, as set out in their facility letters that have been approved by the board. MAJOR SHAREHOLDERS Details of the significant shareholders of the company are set out in note 40 of the annual financial statements.
  7. 7. ChemSpec annual financial statements 201205 Statements of financial position as at 31 March 2012 Group Company Figures in Rand Note 2012 2011 2012 2011 ASSETS Non-current assets Property, plant and equipment 1 230 827 995 219 853 068 184 338 377 178 328 492 Intangible assets 2 29 312 405 19 467 277 19 514 742 13 714 825 Goodwill 3 22 925 617 23 609 925 18 476 606 18 476 606 Investments in subsidiaries 4 – – 58 581 995 58 581 995 Loans to group companies 5 – – 46 417 758 49 659 157 Deferred tax 6 51 290 668 42 936 517 41 676 187 32 774 605 334 356 685 305 866 787 369 005 665 351 535 680 Current assets Inventories 7 127 472 571 107 775 801 95 372 108 67 102 797 Other financial assets 8 – 7 791 – 7 791 Trade and other receivables 9 77 426 287 61 160 992 61 241 995 60 442 774 Cash and cash equivalents 10 14 264 385 10 282 345 7 083 054 6 356 160 219 163 243 179 226 929 163 697 157 133 909 522 Assets held for sale 11 3 613 759 1 050 000 1 832 478 1 050 000 Total assets 557 133 687 486 143 716 534 535 300 486 495 202 Equity and liabilities Equity Stated capital 12 466 655 766 207 633 740 466 655 766 207 633 740 Translation reserve 13 (1 352 874) (6 179 618) – – Revaluation reserve 14 31 858 175 31 858 175 31 858 175 31 858 175 Share option reserve 15 1 187 355 – 1 187 355 – Accumulated loss (114 996 207) (100 865 353) (93 964 967) (75 380 975) 383 352 215 132 446 944 405 736 329 164 110 940 Shareholders loans 16 – 83 536 283 – 83 536 283 Non-current liabilities Loans from group companies 5 – – 3 162 311 2 600 134 Other financial liabilities 17 69 978 420 109 390 840 42 944 912 103 230 445 Deferred tax 6 3 168 243 2 142 713 – – 73 146 663 111 533 553 46 107 223 105 830 579 Current liabilities Other financial liabilities 17 27 936 210 25 232 057 22 814 918 8 793 746 Trade and other payables 18 71 427 500 94 330 989 59 876 830 85 159 764 Bank overdraft 10 728 128 39 063 890 – 39 063 890 100 091 838 158 626 936 82 691 748 133 017 400 Liabilities held for sale 11 542 971 – – – Total liabilities 173 781 472 353 696 772 128 798 971 322 384 262 Total equity and liabilities 557 133 687 486 143 716 534 535 300 486 495 202
  8. 8. ChemSpec annual financial statements 201206 Statements of financial performance for the year ended 31 March 2012 Group Company Figures in Rand Note 2012 restated 2011 2012 restated 2011 Continuing operations Revenue 19 380 789 885 306 121 213 245 931 694 209 768 087 Cost of sales 20 (224 511 307) (211 429 208) (170 959 314) (184 067 691) Gross profit 156 278 578 94 692 005 74 972 380 25 700 396 Other income 21 27 328 047 26 300 638 28 523 417 28 486 641 Operating expenses (176 716 106) (231 564 504) (108 859 275) (153 749 424) Operating profit/(loss) 22 6 890 519 (110 571 861) (5 363 478) (99 562 387) Finance income 23 4 033 922 1 649 615 4 071 131 1 592 916 Finance costs 24 (22 796 378) (26 896 051) (21 849 441) (25 813 409) Loss before taxation (11 871 937) (135 818 297) (23 141 788 ) (123 782 880) Taxation 25 3 991 232 35 351 156 7 685 323 34 486 109 Loss from continuing operations (7 880 705) (100 467 141) (15 456 465) (89 296 771) Discontinued operations 26 (6 250 149) (9 709 022) (3 127 527) (113 392) Loss for the period (14 130 854) (110 176 163) (18 583 992) (89 410 163) Basic loss per share Continuing operations (cents) 27 (1,19) (26,55) (2,33) (23,60) Discontinued operations (cents) 27 (0,94) (2,57) (0,47) (0,03) Total basic loss per share (cents) (2,13) (29,12) (2,80) (23,63) Diluted loss per share Continuing operations (cents) 27 (1,18) (26,55) (2,32) (23,60) Discontinued operations (cents) 27 (0,94) (2,57) (0,47) (0,03) Total diluted loss per share (cents) (2,12) (29,12) (2,79) (23,63) Statements of comprehensive income for the year ended 31 March 2012 Group Company Figures in Rand 2012 restated 2011 2012 restated 2011 Loss for the period (14 130 854) (110 176 163) (18 583 992) (89 410 163) Other comprehensive income 4 826 744 (1 388 462) – – Exchange differences on translating foreign operations 4 826 744 (1 388 462 ) – – Total comprehensive loss for the period (9 304 110) (111 564 625) (18 583 992) (89 410 163)
  9. 9. ChemSpec annual financial statements 201207 Statements of cash flow for the year ended 31 March 2012 Group Company Figures in Rand Note 2012 2011 2012 2011 Cash flows from operating activities Cash used by operations 28 (30 387 809) (101 775 926) (45 740 110) (60 949 230) Finance income 23 4 033 922 1 649 615 4 071 131 1 592 916 Finance costs 24 (22 796 378) (26 896 051) (21 849 441) (25 813 409) Taxation paid 29 (1 379 961) (930 525) – – Net cash from operating activities (50 530 226) (127 952 887) (63 518 420 ) (85 169 723) Cash flows from investing activities Purchase of plant and equipment 1 (39 257 865) (38 136 632) (24 125 983) (29 902 174) Proceeds on sale of plant and equipment 4 799 072 115 971 1 120 898 15 635 051 Acquisition of intangible assets 2 (13 071 417) (3 255 360) (7 768 460) (1 787 008) Acquisition of businesses/subsidiaries 4/30 – (335 208) – (240) Loans from/(to) group companies – – 3 803 576 (62 401 897) Proceeds of other financial assets 7 791 – 7 791 – Proceeds on disposal of assets held for sale 1 050 000 – 1 050 000 – Net cash from investing activities (46 472 419) (41 611 229) (25 912 178) (78 456 268) Cash flows from financing activities Proceeds on share issue 259 022 026 92 610 845 259 022 026 92 610 845 Proceeds/(repayment) of other financial liabilities (36 165 296) 114 064 889 (46 264 361) 107 579 701 Repayment of shareholder loans (83 536 283) – (83 536 283) – Net cash from financing activities 139 320 447 206 675 734 129 221 382 200 190 546 Total cash movement for the period 42 317 802 37 111 618 39 790 784 36 564 555 Overdraft at the beginning of the period (28 781 545) (65 893 163) (32 707 730) (69 272 285) Cash and cash equivalents at the end of the period 13 536 257 (28 781 545) 7 083 054 (32 707 730) Reconciled as follows: Cash and cash equivalents 10 14 264 385 10 282 345 7 083 054 6 356 160 Bank overdraft 10 (728 128) (39 063 890) – (39 063 890) Cash and cash equivalents at the end of the period 13 536 257 (28 781 545) 7 083 054 (32 707 730)
  10. 10. ChemSpec annual financial statements 201208 Statements of changes in equity for the year ended 31 March 2012 Figures in Rand Share capital Share premium Stated capital GROUP Balance at 31 March 2010 1 550 115 021 345 – Issue of shares 543 97 670 646 – Share issue expenses – (5 060 344) – Total comprehensive loss for the period – – – Balance at 31 March 2011 2 093 207 631 647 – Transfer to stated capital (2 093) (207 631 647) 207 633 740 Issue of shares – – 261 095 241 Share issue expenses – – (2 073 215) Total comprehensive loss for the period – – – Share options – – – Balance at 31 March 2012 – – 466 655 766 COMPANY Balance at 31 March 2010 1 550 115 021 345 – Issue of shares 543 97 670 646 – Share issue expenses – (5 060 344) – Total comprehensive loss for the period – – – Balance at 31 March 2011 2 093 207 631 647 – Transfer to stated capital (2 093) (207 631 647) 207 633 740 Issue of shares – – 261 095 241 Share issue expenses – – (2 073 215) Total comprehensive loss for the period – – – Share options – – – Balance at 31 March 2012 – – 466 655 766
  11. 11. ChemSpec annual financial statements 201209 Retained income/ (accumulated loss) Revaluation reserve Translation reserve Share option reserve Total 9 310 810 31 858 175 (4 791 156) – 151 400 724 – – – – 97 671 189 – – – – (5 060 344) (110 176 163) – (1 388 462) – (111 564 625) (100 865 353) 31 858 175 (6 179 618) – 132 446 944 – – – – – – – – – 261 095 241 – – – – (2 073 215) (14 130 854) – 4 826 744 – (9 304 110) – – – 1 187 355 1 187 355 (114 996 207) 31 858 175 (1 352 874) 1 187 355 383 352 215 14 029 188 31 858 175 – – 160 910 258 – – – – 97 671 189 – – – – (5 060 344) (89 410 163) – – – (89 410 163) (75 380 975) 31 858 175 – – 164 110 940 – – – – – – – – – 261 095 241 – – – – (2 073 215) (18 583 992) – – – (18 583 992) – – – 1 187 355 1 187 355 (93 964 967) 31 858 175 – 1 187 355 405 736 329
  12. 12. ChemSpec annual financial statements 201210 Accounting policies 1. BASIS OF PREPARATION The consolidated annual financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), the AC 500 series issued by the Accounting Practices Board, the Listings Requirements of the JSE Limited and the Companies Act of South Africa, 2008. The consolidated annual financial statements have been prepared on the historical cost basis, except for the measurement of property, plant and equipment and certain financial instruments which are measured at fair value. The annual financial statements incorporate the principal accounting policies set out below, which have been consistently applied in comparison to the prior year. Underlying concepts The consolidated annual financial statements are prepared on the going concern basis using accrual accounting. Assets and liabilities and income and expenses are not offset unless specifically permitted by an accounting standard. Financial assets and financial liabilities are offset and the net amount reported only when a legally enforceable right to set off the amounts exists and the intention is either to settle on a net basis or to realise the asset and settle the liability simultaneously. Changes in accounting policies are accounted for in accordance with the transitional provisions in the standards. If no such guidance is given, they are applied retrospectively, unless it is impractical to do so, in which case they are applied prospectively. Changes in accounting estimates are recognised in profit or loss. Prior period errors are retrospectively restated unless it is impractical to do so, in which case they are applied prospectively. Recognition of assets and liabilities Assets are only recognised if they meet the definition of an asset, it is probable that future economic benefits associated with the asset will flow to the group and the cost or fair value can be measured reliably. Liabilities are only recognised if they meet the definition of a liability, it is probable that future economic benefits associated with the liability will flow from the entity and the cost or fair value can be reliably measured. Financial instruments are recognised when the entity becomes a party to the contractual provisions of the instruments. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Regular way purchase and sales are recognised using trade date accounting. New standards, new interpretations and amendments to both, issued but not yet effective, comprise: IFRS 9 (2009) Financial Instruments IFRS 9 will be adopted by the group for the first time for its financial reporting period ending 31 March 2016. The standard will be applied retrospectively, subject to transitional provisions. IFRS 9 addresses the initial measurement and classification of financial assets and will replace the relevant sections of IAS 39. Under IFRS 9 there are two options in respect of classification of financial assets, namely, financial assets measured at amortised cost or at fair value. Financial assets are measured at amortised cost when the business model is to hold assets in order to collect contractual cash flows and when they give rise to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets are measured at fair value. Embedded derivatives are no longer separated from hybrid contracts that have a financial asset host. The impact on the financial statements for the group has not yet been estimated. IFRS 9 (2010) – Financial Instruments IFRS 9 (2010) will be adopted by the group for the first time for its financial reporting period ending 31 March 2016. The standard will be applied retrospectively, subject to transitional provisions. IFRS 9 (2010) addresses the measurement and classification of financial liabilities and will replace the relevant sections of IAS 39. Under IFRS 9 (2010), the classification and measurement requirements of financial assets and liabilities are the same as per IAS 39, except for the following two aspects: – Fair value changes for financial liabilities (other than financial guarantees and loan commitments) designated at fair value through profit or loss, that are attributable to the changes in the credit risk of the liability will be presented in other comprehensive income (OCI). The remaining amount of the fair value change is recognised in profit or loss. However, if this requirement creates or enlarges an accounting mismatch in profit or loss, then the whole fair value change is presented in profit or loss. The determination as to whether such presentation would create or enlarge an accounting mismatch is made on initial recognition and is not subsequently reassessed; and
  13. 13. ChemSpec annual financial statements 201211 1. BASIS OF PREPARATION continued IFRS 9 (2010) – Financial Instruments continued – Under IFRS 9 (2010), derivative liabilities that are linked to and must be settled by delivery of an unquoted equity instrument whose fair value cannot be reliably measured, are measured at fair value. IFRS 9 (2010) incorporates the guidance in IAS 39 dealing with fair value measurement and accounting for derivatives embedded in a host contract that is not a financial asset, as well as the requirements of IFRIC 9 Reassessment of Embedded Derivatives. The impact on the financial statements for the group has not yet been estimated. IFRS 10 Consolidated Financial Statements IFRS 10 will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. The standard will be applied retrospectively if there is a change in the control conclusion between IAS 27/SIC 12 and IFRS 10. IFRS 10 introduces a single control model to assess whether an investee should be consolidated. This control model requires entities to perform the following in determining whether control exists: • Identify how decisions about the relevant activities are made; • Assess whether the entity has power over the relevant activities by considering only the entity’s substantive rights; • Assess whether the entity is exposed to variability in returns; and • Assess whether the entity is able to use its power over the investee to affect returns for its own benefit. Control should be assessed on a continuous basis and should be reassessed as facts and circumstances change. The impact on the financial statements for the group has not yet been estimated. IFRS 11 Joint Arrangements IFRS 11 will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. The standard will be applied retrospectively, subject to certain transitional provisions. IFRS 11 establishes that classification of the joint arrangement depends on whether parties have rights to and obligations for the underlying assets and liabilities. According to IFRS 11, joint arrangements are divided into two types, each having its own accounting model. • Joint operations whereby the jointly controlling parties, known as joint operators, have rights to assets and obligations for the liabilities, relating to the arrangement; and • Joint ventures whereby the joint controlling parties, known as joint venturers, have rights to the net assets of the arrangement. In terms of IFRS 11, all joint ventures will have to be equity accounted. The impact on the financial statements for the group has not yet been estimated. IFRS 12 Disclosure of Interests in Other Entities IFRS 12 will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. IFRS 12 combines, in a single standard, the disclosure requirements for subsidiaries, associates and joint arrangements, as well as unconsolidated structured entities. The required disclosures aim to provide information to enable users to evaluate: • the nature of, and risks associated with, an entity’s interests in other entities; and • the effects of those interests on the entity’s financial position, financial performance and cash flows. The adoption of the new standard will increase the level of disclosure provided for the entity’s interests in subsidiaries, joint arrangements, associates and structured entities.
  14. 14. ChemSpec annual financial statements 201212 1. BASIS OF PREPARATION continued IFRS 13 Fair Value Measurement IFRS 13 will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. The standard will be applied prospectively and comparatives will not be restated. IFRS 13 introduces a single source of guidance on fair value measurement for both financial and non-financial assets and liabilities by defining fair value, establishing a framework for measuring fair value and setting out disclosure requirements for fair value measurements. The key principles in IFRS 13 are as follows: • Fair value is an exit price; • Measurement considers characteristics of the asset or liability and not entity-specific characteristics; • Measurement assumes a transaction in the entity’s principle (or most advantageous) market between market participants; • Price is not adjusted for transaction costs; • Measurement maximises the use of relevant observable inputs and minimises the use of unobservable inputs; and • The three-level fair value hierarchy is extended to all fair value measurements. The impact on the financial statements for the group has not yet been estimated. IAS 27 (2011) Separate Financial Statements IAS 27 (2011) will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. IAS 27 (2011) supersedes IAS 27 (2008). IAS 27 (2011) carries forward the existing accounting and disclosure requirements for separate financial statements, with some minor clarifications. The adoption of IAS 27 (2011) will not have a significant impact on the company’s separate financial statements. IAS 28 (2011) Investments in Associates and Joint Ventures IAS 28 (2011) will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. IAS 28 (2011) supersedes IAS 28 (2008) and carries forward the existing accounting and disclosure requirements with limited amendments. These include the following: • IFRS 5 is applicable to an investment, or a portion of an investment, in an associate or a joint venture that meets the criteria to be classified as held-for-sale; and • On cessation of significant influence or joint control, even if an investment in an associate becomes an investment in a joint venture or vice versa, the company does not re-measure the retained interest. The impact on the financial statements for the group has not yet been estimated. Amendment to IAS 1 Presentation of Financial Statements The amendment to IAS 1 will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. The company will present those items of other comprehensive income that may be reclassified to profit or loss in the future separately from those that would never be reclassified to profit or loss. The related tax effects for the two sub-categories will be shown separately. This is a change in presentation and will have no impact on the recognition or measurement of items in the financial statements. This amendment will be applied retrospectively and the comparative information will be restated. Amendments to IFRS 7 Financial Instruments: Disclosures The amendments to IFRS 7 will be adopted by the group for the first time for its financial reporting period ending 31 March 2013. In terms of the amendments additional disclosure will be provided regarding transfers of financial assets that are: • not derecognised in their entirety; and • derecognised in their entirety but for which the group retains continuing involvement. The impact on the financial statements for the group has not yet been estimated. Accounting policies
  15. 15. ChemSpec annual financial statements 201213 1. BASIS OF PREPARATION continued Amendments to IFRS 7 Financial Instruments: Disclosures: Offsetting Financial Assets and Financial Liabilities The amendments to IFRS 7 will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. The amendments contain new disclosure requirements for financial assets and financial liabilities that are offset in the statement of financial position; or are subject to enforceable master netting arrangements or similar agreements. The impact on the financial statements for the group has not yet been estimated. Amendments to IAS 12 Income Taxes The amendments to IAS 12 will be adopted by the group for the first time for its financial reporting period ending 31 March 2013. As a result of this amendment to IAS 12, the Company will change the rate applied for measuring deferred tax arising from the company’s investment property measured using the fair value model, in accordance with IAS 40 Investment Property. Previously the company used a blended rate; however in terms of the amendment a sale rate will be applied. This amendment will have to be applied retrospectively and may result in a potential restatement of comparative balances. Amendment to IAS 19 Employee Benefits: Defined benefit plans The amendments to IAS 19 will be adopted by the group for the first time for its financial reporting period ending 31 March 2014. In terms of the amendments, the following key changes will have an impact on the company: • Actuarial gains and losses are recognised immediately in other comprehensive income. The corridor method and the recognition of actuarial gains and losses in profit or loss is no longer permitted; • Past service costs as well as gains and losses on curtailments/settlements are recognised in profit or loss; • Expected returns on plan assets are calculated based on the rates used to discount the defined benefit obligation; and • The definitions of short-term and other long-term employee benefits have been amended and the distinction between the two depends on when the entity expects the benefit to be settled. The impact on the financial statements for the group has not yet been estimated. Additional amendments are of a presentation nature and will not have a significant impact on the company’s financial statements. Amendments to IAS 32 Financial Instruments: Presentation: Offsetting Financial Assets and Financial Liabilities The amendments to IAS 32 will be adopted by the group for the first time for its financial reporting period ending 31 March 2015. The amendments clarify that an entity currently has a legally enforceable right to set-off if that right is: • not contingent on a future event; and • enforceable both in the normal course of business and in the event of default, insolvency or bankruptcy of the entity and all counterparties. The impact on the financial statements for the group has not yet been estimated. 1.1 Basis of consolidation The annual financial statements consolidate the annual financial statements of the company and its subsidiaries. Interests in subsidiaries Subsidiaries are entities in which the group has the power to govern their financial and operating policies. The existence and effect of potential voting rights that are currently exercisable are considered when assessing whether the group controls another entity. The results of the subsidiaries are included from the date on which control is transferred to the group (effective date of acquisition) and are no longer included from the date that control ceases (effective date of disposal). Gains and losses on disposal of subsidiaries are included in profit or loss. Interests in subsidiary companies in the company annual financial statements are shown at cost less any required impairment (which is assessed annually as set out in note 1.6 to the accounting policies). The group uses the acquisition method of accounting to account for the acquisition of subsidiaries. Refer to note 1.5 for the accounting policy on goodwill. The accounting policies for subsidiaries are consistent, in all material respects, with the policies adopted by the group. Intragroup transactions, balances and unrealised gains and losses are eliminated on consolidation.
  16. 16. ChemSpec annual financial statements 201214 1. BASIS OF PREPARATION continued 1.1 Basis of consolidation continued Interests in subsidiaries continued Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full. Intragroup losses may indicate an impairment that requires recognition in the consolidated financial statements. IAS 12 Income Taxes applies to temporary differences that arise from the elimination of profits and losses resulting from intragroup transactions. Transactions with non-controlling interest shareholders The group applies a policy of treating these transactions with non-controlling interest shareholders that do not result in the gain or loss of control, as transactions with equity owners of the group. For purchases of additional interests, the excess of the purchase consideration over the group’s proportionate share of the additional net asset value of the subsidiary acquired is accounted for directly in equity. For disposals, the profit or loss on partial disposal of the group’s interest in a subsidiary is also accounted for directly in equity. 1.2 Foreign currencies Foreign currency translation The group’s presentation currency is the South African Rand (ZAR). The functional currency of the company’s operations is the currency of the primary economic environment in which each operation conducts its main activities. All financial information presented in ZAR has been rounded to the nearest Rand. Transactions and balances Transactions in foreign currencies are translated into the functional currency at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies different to the functional currency at the reporting date are retranslated to the functional currency at the closing ruling rate at that date. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of transaction, and those measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Foreign exchange gains or losses are recognised as part of fair value adjustments on financial instruments in profit or loss or in other comprehensive income depending on where the underlying transaction is recorded. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the financial currency at the beginning of the year adjusted for effective interest and payments during the year and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Group foreign companies Assets and liabilities of companies whose functional currency is different to the presentation currency are translated from their respective functional currency into the group’s presentation currency at closing rates ruling at the year end date. The income and expenditure and equity movements are translated into the group’s presentation currency at rates approximating the foreign exchange rates ruling at the date of the various transactions. All resulting translation differences arising from the consolidation and translation of foreign companies are recognised directly in other comprehensive income as a foreign currency translation reserve. On the disposal of a foreign operation, the cumulative amount of the exchange differences deferred in the separate component of other comprehensive income relating to that foreign operation is recognised in profit or loss when the gain or loss on disposal is recognised. 1.3 Property, plant and equipment The cost of an item of property, plant and equipment is recognised as an asset when: – it is probable that future economic benefits associated with the item will flow to the group; and – the cost of the item can be measured reliably. Costs include costs incurred initially to acquire or construct an item of property, plant and equipment and costs incurred subsequently to add to, replace part of, or service it. Day-to-day servicing costs are recognised in profit and loss as incurred. If a replacement cost is recognised in the carrying amount of an item of property, plant and equipment, the carrying amount of the replaced part is derecognised. The initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located is also included in the cost of property, plant and equipment to the extent that the group has an obligation in terms of IAS 37. Property, plant and equipment, excluding aircraft which is held at cost less accumulated depreciation and impairment losses, are carried at revalued amounts less accumulated depreciation and any impairment losses. Valuations will be carried out every five years. Accounting policies
  17. 17. ChemSpec annual financial statements 201215 1. BASIS OF PREPARATION continued 1.3 Property, plant and equipment continued The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. Depreciation is provided on all property, plant and equipment, other than freehold land, to write down the cost, less residual value, on a straight-line basis over their useful lives as follows: Item Estimated average useful life Aircraft 20 years Buildings 40 years Computer software 2 years to 10 years Fire-fighting equipment 10 years Furniture and fixtures 10 years IT equipment 3 years to 5 years Laboratory equipment 10 years Leasehold improvements 4 years to 20 years Motor vehicles 5 years Office equipment 6 years Plant and machinery 5 years to 20 years The depreciation method, residual value and the useful life of each asset are reviewed at each financial period end. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately if it has a different useful life or depreciation method to the remainder of the asset. The depreciation charge for each period is recognised in profit or loss unless it is included in the carrying amount of another asset. The gain or loss arising from the derecognition of an item of plant and equipment is included in profit or loss when the item is derecognised. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between the net disposal proceeds, if any, and the carrying amount of the item. Where revalued assets are sold, the amounts included in the revaluation reserve are transferred to retained earnings. 1.4 Intangible assets An intangible asset is recognised when: – it is probable that the expected future economic benefits that are attributable to the asset will flow to the entity; and – the cost of the asset can be measured reliably. Intangible assets are initially recognised at cost. Expenditure on research (or on the research phase of an internal project) is recognised in profit or loss when it is incurred. An intangible asset arising from development (or from the development phase of an internal project) is recognised when: – it is technically feasible to complete the asset so that it will be available for use or sale; – there is an intention to complete and use or sell it; – there is an ability to use or sell it; – it will generate probable future economic benefits; – there are available technical, financial and other resources to complete the development and to use or sell the asset; and – the expenditure attributable to the asset during its development can be measured reliably. Intangible assets are carried at cost less any accumulated amortisation and any impairment losses. The amortisation period, the amortisation method and residual values for intangible assets are reviewed at every financial period end.
  18. 18. ChemSpec annual financial statements 201216 1. BASIS OF PREPARATION continued 1.4 Intangible assets continued Amortisation is provided to write down the intangible assets, on a straight-line basis, to their residual values as follows: Item Estimated average useful life Customer lists 5 years Development costs 10 years The gain or loss arising from the derecognition of an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised. 1.5 Goodwill Goodwill is recognised as of the acquisition date measured as the excess of (a) over (b) below: (a) the aggregate of: (i) the consideration transferred measured in accordance with this IFRS 3 (2008), which generally requires acquisition-date fair value; (ii) the amount of any non-controlling interest in the acquiree measured in accordance with this IFRS 3 (2008); and (iii) in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree; and (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed measured in accordance with this IFRS 3 (2008). A bargain purchase exists when the amount in (b) above exceeds the aggregate of the amounts specified in paragraph (a) above. If that excess remains after reassessing that the entity has correctly identified all of the assets acquired and all of the liabilities assumed, the acquirer shall recognise the resulting gain in profit or loss on the acquisition date. The gain shall be attributed to the acquirer. Goodwill is measured at cost less accumulated impairment loss. The consideration transferred in a business combination shall be measured at fair value, which shall be calculated as the sum of the acquisition-date fair values of the assets transferred by the acquirer, the liabilities incurred by the acquirer to former owners of the acquiree and the equity interests issued by the acquirer. The consideration transferred may include assets or liabilities of the acquirer that have carrying amounts that differ from their fair values at the acquisition date (for example, non-monetary assets or a business of the acquirer). If so, the acquirer shall remeasure the transferred assets or liabilities to their fair values as of the acquisition date and recognise the resulting gains or losses, if any, in profit or loss. However, sometimes the transferred assets or liabilities remain within the combined entity after the business combination (for example, because the assets or liabilities were transferred to the acquiree rather than to its former owners), and the acquirer therefore retains control of them. In that situation, the acquirer shall measure those assets and liabilities at their carrying amounts immediately before the acquisition date and shall not recognise a gain or loss in profit or loss on assets or liabilities it controls both before and after the business combination. The acquirer shall recognise the acquisition-date fair value of contingent consideration as part of the consideration transferred in exchange for the acquiree. 1.6 Impairment of assets Impairment of non-financial assets The group assesses at each financial period end whether there is any indication that an asset may be impaired. If any such indication exists, the group estimates the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, the group also: – tests intangible assets or intangible assets not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test is performed at the same time each year; and – tests goodwill acquired in a business combination for impairment annually. If there is any indication that an asset may be impaired, the recoverable amount is estimated for the individual asset. If it is not possible to estimate the recoverable amount of the individual asset, the recoverable amount of the cash-generating unit to which the asset belongs is determined. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use (VIU). Accounting policies
  19. 19. ChemSpec annual financial statements 201217 1. BASIS OF PREPARATION continued 1.6 Impairment of assets continued Impairment of non-financial assets continued In assessing VIU, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or cash-generating unit. If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss of assets measured at cost less any accumulated depreciation or amortisation is recognised immediately in profit or loss. Cash-generating units to which goodwill has been allocated are tested for impairment annually, or more frequently when there is an indication that the unit may be impaired. An impairment loss is recognised for cash-generating units if the recoverable amount of the unit is less than the carrying amount of the unit. The impairment loss is allocated to reduce the carrying amount of the assets of the unit in the following order: – first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit; and – then, to the other assets of the unit, pro rata on the basis of the carrying amount of each asset in the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period. An entity assesses at each reporting date whether there is any indication that an impairment loss recognised in prior periods for assets other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amounts of those assets are estimated. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior periods. A reversal of an impairment loss of assets measured at cost less accumulated depreciation or amortisation other than goodwill is recognised immediately in profit or loss. Impairment of financial assets Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at each year end date. An indicator of the impairment of a financial asset occurs where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial asset have been impacted. At each reporting date, the group determines on a case-by-case basis whether there is objective evidence of an impairment loss. The following factors are considered in determining whether an impairment loss should be provided for: The number of days that the debt is in arrears; whether the debtor has been liquidated or has closed down the business; if provisional liquidation has been sought against the debtor; any litigation proceedings against the debtor and the likely outcomes; any communication from the debtor indicating an inability to pay within the agreed credit terms; any evidence of liquidity difficulties experienced by the debtor; and adverse credit reports. The group does not provide for impairment losses on a general basis. Trade debtors with re-negotiated terms are monitored more closely in line with the above factors. For financial assets measured at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss. With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognised directly in other comprehensive income.
  20. 20. ChemSpec annual financial statements 201218 1. BASIS OF PREPARATION continued 1.7 Inventories Inventories are measured at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The cost of inventories comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The cost of inventories is assigned using the first-in, first-out (FIFO) formula. 1.8 Non-current assets held for sale and disposal groups Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification. Management must also be actively looking for a buyer and the price must be reasonable in relation to the market price. Non-current assets held for sale or disposal groups are measured at the lower of their carrying amount and fair value less costs to sell. A non-current asset is not depreciated (or amortised) while it is classified as held for sale, or while it is part of a disposal group classified as held for sale. Interest and other expenses attributable to the liabilities of a disposal group classified as held for sale are recognised in profit or loss. 1.9. Financial instruments Initial recognition and measurement The group classifies financial instruments, or their component parts, on initial recognition as a financial asset, a financial liability or an equity instrument in accordance with the substance of the contractual arrangement. Financial instruments are recognised on the group’s statement of financial position when the group becomes party to the contracted provisions of the instrument. Financial instruments are initially recognised at fair value and include the cost of the transaction (except for financial instruments classified as at fair value through profit or loss). Financial assets The group classifies its financial assets on initial recognition into categories, namely: held at fair value through profit or loss; available for sale; and loans and receivables. The classification depends on the purpose for which the asset was acquired and, with the exception of those held at fair value through profit or loss, is reassessed on an annual basis. The group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership are transferred that is created or retained by the group is recognised as a separate asset or liability. Financial assets at fair value through profit or loss Financial assets are classified as at fair value through profit or loss where the financial asset is either held for trading or it is designated at fair value through profit or loss. A financial asset is classified as held for trading if: – it has been acquired principally for the purpose of selling in the near future; or – it is a part of an identified portfolio of financial instruments that the group manages together and has a recent actual pattern of short-term profit-taking; or – it is a derivative that is not designated and effective as a hedging instrument. A financial asset other than a financial asset held for trading may be designated at fair value through profit or loss upon initial recognition if: – such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or – the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the group’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or Accounting policies
  21. 21. ChemSpec annual financial statements 201219 1. BASIS OF PREPARATION continued Non-current assets held for sale and disposal groups continued Financial assets at fair value through profit or loss continued – it forms part of a contract containing one or more embedded derivatives, and IAS 39 – Financial Instruments permits the entire combined contract (asset or liability) to be designated as at fair value through profit or loss. Financial assets at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any dividend or interest earned on the financial asset. Available-for-sale financial assets Investments that are classified as available for sale are those that do not fall into any other category of financial assets or are designated upfront as available for sale. Available-for-sale financial assets are measured at fair value through profit or loss with gains or losses being recognised in profit or loss. Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as “loans and receivables”. Loans and receivables are measured at amortised cost using the effective interest method less any impairment. Interest income is recognised by applying the effective interest rate. Cash and cash equivalents comprise cash balances, call deposits with original maturities of three months or less. Bank overdrafts are repayable on demand and form an integral part of the group’s cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows. Financial liabilities Financial liabilities are classified as either financial liabilities at fair value through profit or loss or at amortised cost. The group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire. Financial liabilities at fair value through profit or loss Financial liabilities are classified as at fair value through profit or loss where the financial liability is either held for trading or it is designated as at fair value through profit or loss. A financial liability is classified as held for trading if: – it has been incurred principally for the purpose of repurchasing in the near future; or – it is a part of an identified portfolio of financial instruments that the group manages together and has a recent actual pattern of short-term profit-taking; or – it is a derivative that is not designated and effective as a hedging instrument. Financial liabilities at fair value through profit or loss are measured at fair value, with any resultant gain or loss recognised in profit or loss. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Fair value is determined in the manner described in the corporate governance and risk report. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method. The interest expense is then recognised on an effective yield basis. Derivative financial instruments The group enters into the following derivative financial instruments to manage its exposure to interest rate and exchange rate risk: forward foreign currency exchange contracts and interest rate swaps. Derivatives are recognised at fair value through profit or loss. Interest rate swaps are occasionally used.
  22. 22. ChemSpec annual financial statements 201220 1. BASIS OF PREPARATION continued 1.10 Tax Current tax assets and liabilities Current tax for current and prior periods is, to the extent unpaid, recognised as a liability. If the amount already paid in respect of current and prior periods exceeds the amount due for those periods, the excess is recognised as an asset. Current tax liabilities (assets) for the current and prior periods are measured at the amount expected to be paid to (recovered from) the tax authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the year end date. Deferred tax assets and liabilities A deferred tax liability is recognised for all taxable temporary differences, except to the extent that the deferred tax liability arises from: – the initial recognition of goodwill; or – the initial recognition of an asset or liability in a transaction which: – is not a business combination; and – at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax liability is recognised for all taxable temporary differences associated with investments in subsidiaries and branches, except to the extent that both of the following conditions are satisfied: – the parent, investor or venturer is able to control the timing of the reversal of the temporary difference; and – it is probable that the temporary difference will not reverse in the foreseeable future. A deferred tax asset is recognised for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which the deductible temporary difference can be utilised, unless the deferred tax asset arises from the initial recognition of an asset or liability in a transaction that: – is not a business combination; and – at the time of the transaction, affects neither accounting profit nor taxable profit (tax loss). A deferred tax asset is recognised for all deductible temporary differences arising from investments in subsidiaries, branches and associates, and interests in joint ventures, to the extent that it is probable that: – the temporary difference will reverse in the foreseeable future; and – taxable profit will be available against which the temporary difference can be utilised. A deferred tax asset is recognised for the carry forward of unused tax losses and unused STC credits to the extent that it is probable that future taxable profit will be available against which the unused tax losses and unused STC credits can be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the year end date. The carrying amount of deferred tax assets is reviewed at each year end date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Tax expenses Current and deferred taxes are recognised as income or an expense and included in profit or loss for the period, except to the extent that the tax arises from: – a transaction or event which is recognised, in the same or a different period, directly in other comprehensive income; or – a business combination. Current tax and deferred taxes are charged or credited directly to other comprehensive income if the tax relates to items that are credited or charged, in the same or a different period, directly to other comprehensive income. Accounting policies
  23. 23. ChemSpec annual financial statements 201221 1. BASIS OF PREPARATION continued 1.11 Share capital and equity An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. If the group reacquires its own equity instruments, those instruments are deducted from equity. No gain or loss is recognised in profit or loss on the purchase, sale, issue or cancellation of the group’s own equity instruments. Consideration paid or received is recognised directly in equity. 1.12 Leases A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership to the lessee. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership to the lessee. Finance leases – lessor/lessee Finance leases are recognised as assets or revenue in the statements of financial position or income statements at amounts equal to the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding lease asset or liability of the lessor or lessee is included in the statements of financial position as a finance lease asset or obligation. The discount rate used in calculating the present value of the minimum lease payments is the interest rate implicit in the lease. The lease payments are apportioned between the finance charge and reduction of the outstanding asset or liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of payment on the remaining balance of the asset or liability. Operating leases – lessor Receipts of operating leases are accounted for as income on the straight-line basis over the period of the lease. When an operating lease is terminated, any payment required by the lessee by way of penalty is recognised as income in the period in which termination takes place. The lessor recognises the aggregate cost of incentives as a reduction of rental income over the lease term, on a straight-line basis unless another systematic basis is representative of the time pattern over which the benefit of the leased asset is diminished. Operating leases – lessee Operating lease payments are recognised as an expense on a straight-line basis over the lease term. The difference between the amounts recognised as an expense and the contractual payments is recognised as an operating lease accrual. This accrual is not discounted. Any contingent rents are expensed in the period they are incurred. 1.13 Provisions and contingencies Provisions are recognised when: – the group has a present obligation as a result of a past event; – it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation; and – a reliable estimate can be made of the obligation. The amount of a provision is the present value of the expenditure expected to be required to settle the obligation. Where some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recognised when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement is treated as a separate asset. The amount recognised for the reimbursement is not in excess of the amount of the provision. Provisions are not recognised for future operating losses. If an entity has a contract that is onerous, the present obligation under the contract is recognised and measured as a provision. The provision is measured at the lower of expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the group recognises any impairment loss on the assets associated with the contract. A constructive obligation to restructure arises only when an entity has a detailed formal plan for the restructuring, identifying at least:
  24. 24. ChemSpec annual financial statements 201222 1. BASIS OF PREPARATION continued 1.13 Provisions and contingencies continued – the business or part of a business concerned; – the principal locations affected; – the location, function and approximate number of employees who will be compensated for terminating their services; – the expenditures that will be undertaken; – when the plan will be implemented; and – when it has raised a valid expectation in those affected that it will carry out the restructuring by starting to implement that plan or announcing its main features to those affected by it. After their initial recognition, contingent liabilities recognised in business combinations that are recognised separately are subsequently measured at the higher of: – the amount that would be recognised as a provision; and – the amount initially recognised less cumulative amortisation. Other contingent assets and contingent liabilities are not recognised. Contingencies are disclosed in note 28. 1.14 Revenue Revenue from the sale of goods is recognised when all the following conditions have been satisfied: – the group has transferred to the buyer the significant risks and rewards of ownership of the goods; – the group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; – the amount of revenue can be measured reliably; – it is probable that the economic benefits associated with the transaction will flow to the group; and – the costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable and represents the amounts receivable for goods and services provided in the normal course of business, net of trade discounts and volume rebates, and value added tax. Interest is recognised, in profit or loss, using the effective interest rate method. Revenue from the rendering of services is recognised in the accounting period in which the services are rendered, by reference to completion of the specific transaction assessed on the basis of the actual service provided as a proportion of the total services to be provided. The outcome of a transaction can be estimated reliably when all the following conditions are satisfied: – the amount of revenue can be measured reliably; – it is probable that the economic benefits associated with the transaction will flow to the entity; – the stage of completion of the transaction at the year end date can be measured reliably; and – the costs incurred for the transaction and the costs to complete the transaction can be measured reliably. 1.15 Cost of sales When inventories are sold, the carrying amount of those inventories is recognised as an expense in the period in which the related revenue is recognised. The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realisable value, is recognised as a reduction in the amount of inventories recognised as an expense in the period in which the reversal occurs. The related cost of providing services recognised as revenue in the current period is included in cost of sales. Accounting policies
  25. 25. ChemSpec annual financial statements 201223 1. BASIS OF PREPARATION continued 1.16 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are capitalised to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalisation. All other borrowing costs are recognised in profit or loss in the period in which they are incurred. 1.17 Employee benefits Leave pay accrual The group recognises in full, employees’ rights to annual leave entitlement in respect of past service. Bonus scheme Incentive scheme bonuses are recognised as an expense when the group has an obligation (legal or constructive) to award the bonus and the amount can be reliably measured. Pension obligations Group companies operate various pension schemes. The schemes are generally funded through payments to trustee administered funds, determined by periodic actuarial calculations. The group has only defined contribution plans. A defined contribution plan is a pension plan under which the group pays fixed contributions into a separate entity. The group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. Contributions are recognised in profit and loss as they accrue. Contributions to a defined contribution plan that are due more than 12 months after the end of the period in which the employees render the service are discounted to their present value. Share based payments The grant date fair value of share based payment awards granted to employees is recognised as an expense, with a corresponding increase in equity, over the period that the employees become unconditionally entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-market performance conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number of awards that meet the related service and non-market performance conditions at the vesting date. For share based payment awards with non-vesting conditions, the grant date fair value of the share based payment is measured to reflect such conditions and there is no true up for differences between expected and actual outcomes. 1.18 Segment reporting Segment accounting policies are consistent with those adopted for the preparation of the group financial statements. Segment information is determined on the same basis as the information used by the chief operating decision maker for the purposes of allocating resources to segments and assessing segments’ performance. All intersegment transactions are eliminated on consolidation. 1.19 Earnings per share The group presents basic and diluted earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit and loss attributable to ordinary shareholders and the weighted average number of shares outstanding for own shares held, for the effects of dilutive potential shares which comprise convertible notes and share options. Headline earnings per ordinary share are calculated using the weighted average number of ordinary shares in issue during the period and are based on the earnings attributable to ordinary shareholders, after excluding those items as required by Circular 3/2009 issued by the South African Institute of Chartered Accountants (SAICA). 1.20 Related parties Related parties are considered to be related if one party has the ability to control or jointly control the other party or exercise significant influence over the party in making financial and operational decisions. Key management personnel are also regarded as related parties. Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the group.
  26. 26. ChemSpec annual financial statements 201224 1. BASIS OF PREPARATION continued 1.21 Significant judgements In preparing the annual financial statements, management is required to make estimates and assumptions that affect the amounts represented in the annual financial statements and related disclosures. Use of available information and the application of judgement is inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual financial statements. Significant judgements include the following: Tax Judgement is required in determining the provision for income taxes due to the complexity of legislation. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made. The group recognises the net future tax benefit related to deferred income tax assets to the extent that it is probable that the deductible temporary differences will reverse in the foreseeable future. Assessing the recoverability of deferred income tax assets requires the group to make significant estimates related to expectations of future taxable income. Estimates of future taxable income are based on forecast cash flows from operations and the application of existing tax laws in each jurisdiction. To the extent that future cash flows and taxable income differ significantly from estimates, the ability of the group to realise the net deferred tax assets recorded at the year end date could be impacted. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. 1.22 Key sources of estimation uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the year end date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year: Impairment of goodwill Determining whether goodwill is impaired requires an estimation of the value-in-use of the cash-generating units to which goodwill has been allocated. The value-in-use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. The carrying amount of goodwill at the year end date is reflected in note 3. Useful lives of plant and equipment As described in note 1.3, the group reviews the estimated useful life of plant and equipment at the end of each annual reporting period.
  27. 27. ChemSpec annual financial statements 201225 Notes to the annual financial statements for the year ended 31 March 2012 1. PROPERTY, PLANT AND EQUIPMENT 2012 2011 Figures in Rand Cost/ valuation Accumulated depreciation/ impairment Carrying value Cost/ valuation Accumulated depreciation/ impairment Carrying value Group Land and buildings 8 060 602 (182 962) 7 877 640 – – – Computer software 4 313 324 (3 075 060) 1 238 264 4 121 669 (2 146 117) 1 975 552 Fire fighting equipment 5 313 283 (1 167 603) 4 145 680 5 308 897 (688 519) 4 620 378 Furniture and fixtures 10 605 970 (6 421 749) 4 184 221 10 004 154 (4 584 183) 5 419 971 IT equipment 9 711 946 (7 913 553) 1 798 393 9 110 821 (6 802 131) 2 308 690 Laboratory equipment 4 180 652 (2 145 207) 2 035 445 3 969 176 (1 467 566) 2 501 610 Leasehold improvements 12 144 976 (4 839 501) 7 305 475 11 396 466 (4 221 589) 7 174 877 Motor vehicles 28 188 840 (7 024 034) 21 164 806 25 960 650 (4 453 741) 21 506 909 Office equipment 4 521 622 (2 163 232) 2 358 390 4 312 789 (1 667 886) 2 644 903 Plant and machinery 248 113 531 (69 393 850) 178 719 681 227 524 240 (55 824 062) 171 700 178 Total 335 154 746 (104 326 751) 230 827 995 301 708 862 (81 855 794) 219 853 068 Company Land and buildings – – – – – – Computer software 3 103 640 (1 937 334) 1 166 306 3 043 805 (1 246 740) 1 797 065 Fire fighting equipment 5 308 651 (1 164 245) 4 144 406 5 308 897 (688 519) 4 620 378 Furniture and fixtures 5 134 169 (3 270 692) 1 863 477 4 721 063 (1 965 762) 2 755 301 IT equipment 6 772 593 (5 731 160) 1 041 433 6 036 988 (4 728 705) 1 308 283 Laboratory equipment 3 215 500 (1 465 399) 1 750 101 3 116 397 (905 483) 2 210 914 Leasehold improvements 4 681 481 (1 858 954) 2 822 527 4 681 285 (1 697 005) 2 984 280 Motor vehicles 16 158 038 (3 379 252) 12 778 786 13 234 182 (1 730 869) 11 503 313 Office equipment 3 401 903 (1 332 206) 2 069 697 3 281 180 (985 516) 2 295 664 Plant and machinery 205 532 132 (48 830 488) 156 701 644 187 497 052 (38 643 758) 148 853 294 Total 253 308 107 (68 969 730) 184 338 377 230 920 849 (52 592 357) 178 328 492
  28. 28. ChemSpec annual financial statements 201226 1. PROPERTY, PLANT AND EQUIPMENT continued Reconciliation of property, plant and equipment 2012 Figures in Rand Opening balance Additions Re- classification Disposals Foreign currency translation Depreciation Total Group Land and buildings – 8 060 602 – – (4 860) (178 102 ) 7 877 640 Computer software 1 975 552 78 402 – (1 192) 21 516 (836 014) 1 238 264 Fire fighting equipment 4 620 378 – – – – (474 698) 4 145 680 Furniture and fixtures 5 419 971 893 897 (100 930) (25 372) 133 694 (2 137 039) 4 184 221 IT equipment 2 308 690 986 092 (71 037) (22 826) 22 603 (1 425 129) 1 798 393 Laboratory equipment 2 501 610 118 047 (1 195) (381) 38 196 (620 832) 2 035 445 Leasehold improvements 7 174 877 454 696 (67 764) – 406 010 (662 344) 7 305 475 Motor vehicles 21 506 909 7 040 628 (812 794) (3 255 874) 243 762 (3 557 825) 21 164 806 Office equipment 2 644 903 147 010 (5 821) – 27 339 (455 041) 2 358 390 Plant and machinery 171 700 178 21 478 491 (721 740) (2 121 100) 2 175 271 (13 791 419) 178 719 681 219 853 068 39 257 865 (1 781 281) (5 426 745) 3 063 531 (24 138 443) 230 827 995 Company Computer software 1 797 065 76 267 – (1 192) – (705 834) 1 166 306 Fire fighting equipment 4 620 378 – – – – (475 972) 4 144 406 Furniture and fixtures 2 755 301 413 106 – – – (1 304 930) 1 863 477 IT equipment 1 308 283 732 356 – (7 790) – (991 416) 1 041 433 Laboratory equipment 2 210 914 99 103 – – – (559 916) 1 750 101 Leasehold improvements 2 984 280 – – – – (161 753) 2 822 527 Motor vehicles 11 503 313 4 454 521 – (1 393 941) – (1 785 107) 12 778 786 Office equipment 2 295 664 120 723 – – – (346 690) 2 069 697 Plant and machinery 148 853 294 18 229 907 – – – (10 381 557) 156 701 644 178 328 492 24 125 983 – (1 402 923) – (16 713 175) 184 338 377 Reclassifications comprise the following: Plant and equipment has been reclassified to assets held for sale (refer note 11). Notes to the annual financial statements for the year ended 31 March 2012
  29. 29. ChemSpec annual financial statements 201227 1. PROPERTY, PLANT AND EQUIPMENT continued Reconciliation of property, plant and equipment continued 2011 Figures in Rand Opening balance Additions Re- classification Disposals Impairment Foreign currency translation Depreciation Total Group Aircraft 1 283 828 1 096 491 (1 050 000) – (1 330 319) – – – Computer software 2 135 908 252 554 – – – (14 739) (398 171) 1 975 552 Fire fighting equipment 3 864 597 1 297 557 – – – – (541 776) 4 620 378 Furniture and fixtures 6 849 697 198 584 – (79 420) – (68 338) (1 480 552) 5 419 971 IT equipment 3 715 979 392 387 – (12 045) – (14 698) (1 772 933) 2 308 690 Laboratory equipment 3 255 247 46 213 – – – (54 991) (744 859) 2 501 610 Leasehold improvements 7 600 285 445 455 – (4 407) – (258 381) (608 075) 7 174 877 Motor vehicles 17 597 388 8 692 394 – (1 521 629) – (230 410) (3 030 834) 21 506 909 Office equipment 1 226 721 2 049 572 – (39 058) – 413 (592 745) 2 644 903 Plant and machinery 172 390 052 23 665 425 – (3 462 266) – (467 920) (20 425 113) 171 700 178 219 919 702 38 136 632 (1 050 000) (5 118 825) (1 330 319) (1 109 064) (29 595 058) 219 853 068 Company Aircraft 1 283 828 1 096 491 (1 050 000) – (1 330 319) – – – Computer software 1 852 172 206 062 – (4 226) – – (256 943) 1 797 065 Fire fighting equipment 3 864 964 1 297 557 – – – – (542 143) 4 620 378 Furniture and fixtures 5 570 007 30 422 – (1 807 155) – – (1 037 973) 2 755 301 IT equipment 3 405 406 203 596 – (832 930) – – (1 467 789) 1 308 283 Laboratory equipment 2 933 996 – – (12 606) – – (710 476) 2 210 914 Leasehold improvements 3 964 767 72 280 – (724 283) – – (328 484) 2 984 280 Motor vehicles 15 814 851 5 094 486 – (7 958 174) – – (1 447 850) 11 503 313 Office equipment 940 128 1 977 370 – (122 892) – – (498 942) 2 295 664 Plant and machinery 152 384 449 19 923 910 – (6 120 976) – – (17 334 089) 148 853 294 192 014 568 29 902 174 (1 050 000) (17 583 242) (1 330 319) – (23 624 689) 178 328 492 For details of plant and equipment pledged as security, refer to note 17. Reclassifications comprise the following: Aircraft: The aircarft has been reclassified to assets held for sale (refer note 11) Borrowing costs Finance cost that have been capitalised during the year are as follows: Group Company Figures in Rand 2012 2011 2012 2011 Plant and machinary 1 242 582 – 1 242 582 – The capitalisation rates used to determine the amount of borrowing cost eligible for capitalisation were between 9,21% and 11,82%. Finance cost were not capitalised during the prior year as there were no eligible additions. Refer to note 24 for further details
  30. 30. ChemSpec annual financial statements 201228 2. INTANGIBLE ASSETS 2012 2011 Accumulated Carrying Accumulated Carrying Figures in Rand Cost amortisation value Cost amortisation value Group Purchased Customer lists 1 585 289 (1 564 606) 20 683 1 446 050 (1 217 220) 228 830 Internally generated Development costs 37 425 901 (8 134 179) 29 291 722 24 435 633 (5 197 186) 19 238 447 Automotive 27 598 301 (5 529 239) 22 069 062 17 018 178 (3 394 633) 13 623 545 Decorative 5 329 057 (1 209 212) 4 119 845 3 557 062 (813 746) 2 743 316 Industrial/Woodfinish 4 498 543 (1 395 728) 3 102 815 3 860 393 (988 807) 2 871 586 Total 39 011 190 (9 698 785) 29 312 405 25 881 683 (6 414 406) 19 467 277 Company Internally generated Development costs 25 310 403 (5 795 661) 19 514 742 17 541 943 (3 827 118) 13 714 825 Automotive 15 482 803 (3 190 721) 12 292 082 10 124 488 (2 024 565) 8 099 923 Decorative 5 329 057 (1 209 212) 4 119 845 3 557 062 (813 746) 2 743 316 Industrial/Woodfinish 4 498 543 (1 395 728) 3 102 815 3 860 393 (988 807) 2 871 586 Total 25 310 403 (5 795 661) 19 514 742 17 541 943 (3 827 118) 13 714 825 Reconciliation of intangible assets 2012 Figures in Rand Opening balance Additions Foreign currency translation Amortisation Total Group Customer lists 228 830 – 28 307 (236 454) 20 683 Development costs 19 238 447 13 071 417 (162 932) (2 855 210) 29 291 722 19 467 277 13 071 417 (134 625) (3 091 664) 29 312 405 Company Development costs 13 714 825 7 768 460 – (1 968 543) 19 514 742 2011 Figures in Rand Opening balance Additions Foreign currency translation Amortisation Total Group Customer lists 415 687 – 49 597 (236 454 ) 228 830 Development costs 18 628 369 3 255 360 (361 369) (2 283 913) 19 238 447 19 044 056 3 255 360 (311 772) (2 520 367) 19 467 277 Company Development costs 13 599 825 1 787 008 – (1 672 008) 13 714 825 Development costs are the costs incurred in developing formulations for the group's products. The total useful lives are 5 to 10 years. Notes to the annual financial statements for the year ended 31 March 2012
  31. 31. ChemSpec annual financial statements 201229 3. GOODWILL 2012 2011 Accumulated Carrying Accumulated Carrying Figures in Rand Cost impairment value Cost impairment value Group Goodwill 22 925 617 – 22 925 617 23 609 925 – 23 609 925 Company Goodwill 18 476 606 – 18 476 606 18 476 606 – 18 476 606 Reconciliation of goodwill Group Company Figures in Rand Comment 2012 2011 2012 2011 Opening balance 23 609 925 23 135 704 18 476 606 18 476 606 Foreign curreny translation (684 308) 474 221 – – Closing balance 22 925 617 23 609 925 18 476 606 18 476 606 Consisting of: Chemical Specialities Limited 1 18 476 606 18 476 606 18 476 606 18 476 606 ChemSpec USA, Inc. 2 4 449 011 5 133 319 – – 1. On 1 January 2006 the group started trading after a management buyout in which the assets and liabilities of Chemical Specialities (Pty) Limited and its sudsidiaries; Chemspec Botswana (Pty) Limited (incorporated in Botswana), Chemspec Coatings (Pty) Limited (incorporated in Australia) and Chemical Specialities Namibia (Pty) Limited (incorporated in Namibia) were acquired. 2. On 6 June 2007 the group acquired 60,35% of ChemSpec USA Inc. (previously Montana Products). Goodwill arose as the cost of the acquisition included a control premium paid to acquire ChemSpec USA. In addition,the consideration paid effectively included amounts in relation to the benefit of expected synergies, revenue growth, future market development and the assembled workforce of ChemSpec USA. These benefits are not recognised seperately from goodwill as the future economic benefits arising from them cannot be reliably measured. During the year ended 31 March 2009, a further 39,65% of ChemSpec USA, Inc. was acquired.
  32. 32. ChemSpec annual financial statements 201230 3. GOODWILL continued Impairment of goodwill An impairment assessment has been made in the current year in line with the requirements of IAS 36 and no impairment was deemed necessary. Goodwill is allocated to cash generating units as follows: Group Company 2012 2011 2012 2011 Automotive 9 605 931 9 892 659 7 741 775 7 741 775 Buy-ins 1 704 218 1 755 087 1 373 493 1 373 493 Decorative 2 597 745 2 675 285 2 093 619 2 093 619 Industrial/Woodfinish 7 479 992 7 703 263 6 028 404 6 028 404 Other 84 998 87 535 68 503 68 503 Solvents 1 452 733 1 496 096 1 170 812 1 170 812 22 925 617 23 609 925 18 476 606 18 476 606 Assumptions: Growth rate assumed (%) 3,79 6,75 3,79 6,75 Discount rate (%) 8,32 12,19 8,32 12,19 The allocation of goodwill is based on profit per product class and has been determined on the value in use. The value in use is based on historical observable market prices for the above segments. The assumptions are based on three year cash flow projections and budgets for the period ending 31 March 2015. Refer to the accounting policy section for details of key sources of estimation uncertainty regarding the impairment of goodwill. Refer to note 36 for further information on segment of classes. In accordance with the accounting policies, an impairment test of goodwill has been performed. The underlying key assumptions of the test of impairment include, but are not limited to, cash flow forecasts. Detailed impairment testing is performed annually. The impairment review process is as follows: For goodwill, each year and whenever impairment indicators are present, we calculate the fair value of the asset and record an impairment loss for the excess of the carrying value over the fair value, if any. Fair value is generally measured as the net present value of projected cash flows. The discount rate used to present value these cash flows takes systematic risks into account. The test performed did not identify any impairment. Key assumptions used in the value-in-use calculations: Growth in earnings before interest and taxation Income taxation (%) 28 Cost of equity Risk free rate (%) 7,43 Beta of peer company 0,17 South African market premium (%) 13,42 Adjustments to the cost of equity specific to the company After tax cost of debt – Prime lending rate (%) 11 Debt : equity position (%) 38,91 Notes to the annual financial statements for the year ended 31 March 2012
  33. 33. ChemSpec annual financial statements 201231 4. INVESTMENTS IN SUBSIDIARIES 2012 Country of incorporation Percentage holding Number of ordinary shares Carrying value Cost Chemical Specialities Namibia (Pty) Limited Namibia 100,00 100 100 100 ChemSpec (Botswana) (Pty) Limited Botswana 100,00 6 001 000 7 551 310 7 551 310 ChemSpec (Coatings) (Pty) Limited Australia 99,99 3 000 097 18 929 938 18 929 938 ChemSpec USA, Inc. USA 100,00 9 317 32 100 407 32 100 407 Boomerang Trading 106 (Pty) Limited RSA 100,00 120 120 120 ChemSpec Paint and Abrasive (Pty) Limited RSA 100,00 120 120 120 58 581 995 58 581 995 2011 Country of incorporation Percentage holding Number of ordinary shares Carrying value Cost Chemical Specialities Namibia (Pty) Limited Namibia 100,00 100 100 100 ChemSpec (Botswana) (Pty) Limited Botswana 100,00 6 001 000 7 551 310 7 551 310 ChemSpec (Coatings) (Pty) Limited Australia 99,99 3 000 097 18 929 938 18 929 938 ChemSpec USA, Inc. USA 100,00 9 317 32 100 407 32 100 407 Boomerang Trading 106 (Pty) Limited RSA 100,00 120 120 120 ChemSpec Paint and Abrasive (Pty) Limited RSA 100,00 120 120 120 58 581 995 58 581 995 Non-controlling interest is as follows: Group 2012 2011 ChemSpec (Coatings) (Pty) Limited Percentage holding at year end (%) 0,0001 0,0001
  34. 34. ChemSpec annual financial statements 201232 Group Company Figures in Rand 2012 2011 2012 2011 5. LOANS TO/(FROM) GROUP COMPANIES Subsidiaries ChemSpec (Botswana) (Pty) Limited – – (1 276 199) (1 135 086) This loan is Pula denominated, unsecured, is not repayable within the next 12 months and is interest free Chemical Specialities Namibia (Pty) Limited – – 6 155 396 4 378 842 This loan is Rand denominated, unsecured, is not repayable within the next 12 months and bears interest at South African prime rates 9% (2011: 9%) ChemSpec (Coatings) (Pty) Limited – – 49 922 (1 291 615) This loan is AUS Dollar denominated, unsecured, is not repayable within the next 12 months and is interest free Boomerang Trading 106 (Pty) Limited – – 22 485 370 26 571 589 This loan is Rand denominated, unsecured, is not repayable within the next 12 months and is interest free ChemSpec Paint and Abrasive (Pty) Limited – – 17 727 070 18 708 726 This loan is Rand denominated, unsecured, is not repayable within the next 12 months and is interest free ChemSpec USA, Inc. – – (1 886 112) (173 433) This loan is US Dollar denominated, unsecured, is not repayable within the next 12 months and is interest free Total loans to/(from) group companies – – 43 255 447 47 059 023 Non-current assets – – 46 417 758 49 659 157 Non-current liabilities – – (3 162 311) (2 600 134) Notes to the annual financial statements for the year ended 31 March 2012
  35. 35. ChemSpec annual financial statements 201233 Group Company Figures in Rand 2012 2011 2012 2011 6. DEFERRED TAX Deferred tax asset/(liability) – Capital allowances (36 986 310) (22 497 147) (33 005 605) (22 970 546) – Provisions 2 051 194 6 354 330 2 001 837 5 893 983 – Prepayments (296 565) (265 615) (274 494) (265 615) – Assessed losses 93 738 194 69 591 526 83 338 537 62 506 073 – Revaluation (10 384 088) (12 389 290) (10 384 088) (12 389 290) 48 122 425 40 793 804 41 676 187 32 774 605 Reconciliation of deferred tax asset/(liability) Opening balance 40 793 804 764 926 32 774 605 (1 755 601) Temporary differences 7 541 435 39 841 275 8 901 582 34 530 206 Change in tax rate – – – – Foreign currency translation (212 814) 187 603 – – Closing balance 48 122 425 40 793 804 41 676 187 32 774 605 Deferred tax asset 51 290 668 42 936 517 41 676 187 32 774 605 Deferred tax liability (3 168 243) (2 142 713) – – Deferred tax assets have been raised as it is probable that all the companies in the group will generate sufficient profit to recover the assessed losses. There are no unrecognised deferred tax assets or liabilities. 7. INVENTORIES Raw materials, components 32 131 059 26 647 208 24 973 503 20 970 544 Work in progress 6 743 824 6 116 488 6 623 401 6 036 656 Finished goods 92 051 653 81 106 102 67 229 169 46 195 463 Production supplies 803 421 576 685 803 421 576 685 Subtotal 131 729 957 114 446 483 99 629 494 73 779 348 Inventories (allowance for write-down) (2 424 908) (6 670 682) (2 424 908) (6 676 551) Discontinued operation (1 832 478) – (1 832 478) – 127 472 571 107 775 801 95 372 108 67 102 797 8. OTHER FINANCIAL ASSETS At fair value through profit or loss Forward exchange contract – 7 791 – 7 791 Total other financial assets – 7 791 – 7 791 Current assets At fair value through profit or loss – 7 791 – 7 791

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