AVUSA annual report 2010 - tisoblackstar.com · Avusa value proposition Trusted quality content...
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annual report 2010
AVU
SA annual report 2010
i
Your media andentertainment partner
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Our visionTo be the preferred media and entertainment partner.
Our missionTo create value for all our stakeholders with the delivery of innovative media and entertainment products that enrich our customers’ lives.
About AvusaAvusa is a leading South African media and entertainment company.In a continent where economic progress and social reform are critical goals, Avusa stands proud. It is a profitable and ethical company, a world-class supplier of media, including newspapers, magazines and digital services, and a competitive producer, publisher and distributor of music, films and books.Avusa is a public company quoted on the JSE Limited.
Avusa value propositionTrusted quality contentTrusted brandsMultiple channelsTalented people
Contents
Group overviewOur vision iiOur mission iiAbout Avusa iiAvusa value proposition iiSuccess factors iiiCompany values and strategic focus iiiFinancial performance 1Segmental structure 2Directorate 4Chairman’s report 6Group chief executive officer’s report 8Review of operations 12
Sustainability reportingCore values 18Code of conduct 18Human capital 19Environment, health and safety 22Corporate social investment 24Broad-based black economic empowerment (B-BBEE) 27Corporate governance and risk management 28Awards 35Corporate activity 37Analysis of shareholders 38Stock exchange performance 40
Annual financial statementsIndex to the annual financial statements 41Statement of directors’ responsibilities 42Directors’ approval of the annual financial statements 43Certificate by the company secretary 43Independent auditors’ report 44Directors’ report 45Audit and risk committee report 50Statements of comprehensive income 52Statements of financial position 53Statements of cash flows 54Statements of changes in equity 55Notes to the annual financial statements 56Remuneration, human resources and transformation committee report 98Interests in directly held subsidiaries 106Group interests in associates 108Group attributable interests in associates 110
Shareholder informationNotice of annual general meeting 111Form of proxy 117Notes to the form of proxy 118Electronic reporting 119Corporate information 121Shareholders’ diary 121
www.avusa.co.zaThis annual report is printed on Magno and cartridge papers, both of which are acid, chlorine and woodfree. In addition, cartridge is Forest Stewardship Council certified.
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• Talented management and employees
• Strong relationships with international business partners
• Strong balance sheet
• Cash generative
• Increased dividend
• Black employees in senior management ahead of B-BBEE targets
• Market leader
• Committed to good corporate governance
Success factors
Company values and strategic focus
Our strategic focus
Our behaviour
Our values
What drives us?
Our vision
Our unifying value proposition
HOPE AND POTENTIAL
Inspire meaningful progress in society
To create value for all our stakeholders with the delivery of innovative media and entertainment products that enrich our customers’ lives
Trusted quality content
Trusted brands
Multiple channels
Talented people
INNOVATION
Seek out illuminating discoveries
EMPOWERMENT
Reflect diversity, encourage
development of consumers and staff
JOY EVERY DAY
Bring pleasure to people’s lives
COURAGEOUS
Move from risk averse to biggerappetite for risk
CURIOUS
Vigilant enquiry and discovery that delivers relevant,
exciting and profitable solutions
CAPTIVATING
Enthral audiences and take them on
journeys of welcome escapism
CAN DO
Live the philosophy of co-creating
partnerships – with consumers and
business partners
Operational focus Investment in digital Human capital Growth
To be the preferred media and entertainment partner
1Avusa annual report 2010
Group overview
2010Rm
2009Rm
From continuing operations
Revenue 4 712 4 892
Profit from operations 250 402
Net finance income 12 23
Share of profits of associates (net of income tax) 9 –
Profit before taxation 271 425
Profit after taxation 177 293
Attributable earnings per ordinary share (cents) 153 261
From discontinued operations
Profit from discontinued operations 2 39
Attributable earnings per ordinary share (cents) 2 38
From continuing and discontinued operations
Profit for the year 179 332
Attributable earnings per ordinary share (cents) 155 299
Headline earnings per ordinary share (cents) 149 242
Dividend declared per ordinary share (cents) 75 60
Financial performance
Dividend up
25%Operating costs decreased by
2%
Advertising revenues down
17%Headline earnings per share down
38%
2 Avusa annual report 2010
Segmental structure
Revenue
Newspapers, magazines, digital and out-of-home
Media
Retail
General and academic book retail
Entertainment
Film and music
Books and Maps
Book and map publishing, digital mapping, platform businesses
R1,986 billion2009: R2,228 billion
R1,131 billion2009: R1,074 billion
R1,022 billion2009: R980 million
R573 million2009: R610 million
3Avusa annual report 2010
Group overview
NewspapersSunday Times, The Times, Times Live, Business Day, Sowetan, Sunday World, Daily Dispatch, The Herald, Avusa Community NewspapersMagazinesFinancial Mail, South African Home Owner, Longevity, Avocado, Elle, Elle Décor, MIMS and other titlesDigitalI-Net Bridge, Career Junction, AmorphousOut-of-homeAirport Media, Boo Media
Business entities Top brands
Exclusive Books
Van Schaik Bookstore
Exclusives.co.za
FilmNu Metro Cinemas, Nu Metro Films (film distribution), Nu Metro Home Entertainment, Nu Metro Interactive (gaming), Popcorn Cinema Advertising
MusicGallo Music Group
Book and map publishingRandom House Struik, Struik Christian Media, Map Studio, New Holland Publishers (UK, Australia, New Zealand)
Digital mappingMapIT
Platform businessesBooksite Afrika (book distribution), Entertainment Logistics Services (ELS) (CD and DVD distribution), Compact Disc Technologies (CDT) (CD and DVD manufacture), Associated Music Distributors (AMD) (debt factoring for the film and music industries), Collage Litho, Mega Digital
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Directorate
DB Ntsebeza (60)BA, BProc, LLB, LLM (International Law)Independent non-executive chairman
Joined group 30 September 2008
Dumisa is an advocate of the High Court of South Africa and was the first African advocate at the Cape Bar to be appointed as senior counsel. He served as a commissioner on the Truth and Reconciliation Commission and was appointed acting judge of the High Court of South Africa until 2000. He was appointed to the Barloworld Limited board in May 1999 and became chairman of Barloworld in June 2007.
Committee memberships during the year under review: nominations committee (chairman), remuneration, human resources and transformation committee.
Committee memberships from 1 April 2010: nominations committee (chairman), remuneration, human resources and transformation committee, investment committee.
PC Desai (55)BCom, BCompt (Hons), CA(SA)Group chief executive officer
Joined group 1 March 1999
Prakash was appointed group chief executive officer on 30 March 2007 after serving as acting group chief executive officer since 19 September 2006. His previous positions in Avusa were deputy group chief executive officer and group finance and operations director. Prior to that, he was the group finance and operations director of what was then Johnnic Publishing Limited (now Avusa Publishing). Prakash is a board member of the
World Association of Newspapers, president of Print Media South Africa, a board member of the Newspaper Association of South Africa, and a director of the Wits Health Consortium.
Committee membership: executive committee (chairman).
H Benatar (44)BCom, BAcc, CA(SA)Chief financial officer
Joined group 18 September 2002
Howard joined what was then Johnnic Publishing Limited (now Avusa Publishing) as finance director in September 2002 and, following the group restructure in July 2003, was appointed Avusa’s group executive: finance and administration. He was appointed chief financial officer in April 2005.
Committee membership: executive committee.
MD Brand (67)Independent non-executive director
Joined group 28 September 2006
Dods was a career retailer from 1963 until his retirement in 1998, at which time he was the chief executive of JSE-listed Moregro (Morkels Retail Group Limited). He has served on and chaired the boards of a number of international and local public companies and is currently a director of Massmart Holdings Limited and various private entities.
Committee memberships: remuneration, human resources and transformation committee (chairman), audit and risk committee.
YZ Cuba (32)BCom (Statistics) (UCT), BCom (Hons) (Accounting) (Natal), CA(SA)Non-executive director
Joined group 21 April 2008
Yolanda joined Mvelaphanda Holdings (Proprietary) Limited corporate finance division in January 2003. She has worked in a wide range of companies, including Robertsons Foods and Metropolitan Life, and is also involved in a number of development companies where she gives assistance and advice on financial matters and strategic investment. Yolanda was appointed chief executive officer of Mvelaphanda Group Limited in July 2007. She serves on a number of boards including Absa Limited, Steinhoff Limited and Life Healthcare Limited. Yolanda was recognised as the Top Empowered Businesswoman of the Year in 2006 by Top Companies, and in 2007 she was awarded the Youth Excellence Award by the Black Management Forum. In 2008, she was selected by the World Economic Forum as a Young Global Leader.
Committee memberships: investment committee (chairman), remuneration, human resources and transformation committee.
LM Machaba-Abiodun (49)BCom (Law), HDip Ed (postgraduate),MBA, MA, OCM (Harvard)Independent non-executive director
Joined group 1 May 2007
Laura is the chairman and managing director of the management consultancy firm AMC International Group. She began her career in the Department of Finance as an assistant accountant, followed by four years at Shell Oil as a marketing executive.
Dods Brand Yolanda Cuba
Howard Benatar
Prakash Desai
Dumisa Ntsebeza
5Avusa annual report 2010
TA Wixley (70)BCom, CA(SA)Independent non-executive director
Joined group 24 June 2002
Tom is a former chairman of Ernst & Young, co-author of Corporate Governance, with Professor Everingham, and a member of various professional committees. His board memberships include: Actuarial Governance Board, Anglo Platinum Limited, Clover Industries Limited, New Corpcapital Limited (chairman), Pan Africa Insurance Holdings Limited (registered in Kenya), Sanlam Developing Markets Limited and Sasol Limited.
Committee memberships: audit and risk committee (chairman), investment committee.
MSM Xayiya (49)BA (Unisa), Certificate of Defence Management (Wits), Emerging Market Leadership Programme (University of Pennsylvania)Non-executive director
Joined group 21 April 2008
Mikki served in various capacities in the African National Congress since 1977. In 1995, he was appointed as a policy advisor to the Office of the Premier, Gauteng Provincial Government. He left public office and joined Mawenzi Asset Managers as managing director. In 1998, he co-founded Mvelaphanda Holdings (Proprietary) Limited and is currently the executive chairman of Mvelaphanda Group Limited, and an executive director of Mvelaphanda Holdings (Proprietary) Limited.
Committee membership: nominations committee.
Laura has experience in the USA in both the private and public sectors, and has contributed to the books Why the Bottom Line Isn’t by Dave Ulrich and The Capable Company by Richard Lynch. She is the chairman of The Argus Voting Trust, vice-chair of the board of the American International School of Johannesburg (AISJ), partner and chairman of Protect-a-Partner, an auditing and accounting services firm, and she also serves on the Institute of Directors Southern Africa (IoD) and South African Revenue Service (SARS) councils.
Committee membership: audit and risk committee.
TRA Oliphant (65)MAPIndependent non-executive director
Joined group 21 August 2003
Tommy spent 24 years at the Metal and Electrical Workers Union of South Africa, latterly as general secretary. He joined Fedsure Life in 1995 as national sales manager. In 2002 he was appointed chairman of Aventura Resorts, resigning in 2005. Other directorships include LA Group Limited and African Legend Investments Limited. He is also a former chairman of Airports Company South Africa and Bonitas Medical Fund.
Committee membership: nominations committee.
MJ Willcox (40)BA, LLB, Postgraduate Dip (Tax) (UCT)Non-executive director
Joined group 21 April 2008
Upon completing his studies, Mark worked for an investment bank in the USA. During this period, he was exposed to various significant mining and property transactions in the USA, the Far East and Africa. Mark is the chief executive officer of Mvelaphanda Holdings (Proprietary) Limited.
Group overview
S Matiwaza (41)BSc (Chemical Engineering) (Cape Town), BCom (Unisa)Alternate non-executive director (alternate to MJ Willcox and MSM Xayiya)
Joined group 21 April 2008
Resigned 30 September 2009
Z Mtshotshisa (51)Master’s degree in Mass Communication (Karl Marx University), MSc (International Relations) (University of Zimbabwe), Postgraduate Diploma in Human Resources Management (RAU), International Diploma in Journalism (Budapest)Alternate non-executive director (alternate to YZ Cuba)
Joined group 21 April 2008
Resigned 30 September 2009
ME Ramano (55)Independent non-executive director
Joined group 26 February 1997
Retired 21 September 2009
Laura Machaba-AbiodunMark Willcox
Tom Wixley
Mikki Xayiya
Tommy Oliphant
6 Avusa annual report 2010
Chairman’s report
The rationale behind creating Avusa was to unlock value for shareholders. Results for the group’s second year, the twelve months to 31 March 2010, convincingly illustrate this potential. In arguably one of the worst periods for the media and entertainment industry globally, Avusa recorded a stronger second half and reduced operating costs, used its balance sheet strength for income-diversifying acquisitions and increased its dividend to shareholders by 25%.
Performance in contextBy the end of the review period, there were positive signals in the South African economy, including rising consumer confidence and house prices, and inflation returning to the target range. However, coupled with rising unemployment and subdued retail sales growth, analysts now believe the economic recovery will be slow. The possibility of a double-dip recession remains, given the global implications of euro-zone debt issues.
Conditions in the domestic media sector and in the retail sector which began its sharp decline in 2007 and showed the first reversal of this trend in March 2010, mirrored the broader economy.
In media, total circulation has been declining since the first quarter of 2008, forcing the closure of numerous titles across the industry. Sadly, this included the Weekender, published by our joint venture, BDFM. Against this background, Avusa’s 1% increase in circulation revenues for the year is commendable.
Conversely, cinema attendances increased 14%. This, combined with higher ticket prices and increased spending on confectionery, strong growth in the interactive unit and a turnaround in the music unit, supported an improved performance in the entertainment division.
PeopleQuality content drives Avusa at every level – and the quality comes from people. Every day, seasoned journalists and editors, skilled photographers, innovative developmental specialists all bring their talent to bear in innumerable ways. Many of these are recognised in the awards and accolades received during the year (see the awards report on pages 35 and 36). They are also reflected in the way the group deploys its formidable talent.
During the year, Sunday Times editor Mondli Makhanya was promoted to editor-in-chief of Avusa Media newspapers. Makhanya has been an outstanding editor of our flagship title, steadily growing readership to over four million through compelling content. In his new position, Makhanya is responsible for establishing and running centres of excellence that will produce original content for all the group’s newspapers and websites. This restructuring is aimed at ensuring all our titles benefit from his experience and Avusa Media’s enhanced investment in editorial excellence. The editor of The Times, Ray Hartley, assumed editorship of the Sunday Times while the editor of Business Times, Phylicia Oppelt, became editor of The
7Avusa annual report 2010
Group overview
Times. Marcia Klein was appointed editor of Business Times.
TransformationBroad-based black economic empowerment (B-BBEE) is a strategic business imperative in South Africa, and, as a responsible corporate citizen, Avusa continues to play a significant role in contributing towards the overall transformation of the country, holistically and sustainably.
Avusa has made significant progress in building a representative workforce and developing individual skills through organic growth, skills retention and preserving intellectual capital.
During the period, Avusa was independently assessed as a level 4 B-BBEE contributor, an improvement from level 5 in the prior year. According to the associated scorecard, the group’s current strengths lie in ownership, management control, enterprise development and socio-economic development. Our scores in the three other elements will improve as our strategies in these areas gain traction.
We are also steadily transforming our business. Although media remains the cornerstone of our group, we are incrementally diversifying and preparing our businesses for the digital age which requires maintaining a fine balance between investment and timing. This is an ongoing management priority.
ThanksUnder the capable leadership of Prakash Desai, Avusa is home to some of the industry’s most experienced and skilled media and management teams, respected by peers for their integrity and acknowledged by their industries for innovation. On behalf of the board, I thank every one of you.
I also thank my fellow directors for their ongoing support and counsel.
OutlookAvusa has several key points of differentiation: it is home to several of South Africa’s leading media and entertainment brands – brands that benefit from ongoing investment; the group has proven its ability to holistically leverage content across its media and entertainment businesses; it has optimised key operations and is executing a well-planned strategy.
Perhaps most importantly in the 21st century, Avusa understands and is managing the evolution from traditional business to the digital arena, proving this ability by organic and acquisitive growth focused on integrated solutions that meet the changing needs of customers and end users.
Adv. Dumisa Buhle Ntsebeza SCChairman
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Group chief executive officer’s report
The name Avusa is just two years old, but our pedigree stretches back decades in our strong brands – names such as Sunday Times, Sowetan, Nu Metro and Exclusive Books that are an integral part of South Africa’s societal fabric.
The softer economic activity characteristic of a recessionary climate was evident throughout the financial year, resulting in reduced support for Avusa’s main value driver of advertising. Despite economic challenges, Avusa has delivered results competitive with global and local peers, and confirmed the quality of its operations.
Results for the full year reflected revenues and operating profit at 4% and 39% respectively below 2009. An improvement in the second half was delivered from early initiatives to address the anticipated recession.
Financial results Avusa’s results in such a challenging period reflect a business model that remains sound and robust.
Revenue from continuing operations decreased 4% from R4,9 billion to R4,7 billion. Primarily due to our fixed-cost media and entertainment business model, we saw topline revenue losses translated to the bottomline. Group advertising revenues were down 17% year-on-year (some R200 million).
Lower revenue, together with the reduced gross margins for the entertainment businesses inevitable in a recessionary market, resulted in gross profit being R167 million below the prior period. Improved performances from our entertainment business unit, including a turnaround in our music business, produced a 131% profit improvement for the entertainment division, more than doubling its contribution to group results. This again underscores the benefits of diversifying our income streams, a strategic imperative for Avusa.
The successful implementation of sustainable group-wide cost-cutting initiatives decreased operating costs by 2%. This is a commendable achievement, given above-inflation increases in wages, rental and input costs, and digital development costs.
Headline earnings per share for the year were down 38% to 149 cents from 242 cents.
The group’s financial position remains ungeared and strong, with net cash of R504 million at year-end. Against this background, the board declared a 25% increase in the dividend to shareholders, at 75 cents per share.
9Avusa annual report 2010
Review of operationsMediaAdvertising revenues were under pressure across all titles, but picked up in the last quarter. Given the higher proportion of fixed costs in this division, the 17% decrease in advertising revenue (predominantly recruitment advertising) had a concomitant impact on bottomline results. BDFM, our 50% joint venture with Pearsons, incurred a loss before interest and tax of R24 million (2009: R9 million loss). New initiatives on advertising segmentation were bearing fruit by year-end, with support for retail and classified advertising growing.
Post year-end, our newest title, The Times, recorded its first monthly profit after a trend of steadily diminishing EBIT losses, as depicted below, confirming its acceptance by advertisers and readers alike.
In line with our multi-media strategy, we launched TimesLive and the Sowetan’s online site during the year. By May 2010, Avusa had a total domestic audience of 1,5 million unique browsers, making us the third-largest online publisher in South Africa.
RetailThe retail division has grown market share and expanded its portfolio while delivering competitive earnings before interest and tax despite a recessionary environment that is characterised by lower discretionary spend.
The online store, Exclusives.co.za, was successfully launched in March 2010, trebling the traffic received on the previous website.
Entertainment In an increasingly competitive sector, profit from operations more than doubled in the review period to R30 million, following improved performances from cinemas and film distribution, and a return to profitability in the music unit.
Reflecting the contra-recessionary nature of the business segment, attendances were up 14% at Nu Metro Cinemas. Importantly, some 16% of attendances now come from 3D releases, reinforcing the importance of the group’s digital strategy and investment.
Group overview
72,4
80,2
78,1
90,2
119,3
Jun 07 to
Sept 07 Oct 07 to
Mar 08 Apr 08 to
Sept 08 Oct 08 to
Mar 09 Apr 09 to
Sept 09 Oct 09 to
Mar 10
10 Avusa annual report 2010
Group chief executive officer’s report (continued)
• Growth – building Avusa into a multi-media player with diverse revenue streams.
Subsequent to year-end, we announced the proposed acquisition of Universal Print Group and Hirt & Carter (the UHC acquisition). If approved, this will achieve several objectives including introducing an empowerment shareholder, and offering new revenue streams for Avusa.
Digital strategyAvusa’s digital strategy for group-wide new business is focused on growing organic projects that will extend our reach beyond the core print audience.
Initial results from the first two projects launched, the online retail store and TimesLive, have been most encouraging. Additional projects are under way to introduce e-classifieds and to focus on the digital business market.
In this investment phase of our digital strategy, stringent criteria are in place, particularly regarding investment. At the same time, we are constantly evaluating potential digital acquisitions that support our organic projects and fill any gaps in the evolution from physical to digital platforms. Importantly, any acquisitions would need to meet specific criteria and be appropriately priced.
In contrast to its competitors, Nu Metro Home Entertainment grew unit sales and acquired home entertainment licences for Sony Pictures and Paramount/Dreamworks. This business now represents five of the six major studios, and accounts for 80% of South African Blu-ray sales.
Books and mapsDepressed trading conditions and rand strength contributed to a 6% decrease in revenues. While the South African businesses managed their margins and reduced expenses, the UK business recorded a large loss. The Australian and New Zealand businesses performed ahead of last year.
Focus in 2011The current economic environment continues to present risks, which we are countering through operational efficiencies, cost containment and the pursuit of new revenue opportunities.
In the year ahead, our strategy will concentrate on:• Operational focus – extracting greater
returns from existing businesses;• Investment in digital – implementing an
organic growth strategy, complemented by prudent acquisitions;
• Human capital – internships, talent management and future leadership initiatives; and
11Avusa annual report 2010
Group overview
Our management teams are characterised by their dedication and shared passion, supported by loyal suppliers and partners, and a board of directors that is a constant source of guidance and counsel. We deeply appreciate your input.
Millions of South Africans support Avusa every day and we thank you for buying a newspaper, a DVD, going online, picking up a book or magazine, and enjoying a movie.
OutlookAs noted earlier in the chairman’s report, Avusa was created to deliver shareholder value, and our strategy for long-term growth is unfolding according to plan.
The positive impact of the 2010 FIFA World Cup™, coupled with continued returns from sustainable initiatives introduced in the current recession, are expected to contribute to improved results in the year ahead. Overall, Avusa is well positioned to capitalise on the anticipated improvement in the economy.
Prakash C DesaiGroup chief executive officer
PrintingIn Gauteng, Avusa has aged printing presses supporting the bulk of the printing requirement of our leading titles.
After comprehensive investigation, the Avusa board has approved an investment of up to R150 million to address the risk of these aged presses. Importantly, this replacement capital expenditure will not increase existing capacity. Our major shareholders have indicated they will support the replacement investment that will improve the bottomline, mitigate the risk of non-supply and create strategic business opportunities.
This investment does not address all Avusa’s printing requirements in Gauteng.
AppreciationThe past two years have proved a singularly challenging time for businesses around the globe.
Avusa’s results for the year are testimony to the skill and commitment of our people at every level and in every discipline. For a group driven by content, the people who put that content together and develop the platforms to deliver it are our lifeblood. Thank you for making our transformation into a new-age multi-media group a growing reality.
Review of operations
Although advertising revenues remained
under pressure across the newspaper
and magazine divisions, these picked
up in the last quarter as marketers
began returning to print. We expect that
recruitment advertising, hard hit by the
slowdown in the economy, will be the last
sector to recover.
Circulation revenue and copy sales of
all our titles remained under pressure.
Subscriber debit order rejections, which
were much higher than usual, had
normalised by year-end.
Readership of most of our titles continued
to grow. The Sunday Times exceeded the
four million readership level for the first
time, growing to 4,2 million, increasing
its leadership in the weekend newspaper
market.
The Times again performed well, halving
its loss to R13 million from last year’s
R25 million loss. In just three years,
The Times has established itself in the
market and attracted the advertising
support of major retailers.
Among our Eastern Cape titles, the
Daily Dispatch posted significantly
improved results for the year after
restructuring in 2009, and received a
number of prestigious awards for its
print and online investigative journalism.
BDFM, our 50% joint venture with
Pearson, and publisher of Business Day
and Financial Mail, incurred a loss before
interest and tax of R24 million against last
year’s R9 million loss. BDFM’s Weekender
newspaper was closed due to ongoing
Media
12 Avusa annual report 2010
Airport Media, our out-of-home business,
produced credible results for the year
given the business interruptions caused
by construction work at OR Tambo
International Airport.
In line with our out-of-home growth
strategy, on 1 October 2009, Avusa
acquired a 51% stake in Boo Media and
Communication (Boo Media). Boo Media
develops opportunities for advertisers,
particularly in shopping malls and building
wraps.
losses, with the final issue published on
7 November 2009.
I-Net Bridge weathered the economic
downturn to produce improved results,
despite investing in a new generation of
products.
Career Junction was affected by the
slowdown in job placements. The
company closed its Dubai-based Middle
East operation in the second half of the
year.
Our education business, Learning
Channel, gained market share after
several years of investing in quality
content.
Group overview
13Avusa annual report 2010
Review of operations (continued)
This business unit grew revenues 5%,
while profit from operations, which
included R15 million (2009: R4 million)
of digital development and online costs,
declined by R16 million.
Exclusive Books increased revenue 5%
over the comparative period, with same-
store revenue up 1%. The business
concentrated on containing costs and on
rightsizing its store portfolio, with three
loss-making stores closed during the
period and five new stores opened.
Van Schaik Bookstore introduced a new,
contemporary corporate identity and
performed well during the year, boosted
by a heightened focus on the school book
market. Four new stores were opened in
the second half, including one in Soweto’s
Maponya Mall.
The retail business unit successfully
launched Avusa’s online store,
Exclusives.co.za, in March 2010. The
online site retails DVDs, CDs, books and
electronic games.
Retail
14 Avusa annual report 2010
proof 1 – 28 JUNE 2010
15Avusa annual report 2010
Entertainment
Driven by an improved performance from
Nu Metro Cinemas, excellent results from
Nu Metro Film Distribution, and a return
to profitability at the music business, the
business unit produced R30 million profit
from operations, compared to R13 million
in the comparative period.
Attendances at Nu Metro Cinemas grew
14% over the prior year, contributing
to a 29% increase in revenue. This
performance was driven by excellent
content, strategic marketing initiatives and
continued roll-out of 3D screens, as well
as management intervention regarding
branding, operations and marketing.
Nu Metro Cinemas partnered with Clicks
Club Card from 1 December 2009 to give
both partners access to new customers
and increased marketing exposure. While
two non-performing cinema sites were
closed in line with the focus on premium
sites, Africa’s first all-digital cinema
complex was opened at Emperors Palace,
as was the state-of-the-art Galleria
complex in Amanzimtoti, KwaZulu-Natal,
in December 2009.
Despite operating in a market segment
that recorded a trading decline of 11%,
Nu Metro Home Entertainment grew
unit sales and limited its revenue fall
to 2%. Home Entertainment acquired
the Sony Pictures Home Entertainment
and Paramount/Dreamworks Home
Entertainment licences in June 2009.
Group overview
Nu Metro Interactive grew market share to
12% through its continued retention and
acquisition of licences.
Nu Metro Film Distribution continued to
successfully build the Nu Metro Inspires
label, and develop local and Bollywood
content. The business also marketed and
launched the year’s three biggest films,
Avatar, Twilight and Ice Age 3.
The music business recorded a
further decline in sales, in line with the
global music market. Rightsizing and
restructuring initiatives in the second
half of last year have paid off, with the
business generating a small operating
profit for the year.
Review of operations (continued)
16 Avusa annual report 2010
Entertainment
retreated to their core activities. Struik
Christian Media acquired the Destiny
Image agency, a leading international
publisher with strong author brands
well suited to the South African market.
MapIT performed below the prior year
due to the maturation of its market and
the consequent slowdown in sales of
satellite navigation devices.
Internationally, the Australian and New
Zealand businesses performed ahead
of last year, while the United Kingdom
business continued to operate in a severe
recession, exacerbated by tightened
credit extension across all trade accounts.
Although cost-cutting and working
capital reduction remained key focus
areas during the year, the business unit
maintained its digital initiatives to ready
product for digital delivery.
The Books and Maps results include
a foreign exchange loss of R7 million
compared to R3 million in the comparative
period.
Books and Maps, which incorporates
Random House Struik, Struik Christian
Media, Map Studio, MapIT, Booksite
Afrika, Entertainment Logistics Services
(ELS), Compact Disc Technologies
(CDT), Collage Litho and Mega Digital,
as well as offshore book businesses in
the United Kingdom, Australia and New
Zealand, experienced depressed trading
conditions due to the global recession.
Rand strength continued to negatively
impact revenues.
The South African businesses managed
their margins and cut expenses.
Random House Struik was the South
African business most affected by
the current economic climate due to a
decline in backlist sales as book retailers
reduced stock levels and focused their
buying on frontlist titles, and from
lower non-trade sales as customers
Books and Maps
17Avusa annual report 2010
proof 13 – 13 JULY 2010G
roup overview
18 Avusa annual report 2010
The code details situations (including
outside employment and personal
investments) that may lead to conflicts
of interest, and limits directorships of
companies outside the Avusa group to
two. Employees are encouraged to discuss
these situations with line management to
achieve equitable resolutions.
Avusa clearly communicates stipulations
on the use of sensitive information imposed
by the Companies Act, Insider Trading Act,
stock exchanges, securities regulation
panels and other regulatory bodies and
industry associations.
To guard against corruption and to
promote sound corporate governance, the
code details procedures for employees
to disclose contraventions or irregular
conduct.
Core values
InnovationLeading the market by
proactively seeking new
platforms and revenue
streams that grow market
share and add value.
IntegrityAn uncompromising
commitment to
transparency and
honesty in the way we
conduct our business,
as well as vigorously
upholding the principles
of free media.
EmpowermentEncouraging an
environment that reflects
the diversity of South
African society and that
allows all staff to develop
and grow.
Work ethicProudly promoting a work
environment that fosters
among all employees
a spirit of excellence
and commitment to
uncompromising service.
Code of conduct
Given the nature of the Avusa group,
ethical practices are a cornerstone of our
corporate code of conduct. Accordingly,
our people are expected to uphold fair
practices by:
• maintaining the highest standards of
integrity in all business relationships;
• carefully guarding against influences
that may compromise independent
judgement and action; and
• using their approved authority to act on
behalf of the company in Avusa’s best
interests at all times.
The group’s code of conduct details the
behaviour expected from employees at
every level when dealing with stakeholders
including customers, shareholders,
suppliers, colleagues and competitors.
The code also sets out expectations for the
group as a responsible corporate citizen.
Avusa does not condone any unethical
business dealings (including fraud, bribery
and money laundering) by employees
or the violation of any law. To protect
the group’s reputation, in particular that
of its media operations, employees are
cautioned to guard against perceived
violations. To assist employees, the
code details acceptable limits on gifts,
hospitality, free trips and favours.
Sustainability reporting
The sustainability reporting which follows, in addition to covering quality of content, distribution channels, media freedom and editorial independence, also provides details about Avusa’s people, environment, corporate social investment and broad-based black economic empowerment.
19Avusa annual report 2010
Sustainability reporting
Human capital
People are the foundation of Avusa’s
business. Their combined intellectual
capital, experience and expertise are pivotal
to Avusa’s success within the media and
entertainment sector. Accordingly, Avusa
strives for human resources strategies
and policies that acknowledge the unique
requirements of its diverse business units
to support group performance and growth,
and to optimise the potential of every
employee within the group.
During the year under review, multi-
pronged human resources initiatives were
undertaken to counter the recession.
Operational efficiencies were leveraged, a
headcount freeze was imposed except for
key positions, structures were streamlined
to maximise productivity, overtime was
managed downwards to a minimum, leave
was more tightly controlled, and the use
of temporary, fixed-contract and freelance
workers was curtailed. At the same time,
Avusa continued to execute its long-term
business strategy together with its related
human resources goals.
Growing young talent
Avusa’s learnership and internship
programmes source young and educated
talent, and provide them with an
opportunity to gain work experience.
Substantial investment in terms of both
resources and management support is
expended to develop this young talent
pool for Avusa.
Besides having a fully trained and
qualified staff complement to execute the
company’s strategy, the complementary
process of growing young, educated but
inexperienced talent is essential for the
company’s sustainability. A total intake of
90 mainly black individuals underwent on-
the-job training with Avusa’s learnership
and internship programmes to prepare
them for future roles within Avusa. This
initiative also responds to the government’s
pledge to reduce unemployment and to
develop the skills base of South Africa’s
youth.
Avusa also offers financial assistance and
bursaries to the children of lower-income
employees on an annual basis.
Talent management
Special attention is paid to the
management of talent, with the company’s
low staff turnover rate bearing testimony
to this. The company defines talent as
consistently high-performing individuals
who occupy strategic positions in the
delivery of Avusa’s strategy, with special
attention being paid to these individuals
to maximise their potential. Talent
management initiatives undertaken include
assessments using a variety of tools,
career pathing discussions and the design
of customised development solutions to
match key talent needs.
The existing talent management
programme also aims to retain the key
talent within the group by creating an
environment that promotes employees’
individual professional goals and
productivity potentials. The talent
management programme also assists
in the strengthening of the company’s
leadership pipeline.
20 Avusa annual report 2010
scheme which extends loans for course
fees, and refunds successful candidates
upon completion of their courses.
Employee wellness
A healthy, productive workforce is a
business imperative. The company’s
employee assistance programme provides
the necessary support for all employees’
medical and psycho-social problems that
affect their work performance and general
well-being. The programme covers a range
of issues, including financial planning,
family problems, trauma, stress, general
ill health, substance abuse, HIV and Aids.
Life-threatening illnesses
Avusa is committed to creating a supportive
and non-discriminatory environment in
which employees with life-threatening
illnesses are able to continue working for
as long as they are medically capable. The
group policy on life-threatening diseases
covers, amongst others, cancer, heart
disease, tuberculosis, hepatitis, HIV and
Aids.
Avusa has an ongoing HIV/Aids
management programme which is offered
through a variety of sources based on
individual and group needs, including
online education and support services,
milestone days of remembrance, and
support groups. Educational workplace
programmes disseminate facts on HIV/
Aids and other communicable life-
threatening illnesses to raise awareness
and encourage a positive approach to
every employee.
Employment equity
Constantly improving our demographic
profile is a key driver of Avusa’s
transformation process. This is supported
by a detailed employment equity strategy
and policy and significant investment in
training and development.
In each business unit, employment equity
targets are quantitatively and qualitatively
measured. The former is aligned to group
targets, while the latter considers strategic
human resources initiatives aimed at
attracting, retaining and engaging staff.
Human capital development
Avusa’s human capital development
strategy is formulated within the context
of the corporate business strategy aimed
at enhancing skills within the company,
and taking cognisance of the national
skills development strategy, the national
qualifications framework, the Skills
Development Act and the Employment
Equity Act.
The company’s business units operate
in diverse markets that require different
skills sets. Although the human resources
development strategy is set at group level,
implementation is tailored to meet the
requirements of the individual business
units and their evolving markets and
requisite skills.
In addition to internal training, employees
are encouraged to undertake external
studies related to the group’s business
using the Avusa education assistance
Human capital (continued)
21Avusa annual report 2010
Sustainability reporting
Employee relations
Avusa operates in a labour environment
where freedom of association and speech,
and employee rights are respected in
terms of the South African constitution
and current labour legislation. Our
corporate culture embraces participative
management to promote full participation
on issues affecting employees across the
spectrum, and individual business units
have in place employee structures that
suit their particular circumstances.
Avusa is committed to:
• fair treatment and non-discriminatory
work practices;
• collective bargaining principles while
respecting the individual’s right to
freedom of association or dissociation;
• upward communication through existing
structures and appropriate procedures
to empower all employees; and
• balancing rights and obligations within
the legal framework and considering
business realities.
Avusa’s sound relationships with
employees and stakeholders reflect
good leadership at shop-floor level and
appropriate policies which guide business
units. Substantive issues raised by
employees are attended to before being
elevated to the CCMA (Commission for
Conciliation, Mediation and Arbitration) or
related bodies, if necessary.
22 Avusa annual report 2010
Sustainable development of the environment and the right of people to a healthy environment in which to work and live is a principle Avusa fully endorses. A board-approved policy defining sound environmental practices has been disseminated to employees so that they understand and adhere to their responsibilities and obligations regarding environmental matters.
As a group, we have identified the following objectives:• to promote social and environmental
responsibility through our business activities;
• to reduce potential reputation and financial risk associated with investments or relationships with suppliers showing disregard for environmental, ethical and social issues;
• to actively seek and promote business relationships with companies involved in cleaner production and other environmentally friendly processes; and
• to be a leader in the development of sound ethical, social and environmental practices relevant to our areas of operations.
In line with this policy, employees who identify real or potential health or safety risks to staff or the wider community must report these to the appropriate manager.
Paper purchasingAvusa is a major consumer of paper, particularly through our newspaper, magazine and book publishing enterprises. Accordingly, our paper-purchasing policy requires that:• paper suppliers comply with
environmental laws and regulations;• where possible and viable, Avusa uses
paper products with recycled content; and
• Avusa works with suppliers to ensure that our paper is from certified, well-managed forests.
Building and facilities managementA dedicated division is responsible for the group’s properties, including any direct impact on the environment. This centralised building and facilities management function relies on business unit heads for assistance with environmental issues. The group’s property portfolio is continually reviewed to ensure that property requirements meet the environment, health and safety needs of the business.
Clean airA clean air and non-smoking policy is enforced in all group premises. Appropriate processes are in place to maintain clean air standards.
Toxic gasesAvusa head office uses home-gas for its canteen facility because municipal gas is not available in the area. The gas is safely stored as prescribed by legislation. Avusa removed all halon gas from its IT environment and replaced it with dry nitrogen.
Water usage Avusa’s head office water usage does not have a significant environmental impact. Despite this, we actively pursue water efficiency initiatives, such as speedily repairing leaks, and using borehole water for irrigation. Water use at all other operations is managed by local maintenance departments.
EnergyAvusa’s primary energy source is electricity. At head office, numerous energy efficiency measures are in place. Energy is managed by local maintenance departments at our other operations.
Environment, health and safety
23Avusa annual report 2010
Sustainability reporting
Labour standardsAvusa expects its suppliers and business partners: • not to use workers under compulsory
school age;• not to use compulsory labour such as
prison workers;• not to enforce a working week which
exceeds 45 hours;• to allow employees at least one day off
for every 17 days worked; • to offer remuneration which complies
with prevailing laws and which matches local practice; and
• to support diversity.
Freedom of association and working conditionsAvusa expects its suppliers and business partners to: • respect the rights of individuals in terms
of freedom of association;• offer a safe and healthy work environment;
and• demonstrate full compliance with local
laws and regulations.
Commitments to suppliers and business partners• Avusa selects suppliers on merit
while also assessing black economic empowerment credentials.
• Avusa is committed to building mutually beneficial relationships with its suppliers and business partners.
• Avusa is committed to providing existing and potential suppliers with clear criteria for decisions on major supply contracts.
• Avusa respects the patents, trademarks, copyrights, proprietary information and trade secrets of its suppliers and business partners.
Health and safetyAvusa’s head office health and safety committee manages a team of trained first aiders and marshals responsible for incidents in their designated areas. Refresher courses are conducted annually. Head office marshals are also responsible for ensuring all fire equipment is serviced regularly and that fire escapes are accessible at all times. Annual inspections are carried out by the Department of Labour.
Trained first aiders and marshals are in place in the rest of the group and are responsible for the safety of all staff at their operations. Regular drills ensure that staff know how to react in an emergency.
The group has contracted ER24 as a working partner to assist with training and emergencies.
SecurityAvusa is a member of the Rosebank Management District Police Forum which manages security in the area and creates jobs.
Relations with surrounding communitiesAs the Avusa head office building is in a residential area, management has an agreement with the Rosebank Management District and its residents to minimise night-time lighting.
Avusa has installed sound mufflers around its emergency generator to reduce the output sound to an acceptable level.
Guidelines for suppliers and business partnersAvusa has guidelines on labour standards and human rights which govern its relationships with suppliers and business partners.
24 Avusa annual report 2010
As a responsible corporate citizen, Avusa is
committed to the social development and
empowerment of the broader community
by contributing to various corporate social
investment (CSI) initiatives at both the
corporate and operational levels.
Corporate investment
The CSI committee, comprising senior
executives, makes allocations to
projects which support national, regional
and local initiatives. The committee
meets once a year to review the
progress of projects implemented during
the preceding year and to determine the
strategy for the forthcoming year. The CSI
committee has a mandate which aims
at the advancement of disadvantaged
people. The services of a specialist
consultant have been used to improve
the governance of large projects and to
ensure that implementation meets the
projects’ goals and the expectations of
the committee and Avusa’s shareholders.
Operational investment
Avusa’s business units support CSI
initiatives related to their specific activities
and/or locations. Operational senior
executives control divisional CSI budgets
and grants, and report on their activities
at Avusa’s quarterly executive committee
meetings.
Areas of focus
Corporate investment
Avusa has selected three areas of focus
where it can make a significant impact:
• education, training, skills development
and literacy;
• women’s empowerment, focusing on
abused women; and
• life-threatening illnesses, in particular
assisting those impacted by life-
threatening diseases via credible support
structures. This initiative includes HIV/
Aids orphans and vulnerable children.
Avusa’s corporate CSI programme does
not support commercial ventures, religious
organisations, tours and exchanges,
individuals, sporting activities or bursaries.
The programmes chosen during the period
under review have been aligned with
the corporate strategy and the national
agenda in that the key focus on education
and literacy ties in with the promotion of
Avusa’s publishing interests.
Avusa contributed R925 000 to its
corporate CSI initiatives during the current
year. The key programmes were:
• Avusa continued its sponsorship of
Zenzeleni and Bovet Primary Schools
in Alexandra. The schools participated
in the Reading Dynamix literacy
programme, which seeks to improve
English literacy skills. Exclusive
Books provided the books that were
carefully selected to support the
acquisition of reading skills. As a result
of the improvement in literacy and
comprehension, the learners were able
to make good use of the classroom
libraries provided last year by Exclusive
Books.
• An amount of R425 000 was donated
to READ Educational Trust to continue
the Fundanami Independent Reading
Corporate social investment
25Avusa annual report 2010
Shanduka who donated the paper, CTP
Printers who printed the storybooks at
no profit, the cellphone companies who
waived their SMS revenue share, and
Macmillan, Maskew Miller Longman,
Cambridge University Press and Oxford
University Press who donated the stories
for use in the storybooks.
• In December 2009, Sunday Times,
at the request of the Department of
Basic Education, delivered a further
150 000 storybooks to a second list of
primary schools.
• The Herald Christmas Cheer Fund
raised R700 000 for the needy through
corporate and personal donations, and
from the sale of raffle tickets.
• The Herald Cycle Tour 2010 raised
R15 000 for various charities.
• The Daily Dispatch sponsored a wine fair
and raised an amount of R88 000. The
event focused on creating a networking
platform for readers, advertisers and
advertising agencies. The proceeds were
donated to charitable organisations.
• An amount of R75 000 raised from the
Daily Dispatch Cycle Tour was donated
to three charities.
• Through the Elle Foundation, Bata
school shoes to the value of R40 000
were donated to Saphinda Primary
School, Umlazi.
Retail
• Exclusive Books donated a fully stocked
container library to Yomelela Primary
School in Khayelitsha at a cost of
R150 000. The container was used
at the Cape Town Book Fair, as part
of the Exclusive Books stand to raise
Scheme sponsored by Avusa. The
scheme has been designed for use
by high school learners to assist with
incrementally developing language and
literacy skills. To tie in with the Avusa
group strategy, the content for the
scheme has been drawn primarily from
Avusa newspaper and magazine articles
to connect with the world of the learner.
• A donation was made to Thusanani
Children’s Foundation for therapy
for children affected by HIV/Aids at
Ethembeni, a Johannesburg inner-city
children’s home which houses up to
60 children, ranging in age from newborn
to six years. An occupational therapist
with experience and specific skills in
training caregivers looking after children
was appointed in July 2009, and the
necessary equipment purchased.
• R100 000 was granted for the
Ashoka Youth Venture programme.
The programme develops social
entrepreneurs to become inspirational
role models who can demonstrate
that they can make a difference to
society by linking their passions with
challenges that they encounter in their
communities.
Operational investment
Avusa’s operations made numerous social
investments, some of which are detailed
below.
Media
• The Sunday Times raised money to
distribute 500 000 storybooks to a
number of primary schools. The initiative
was partnered by Avusa with Mondi
Sustainability reporting
26 Avusa annual report 2010
awareness about its corporate social
investment projects.
• Exclusive Books also donated 22 000
excess sale books to various charities
and organisations.
• The Exclusive Books Reading Trust
donated books and funded various
reading projects at a cost of R780 000.
• Exclusive Books participated in Adopt-
a-School by providing 800 extra books
for the Olifantsvlei Primary School
library.
• Van Schaik Bookstore donated new
books with retail selling prices totalling
R7 million to various schools and tertiary
institutions.
• Van Schaik Bookstore also donated
R70 000 to tertiary institutions toward
their graduations and prize-giving
ceremonies.
Entertainment
• The Gallo Music Group annual Charity
Golf Day raised R32 000 for the Topsy
Foundation.
• On World Aids Day, a combined sale by
Gallo Music Group and Exclusive Books
raised R12 000 which was donated to
the Topsy Foundation.
• Nu Metro Home Entertainment donated
DVDs to Helping Hands in Bothasig
for an appreciation dinner to honour
two police officers who were shot and
seriously injured whilst on duty.
Books and Maps
• Books and Maps continued its support
of education and social welfare initiatives
by way of book donations totalling
approximately R500 000.
• Compact Disc Technologies donated
R15 000 to Lambano Sanctuary in lieu
of year-end corporate gifts.
• Compact Disc Technologies and Collage
Litho sponsored 2 000 discs for the
launch of the Shout Out Against Crime
campaign.
• Entertainment Logistics Services
sponsored the Riversands Primary
School feeding project instead of giving
year-end gifts.
Support for education
• Avusa has been an important contributor
to the Media Development and Diversity
Agency (MDDA). During the year, Avusa
donated R1,2 million to the MDDA to
promote readership, thus contributing
to the development of the print media
industry.
Corporate social investment (continued)
27Avusa annual report 2010
Sustainability reporting
B-BBEE is a strategic business imperative
in South Africa, and, as a responsible
corporate citizen, Avusa continues to play
a significant role in contributing towards
the overall transformation of the country, in
a holistic and sustainable manner.
During the period under review, Avusa
was independently assessed as a Level 4
contributor, an improvement from Level 5
during the previous year. Our Level 4 status
allows our customers to claim 100% of
the value spent on our products and
services as BEE procurement. The group’s
strengths lie in ownership, management
control, enterprise development and socio-
economic development.
Regarding employment equity, a significant
number of black people are represented
in all levels of junior, middle and senior
management. Our skills development
initiatives in respect of our black employees
include bursary programmes, internships
and learnerships. Training expenditure on
black staff members, in particular black
females, has increased year-on-year.
Avusa is determined to set itself challenging
but achievable targets for the future.
Broad-based black economic empowerment (B-BBEE)
28 Avusa annual report 2010
Principles and implementation of
corporate governance
The directors of Avusa are committed to
effective corporate governance and the
need for high ethical standards in the
conduct of its business. Avusa abides by
the principles of corporate governance
set out in the King Report on Corporate
Governance for South Africa 2002 (King II)
and acknowledges that the directors are
ultimately responsible for the affairs of
Avusa. This includes a strong focus on
compliance with the qualitative aspects
of corporate governance to ensure that
implementation matches the needs of the
business.
The JSE Listings Requirements provide
that the King Report on Governance
for South Africa 2009 (King III) must be
applied by Avusa for its financial year
ending 31 March 2011. To this end,
the board has analysed the steps that
Avusa needs to take to apply King III,
taking into account that Avusa is a
small cap company needing to balance
compliance and the costs related thereto.
The board has already actioned certain
implementations to apply with King III,
and will take further steps to achieve the
application of King III.
Board of directors
Avusa has a unitary board. At year-end,
there were five independent non-executive
directors, three non-executive directors
and two executive directors. Of the total of
10 directors, six are black, two of whom
are female. The non-executive directors
provide the board with judgement based
on their range of skills and commercial
expertise. Appointments to the board
are effected in a formal and transparent
manner. Changes in the directorate are
detailed on page 5 of this annual report
and in the directors’ report on page 49.
The board believes that its members have
the expertise and experience to fulfil their
obligations to the company and all its
stakeholders.
The board has a clearly defined charter
which sets out its roles and responsibilities.
The board is responsible for approving
the corporate strategy. Annual strategic
review meetings enable comprehensive
objectives to be developed for the group,
its business units, executives and senior
management. The board oversees and
monitors the progress of the business at
quarterly board meetings, with additional
meetings held as required.
Corporate governance and risk management
29Avusa annual report 2010
Attendance at board meetings
Name
12 May
09
23 Jun 09
21 Sept
09
18 Nov
09
25 Jan 10
9 Feb
10
18 Mar
10
DB Ntsebeza (chairman) P P A P P P P
PC Desai P P P P P P P
H Benatar P P P P P P P
MD Brand P P P P P P P
YZ Cuba P P P P P P A
LM Machaba-Abiodun P P P P P P P
TRA Oliphant P P P P P P P
ME Ramano1 P A P
MJ Willcox A A A2 P P A P
TA Wixley P P P P P P P
MSM Xayiya A P P A A A PP – Present.A – Apologies.1 Retired 21 September 2009.2 Represented by alternate.
for board decisions. The chairman has
no executive functions. The group chief
executive officer takes responsibility for
developing and recommending to the
board a long-term strategy and vision
for the group, as well as the annual
business plans and budgets to support
the strategy. The group chief executive
officer exercises the final executive
authority to run the company efficiently
on a day-to-day basis, and is the
leading interface between the board and
executive management.
All board members are required to
disclose their shareholdings in Avusa,
directorships outside of Avusa and any
potential conflicts of interest.
The board has an approvals framework
which is regularly reviewed and updated.
It clearly sets out the authority levels for
the board, its committees and executive
management. Matters specifically
reserved for the board’s decision
include adopting the strategic direction
of Avusa, approving financial reports
for public disclosure, approving the
budget and approving significant capital
expenditure.
There is a clear division of responsibilities
at board level. The roles of chairman
and group chief executive officer are
separate. The chairman provides overall
leadership to the board without limiting
the principles of collective responsibility
Sustainability reporting
30 Avusa annual report 2010
Board committees
During the year, the following permanent
committees assisted the board in
discharging its responsibilities and
obligations: nominations committee,
audit and risk committee, investment
committee, and remuneration, human
resources and transformation committee.
Committee memberships are reflected on
the directorate pages 4 and 5.
All committees report to the board on
their activities. The board is cognisant
that this does not detract from its ultimate
responsibility and accountability for the
affairs of the company.
During the year, the members of
the permanent board committees
(other than the executive committee)
comprised only non-executive directors.
Executive management, experts and
outside service providers attended by
invitation, as required. The board is
satisfied that all committees discharged
their responsibilities satisfactorily in
accordance with their terms of reference.
Nominations committee
The members of the nominations
committee are Adv DB Ntsebeza
(chairman) and Messrs TRA Oliphant and
MSM Xayiya.
The nominations committee did not meet
during the year. The mandate for the
nominations committee includes making
recommendations to the board on the
appointment of new directors, on the
composition of the board in general, and
on the balance between executive and
non-executive directors.
Audit and risk committee
Full details regarding this committee are
set out in the audit and risk committee
report on pages 50 and 51.
Investment committee
The investment committee’s terms
of reference were updated during
the year under review to comply with
King III. The investment committee’s
mandate is to assist the board to
ensure that investigations into potential
acquisitions and disposals follow a
thorough, structured process based
on sound business and commercial
principles.
During the year, the committee
considered various investments for the
group, covering both internally developed
and external opportunities. Executive
and divisional management attended by
invitation as required.
Attendance at investment committee
meetings
Name
20 May
09
28 Aug
09
15 Mar
10
YZ Cuba (chairman) P A P
ME Ramano1 P A
TA Wixley P P P
P – Present.A – Apologies.1 Retired 21 September 2009.
Remuneration, human resources and
transformation committee
Full details regarding this committee
are set out in the remuneration, human
resources and transformation committee
report on pages 98 to 105.
Corporate governance and risk management (continued)
31Avusa annual report 2010
Accountability, audit and risk
management
External audit
The external auditors are responsible
for reporting on whether the financial
statements are fairly presented in
conformity with International Financial
Reporting Standards and the Companies
Act of South Africa. The external auditors
offer reasonable, but not absolute,
assurance on the accuracy of financial
disclosures. The preparation of all
financial statements is the responsibility
of the board.
Consultation occurs between external
and internal auditors to ensure an efficient
and comprehensive audit process.
Co-ordination of effort involves periodic
meetings to discuss matters of mutual
interest.
The audit and risk committee determines
the principles for approving the use
of the external auditors for non-audit
services.
Internal audit
The board, under the guidance of the
audit and risk committee, is satisfied that
the group has an effective internal audit
function which operates in accordance
with a board-approved internal audit
charter which was updated to comply
with King III. The internal audit function
is provided by an in-house internal audit
department as well as by an external
service provider, Sizwe Ntsaluba VSP.
The roles and functions of both sets
of internal auditors are defined by the
standards of the Institute of Internal
Auditors.
Executive committee
The executive committee meets quarterly.
The members at 31 March 2010 were
Mr PC Desai (chairman), Ms FA Amaral,
Messrs H Benatar, M Cawe, AGC Gill,
M Marais, DT McGown-Withers,
MW Robertson, L Serobe and BD Wootton.
Ms L Motloung and Messrs M Malunga
and S Ngobese attended by invitation.
The executive committee pursues
business in the best interests of the
company and the group, including the
review and implementation of investment
decisions.
Business unit management committee
meetings are held quarterly, ensuring the
appropriate oversight of the business
units. Group issues raised at the business
unit management committee meetings
are referred to the executive committee
for consideration.
Company secretary
The company secretary is required to
provide the directors, collectively and
individually, with detailed guidance on
their duties, responsibilities and powers.
Directors have unrestricted access to
the advice and services of the company
secretary, who plays an active role in the
corporate governance process.
The company secretary assists in
determining the annual board plan
and board agenda, and in formulating
governance and board-related issues. The
company secretary is closely involved in the
induction and orientation of new directors.
The company secretary also acts as
secretary for the committees of the board.
Sustainability reporting
32 Avusa annual report 2010
Internal audit provides an independent,
objective assurance which adds value
to the company’s operations. Internal
audit assists the group in accomplishing
its objectives by bringing a systematic,
disciplined approach to evaluating and
improving the effectiveness of the group’s
risk management, internal control and
governance processes.
Internal audit plans cover matters
identified in risk management
assessments as well as issues
highlighted by the board, the audit and
risk committee, executive directors and
senior management. The audit and risk
committee approves the internal audit
work plan.
Financial and operational risks and
controls
Risk governance operates within a
defined structure approved by the
board and monitored by the audit and
risk committee. The objectives are to
identify the level of risk appropriate to
the group, taking into account the need
to increase shareholder value through an
entrepreneurial culture and ensuring that
the group achieves its objectives. Risk
identification includes both actual and
potential risks. The potential impact of
key risks is measured against a broad set
of assumptions.
Steps to mitigate risks and compensating
controls are implemented and monitored.
This process is recorded in a critical risk
areas document which covers a broad
range of issues including physical and
operational risks, human resources risks,
technology risks, business continuity and
disaster recovery risks, credit and market
risks, and compliance risks. All business
unit management committees review and
update their own critical risk areas at
least twice a year.
Systems of internal financial controls
include clearly defined lines of
responsibility and accountability. Actual
financial results are reviewed and
discussed at business unit management
committee meetings, executive committee
meetings and board meetings. The board
is satisfied as to the effectiveness of the
company’s internal financial controls.
Operational risks are managed to
acceptable levels by ensuring that the
appropriate infrastructure, controls,
systems and people are in place across
the group. Contingency plans are in
place to ensure ongoing product service
delivery under adverse conditions.
An independent hotline is available to
enable any suspected irregularity involving
employees, stakeholders and any third
parties who have a business relationship
with Avusa to be reported, with appropriate
action subsequently taken.
The adequacy and effectiveness of the
company’s risk management is assessed
by internal and external assurance
providers. The board is aware that it
operates in a dynamic environment, and
is alert to new areas of risk exposure
which may require its attention.
Accordingly, there is a continual focus
on ensuring that the control environment
Corporate governance and risk management (continued)
33Avusa annual report 2010
Details of Avusa’s integrated sustainability
activities are contained in its sustainability
reporting which appears on pages 18
to 40.
Business ethics and code of conduct
The group complies with applicable
laws and regulations. All dealings with
stakeholders are based on integrity and
sound ethics. Avusa conducts its business
through fair practices, and trades with
suppliers who subscribe to similar ethical
standards. The code of conduct, which is
set out on page 18, is incorporated into
the group human resources manual and is
communicated within the group and with
external parties. The company’s editorial
charter affirms Avusa’s commitment to
the principles of free media and editorial
independence.
Share dealings by directors and
management
In line with best practice and regulatory
and statutory obligations, directors and
management may not deal directly or
indirectly in the company’s shares during
specific closed periods. This includes
participants in the Avusa share incentive
plans. These closed periods operate from
year-end to the announcement of annual
results, and from half-year end to the
announcement of interim results.
Restrictions on share dealings are
also applied during any other period
considered sensitive in terms of the
requirements of the JSE Limited.
Directors and the company secretary
require the prior approval of the chairman,
within which the business operates
is understood and maintained at the
required level.
The board is satisfied that an adequate
risk management process is in place to
identify, evaluate and manage the key
risks faced by the group.
Directors’ responsibility
The directors acknowledge their
responsibility for the adequacy of the
accounting records, the effectiveness of
risk management and the internal control
environment, the appropriateness of
accounting policies, and the bases of
estimates and provisions. The directors
also acknowledge their responsibility for
preparing the annual financial statements,
adhering to appropriate accounting
standards, and preparing related
information which fairly presents the state
of affairs and the results of the company
and of the group.
Going concern
The directors confirm that they are
satisfied that the company and the group
have adequate financial resources to
continue in business for the foreseeable
future. For this reason the annual financial
statements have been prepared on the
going concern basis.
Integrated sustainability
Avusa takes into account economic,
social, safety, health and environmental
concerns in the conduct of its business.
It recognises its obligation to ensure the
safety and health of its employees and
the social upliftment of underprivileged
communities.
Sustainability reporting
34 Avusa annual report 2010
the group chief executive officer or the
chief financial officer prior to dealing in
the company’s shares.
Communications with stakeholders
Avusa is actively engaged in a variety
of industry bodies, including the World
Association of Newspapers, Print Media
South Africa, the Newspaper Association
of South Africa, the Magazine Publishers
Association of South Africa, the South
African Federation Against Copyright
Theft, the National Organisation for
Reproduction Rights in Music in Southern
Africa, the Recording Industry of South
Africa, Risa Audio Visual, the South
African Music Rights Association, the
South African Music Performance Rights
Association, the Publishing Association
of South Africa and the International Map
Trade Association, through funding and
also by means of executive and divisional
management playing leading roles in
industry bodies.
The chairman and executive directors
regularly engage in dialogue with major
shareholders, institutional investors,
analysts and the media, with presentations
made when announcing the group’s
interim and annual results.
Financial results are published in the
press, and delivered to shareholders.
Shareholders have been offered
the opportunity to receive financial
results electronically. Shareholders
are encouraged to attend the annual
general meeting of the company.
Further information on the company is
provided on the company’s website at
www.avusa.co.za.
Avusa has a share care line to address
shareholder queries. There were still
numerous certificated shareholders
at 31 March 2010. Shareholders are
reminded that they are unable to
deal in their shares unless they are
dematerialised. The contact details of the
share care line are set out on page 118 of
this annual report.
Avusa wishes to encourage as many
shareholders as possible to receive
annual and interim financial reports
electronically, rather than in paper form
through the mail. The electronic service
offers shareholders an opportunity to
receive company documentation in a
user-friendly form while reducing costs
and the consumption of natural resources.
Shareholders who wish to take advantage
of this service are kindly requested to
complete the election form which appears
at the back of this annual report.
Once registered to receive electronic
information, you will receive an email
notification alerting you each time Avusa
circulates annual and interim financial
reports. The email notification will
direct you to the appropriate page on
Avusa’s website where you can view the
documents concerned.
The Companies Act currently provides
that only financial statements may be
made available in electronic format.
Once the new Companies Act becomes
effective, the ambit of the provision of
electronic documentation to shareholders
will be extended.
Corporate governance and risk management (continued)
35Avusa annual report 2010
Sustainability reporting
Awards
Avusa’s strengths lie in its people, quality
of content and multi-faceted delivery
of that content. Numerous accolades
received during the year underscore
these strengths.
Media
Sunday Times and The Times journalists
and photographers maintained their solid
record of award-winning work:
• In the 2010 Mondi Shanduka
Newspaper awards (the 2010 Mondi
awards), Sunday Times personnel
won six of the 16 categories: Brendan
Boyle (analysis and commentary),
Oliver Roberts (feature writing),
Jonathan Shapiro (known as Zapiro)
(editorial cartoons), Alon Skuy (news
photographs). For Roberts and Shapiro,
the 2010 awards followed on similar
awards received in 2008 and 2009,
respectively. Sunday Times also fielded
five finalists and eight journalists were
commended in these awards;
• Stephan Hofstatter (Sunday Times and
the Weekender) was named newspaper
journalist of the year in the 2010 Mondi
awards;
• Rob Rose was named Sanlam financial
journalist of the year, and won the
Mondi Journalism 2010 category for a
report on match fixing. He also won the
prestigious 2009 Taco Kuiper award for
investigative journalism;
• Alon Skuy won the photographers’
section of the Vodacom Journalist of
the Year awards 2009;
• Halden Krog was named CNN
Photographer of the Year 2009 at the
CNN African Journalist of the Year
awards;
• James Oatway won the overall news
prize in the Sony Profoto awards and
received an award of excellence in
the Pictures of the Year International
competition;
• Times Mobile (home of on-the-go
news from The Times and Sunday
Times) was selected as an official
honouree in the prestigious Annual
Webby awards only six months after
its launch; and
• The Sunday Times was honoured
by Amafa, KwaZulu-Natal’s heritage
authority, for the newspaper’s heritage
project that led to the building of five
public monuments in the province.
Avusa’s Eastern Cape titles again
distinguished themselves – in print and
online:
• With an incisive investigation into
slumlords, the Daily Dispatch online
team beat over 2 000 entries from
nations across the African continent to
win the CNN African Journalist of the
Year award in the digital category. The
same team won the Vodacom national
online journalism category for the
second consecutive year;
• Gcina Ntsaluba (Daily Dispatch) won
South African Story of the Year in the
2010 Mondi awards for an investigation
into Eastern Cape housing delivery;
• Thanduxolo Jika (Daily Dispatch) won
the Vodacom national print feature
category. He was also a finalist in the
Taco Kuiper award for investigative
journalism and CNN African Journalist
of the Year awards;
• Brian Hayward (The Herald) won the
columnists’ category of the Vodacom
Journalist of the Year awards; and
36 Avusa annual report 2010
Awards (continued)
• Tegan Bedser (Daily Dispatch) received
a Knight Foundation Fellowship to
attend a major journalism conference in
Australia.
Other journalists, titles and companies
in the Avusa stable received prestigious
awards including:
• Stephen Cranston (Financial Mail) won
the 2009 Citi Journalistic Excellence
award, and will spend time at Columbia
University’s Graduate School of
Journalism. He was also a category
winner in the Sanlam and Citadel
awards;
• Carol Paton (Financial Mail) was a
category winner in the Discovery
awards for health journalism;
• In the Sunday Times 2009 Top Brands
survey, Business Day and Financial
Mail took first and second place,
respectively, in the business media print
category;
• Anina Morley, managing director of I-Net
Bridge, was named top businesswoman
of the year in the 2009 African Access
National Business awards; and
• I-Net Bridge was among the leaders
in the software and computer services
sector of the Top Performing Companies
2009 survey.
Retail
Exclusive Books and Van Schaik
Bookstore received several awards and
accolades during the year including:
• A silver award for the Exclusive Books
radio commercial, and bronze for its
TV and cinema commercial at the 2009
Loerie awards;
• The 2009 Safika award for best retail
chain store went to Exclusive Books
Hyde Park;
• The Business and Arts South Africa
(BASA) award for increasing access to
the arts was won by Exclusive Books
for its Ndodeni Library project; and
• Van Schaik Bookstore won a Gold
Assegai award from the Direct
Marketing Association of South Africa
for its innovative promotional campaign.
Entertainment
Nu Metro Home Entertainment achieved
prestigious Platinum Club member status
and the Licensee of the Year award at
the Sony Home Entertainment worldwide
licensee conference in Los Angeles. The
company also received the award for most
creative anti-piracy campaign, while its
Sony business manager, Cameron Hogg,
was named best licensee manager. This
is a singular achievement for a dedicated
team that only received the Sony licence
in June 2009.
In the 2010 South African Music awards,
Gallo Music had 16 finalists and two
winning artists:
• Adam Glasser for best contemporary
jazz album; and
• Joe Nina for best alternative music
album (African).
Book and maps
CDT reconfirmed its accreditation to the
CDSA anti-piracy programme, and its
operations in Midrand and Bedfordview
received ISO 9001:2008 certification.
37Avusa annual report 2010
Sustainability reporting
Corporate activity
During the year under review
• Avusa acquired 51% of Mega Digital,
a print-on-demand business, on 1 July
2009, to capitalise on the growing
demand for smaller print runs.
• Effective 1 September 2009, Avusa
acquired the business of Kwana
Distributors, a publisher of legal
classifieds.
• On 1 October 2009, Avusa acquired
a 51% stake in Boo Media and
Communication. Boo Media develops
opportunities for advertisers, parti-
cularly in shopping malls.
Subsequent to year-end
As announced on 14 June 2010 on the
JSE Limited’s SENS, Avusa has signed a
memorandum of understanding to acquire
the entire issued share capitals of Hirt &
Carter and Universal Print Group.
The proposed acquisition is subject to the
conclusion of a due diligence investigation
to the satisfaction of Avusa, to any
regulatory approvals (including approval
by the relevant competition authorities)
as may be necessary to implement the
transaction and to the approval by Avusa’s
shareholders.
The proposed acquisition is attractive
to Avusa as it offers Avusa new revenue
streams with a presence in retail
advertising production systems and
related database management and
development. In addition, the acquisition
delivers resilient revenue bases and cash
flows.
During the previous year
• On 1 August 2008, Struik Publishing
merged with Random House South
Africa to form Random House Struik,
with Avusa holding a 50,1% interest in
the combined entity.
• A further 20% of Airport Media was
acquired on 1 August 2008, increasing
Avusa’s interest to 80%.
• Effective 1 September 2008, Avusa’s
stake in Ochre Media, which houses the
Indian lifestyle channel, Saffron TV, was
increased from 80% to 100%.
• At the end of September 2008, Avusa
sold its Nigerian and Kenyan interests.
• Effective 1 December 2008, Avusa
acquired a 70% interest in Collage Litho
(formerly The Print Factory), a small
commercial printing business.
38 Avusa annual report 2010
Analysis of shareholders
Shareholder spreadNumber of
shareholdings% of total
shareholdingsNumber of
shares% of issued
share capital
1 – 10 000 shares 2 826 86,69 2 133 431 2,05
10 001 – 100 000 shares 298 9,14 9 859 927 9,50
100 001 – 1 000 000 shares 120 3,68 36 147 307 34,82
1 000 001 – 5 000 000 shares 15 0,46 29 206 098 28,13
5 000 001 shares and over 1 0,03 26 474 396 25,50
Total 3 260 100 103 821 159 100
Shareholder distributionNumber of
shareholdings% of total
shareholdingsNumber of
shares% of issued
share capital
Collective investment schemes 130 3,99 28 421 494 27,38
Private companies 54 1,66 27 271 019 26,27
Retirement benefit funds 255 7,82 23 516 978 22,65
Organs of state 6 0,19 10 581 260 10,19
Assurance companies 34 1,04 6 371 889 6,14
Retail shareholders 2 393 73,40 1 950 794 1,88
Stockbrokers and nominees 24 0,74 1 478 762 1,42
Trusts 166 5,09 867 562 0,84
Foundations and charitable funds 50 1,53 824 637 0,79
Insurance companies 8 0,25 505 932 0,49
Medical aid funds 11 0,34 451 761 0,44
Sovereign funds 4 0,12 333 751 0,32
Custodians 30 0,92 325 759 0,31
Public companies 16 0,49 316 861 0,31
Managed funds 10 0,31 260 027 0,25
Scrip lending 7 0,21 159 059 0,15
Close corporations 20 0,61 100 065 0,10
Hedge funds 1 0,03 55 340 0,05
Investment partnerships 29 0,89 24 209 0,02
Unclaimed scrip 12 0,37 4 000 0,00
Total 3 260 100 103 821 159 100
39Avusa annual report 2010
Shareholder typeNumber of
shareholdings% of total
shareholdingsNumber of
shares% of issued
share capital
Public shareholders 3 246 99,58 66 432 870 63,99
Non-public shareholders 14 0,42 37 388 289 36,01
Holders holding 10% or more 7 0,21 37 055 656 35,69
Directors and associates 7 0,21 332 633 0,32
Total 3 260 100 103 821 159 100
Holders holding 10% or moreNumber of
shareholdings% of total
shareholdingsNumber of
shares% of issued
share capital
Richtrau No. 299 (Proprietary) Limited, a wholly owned subsidiary of Mvelaphanda Group Limited 1 0,03 26 474 396 25,50
Public Investment Corporation 6 0,18 10 581 260 10,19
Total 7 0,21 37 055 656 35,69
Sustainability reporting
40 Avusa annual report 2010
Stock exchange performance
2010 2009
Closing price 31 March (R per share) 19,50 17,00
Highest quoted intraday price (R per share) 22,40 31,00
Lowest quoted intraday price (R per share) 15,55 13,00
Number of shares traded (million) 29,6 56,9
Number of shares traded as a percentage of ordinary shares in issue (%) 29 55
Value of shares traded (R million) 555 1 938
Number of transactions 5 706 5 506
Free float (%) 64 73
41Avusa annual report 2010
Annual financial statem
ents
Index to the annual financial statements
Statement of directors’ responsibilities 42
Directors’ approval of the annual financial statements 43
Certificate by the company secretary 43
Independent auditors’ report 44
Directors’ report 45
Audit and risk committee report 50
Statements of comprehensive income 52
Statements of financial position 53
Statements of cash flows 54
Statements of changes in equity 55
Notes to the annual financial statements 56
Remuneration, human resources and transformation committee report 98
Interests in directly held subsidiaries – Annexure 1 106
Group interests in associates – Annexure 2 108
Group attributable interests in associates – Annexure 3 110
42 Avusa annual report 2010
Statement of directors’ responsibilities
The directors are required by the Companies Act of South Africa to maintain adequate accounting records and to prepare annual financial statements which fairly present the state of affairs of the company and the group as at the end of the financial year and the profit or loss for that year, in conformity with International Financial Reporting Standards and the Companies Act of South Africa. The annual financial statements are the responsibility of the directors and it is the responsibility of the external auditors to report thereon. The report of the independent auditors to the members of the company is set out on page 44.
To enable the directors to meet their responsibilities, the board sets standards and implements systems of internal control aimed at reducing the risk of error or loss. These controls include the proper delegation of responsibilities within a clearly defined framework, effective accounting procedures and adequate segregation of duties to ensure an acceptable level of risk. These controls are monitored, and all employees are required to maintain the highest ethical standards in ensuring that business is conducted in a manner which is above reproach.
The directors are of the opinion, based on their enquiries and the information and explanations given, that the internal accounting controls are adequate to ensure that the financial records may be relied upon for preparing the annual financial statements and maintaining accountability for assets and liabilities.
Nothing has come to the attention of the directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year.
The annual financial statements are based on appropriate accounting policies supported by reasonable judgements and estimates and comply with International Financial Reporting Standards.
The directors are of the opinion that the annual financial statements fairly present the financial position of the company and of the group as at 31 March 2010, and the results of their operations and cash flows for the year then ended.
The annual financial statements have been prepared on a going-concern basis.
43Avusa annual report 2010
Annual financial statem
ents
Directors’ approval of the annual financial statementsStatement of directors’ responsibilities
Certificate by the company secretary
The company and group annual financial statements which appear on pages 45 to 110 were approved by the board of directors on 22 June 2010 and are signed on its behalf by:
Adv. Dumisa Buhle Ntsebeza SC Prakash C Desai Howard BenatarChairman Group chief executive officer Chief financial officer
In terms of section 268G (d) of the South African Companies Act, 1973, as amended, I certify that to the best of my knowledge and belief, the company has lodged with the Registrar of Companies for the financial year ended 31 March 2010 all returns required of a public company in terms of the Companies Act, and that these returns are true, correct and up to date.
Joanne Matisonn Company secretary
Johannesburg22 June 2010
44 Avusa annual report 2010
Independent auditors’ report
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 principles used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall financial statement presentation.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
OpinionIn our opinion, these financial statements present fairly, in all material respects, the consolidated and separate financial position of Avusa Limited as at 31 March 2010, 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 in the manner required by the Companies Act of South Africa.
Deloitte & ToucheRegistered AuditorsPer MH HolmePartner22 June 2010
To the members of Avusa LimitedWe have audited the group annual financial statements and annual financial statements of Avusa Limited, which comprise the consolidated and separate statements of financial position as at 31 March 2010, and the consolidated and separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory notes, and the directors’ report, as set out on pages 45 to 110.
Directors’ responsibility for the financial statementsThe company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the Companies Act of South Africa. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibilityOur 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 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
Buildings 1 and 2, Deloitte PlaceThe Woodlands Office Park, Woodlands DriveSandton
National Executive: GG Gelink Chief Executive AE Swiegers Chief Operating Officer GM Pinnock Audit DL Kennedy Tax & Legal and Risk Advisory L Geeringh Consulting L Bam Corporate Finance CR Beukman Finance TJ Brown Clients & Markets NT Mtoba Chairman of the Board CR Qually Deputy Chairman of the Board
A full list of partners and directors is available on request
45Avusa annual report 2010
Annual financial statem
ents
Directors’ report
The directors are pleased to present their report, together with the audited annual financial statements, for the year ended 31 March 2010.
Nature of businessAvusa has four business units, namely:
Media: comprises newspapers, magazines, out-of-home advertising and digital.
Retail: consists of Exclusive Books and Van Schaik Bookstore.
Entertainment: comprises Nu Metro Films, Nu Metro Home Entertainment, Nu Metro Interactive, Nu Metro Cinemas, Popcorn Cinema Advertising and Music.
Books and Maps: publishes and distributes books and maps, and includes Booksite Afrika, Entertainment Logistics Services, Associated Music Distributors and Compact Disc Technologies.
Financial performanceAttributable earnings amounted to R159 million (2009: R308 million), and headline earnings amounted to R153 million (2009: R249 million).
Subsidiary companiesInterests in directly held subsidiaries are set out on pages 106 and 107. The group’s share of the attributable profits and
losses of its subsidiaries after taking into account taxation and minority interests for the year ended 31 March was:
2010Rm
2009Rm
Profits 206 332
Losses (26) (18)
Share capitalThere was no change in the authorised or issued share capital of the company.
Acquisition of company’s own sharesAt the last annual general meeting, shareholders gave the company and its subsidiaries a general approval in terms of sections 85 and 89 of the Companies Act for the acquisition of shares of the company. As this general approval remains valid only until the next annual general meeting, shareholders will be asked at this year’s meeting to consider a special resolution to renew this general approval until the 2011 annual general meeting. At present, there are no plans to utilise this general authority.
Major shareholdersAccording to the company’s share register, the following shareholders beneficially held in excess of 5% of the issued ordinary shares of the company as at 31 March:
2010 2009
Number ofordinary
shares
% of issued ordinary
shares
Number of ordinary
shares
% of issued ordinary
shares
Richtrau No. 299 (Proprietary) Limited, a wholly owned subsidiary of Mvelaphanda Group Limited 26 474 396 25,5 26 474 396 25,5
Public Investment Corporation 10 581 260 10,2 9 760 048 9,4
Coronation Fund Managers Limited 10 011 847 9,6 8 949 953 8,6
Investment Solutions Limited 6 246 910 6,0
Further analysis of shareholders’ interests in Avusa is provided on pages 38 and 39.
46 Avusa annual report 2010
Directors’ report (continued)
Directors’ interests Messrs Desai and Wixley beneficially held 251 586 (2009: 40 456) and 12 000 (2009: 4 000) shares respectively in the company’s issued ordinary share capital as at 31 March 2010. Mr Benatar held one share non-beneficially (2009: one). No other Avusa directors held shares in the issued ordinary share capital of the company as at 31 March 2010.
As at year-end, the total number of share incentives held by directors was 596 857 (2009: 333 849). 153 948 (2009: 163 948) of these incentives were rolled over from ElementOne to Avusa on the unbundling by ElementOne of its entire shareholding in Avusa. These rolled over incentives are all vested, and are cash-settled. The balance of 442 909 (2009: 169 901) incentives were issued in terms of the Avusa Limited share incentive plans, are equity-settled, and represent 0,4% (2009: 0,2%) of the number of issued ordinary shares of the company. Further details of share incentives held by directors are set out in the remuneration, human resources and transformation committee report on pages 98 to 105.
The directors’ interests have not changed from 31 March 2010 up to the date of approval of this report.
Share incentive plansThe company is limited to 10 382 116 shares, being 10% of its 103 821 159 issued ordinary shares, in settlement of benefits under its share incentive plans.
The following information is provided in respect of the Avusa Limited share incentive plans as at 31 March:
2010 2009
Maximum number of ordinary shares available for allocation 9 384 872 10 382 116
Number of share incentives granted during the year (1 435 228) (997 244)
Number of share incentives lapsed during the year 41 492 —
Number of ordinary shares still available for allocation 7 991 136 9 384 872
Further information on the Avusa Limited share incentive plans is set out in the remuneration, human resources and transformation committee report on pages 98 to 105.
Board committeesDetails regarding the work of the board committees are set out in the corporate governance and risk management report on pages 28 to 34, the audit and risk committee report on pages 50 and 51, and in the remuneration, human resources and transformation committee report on pages 98 to 105.
Litigation statementThe company and the group were not engaged in any significant litigation during the year and at the date of this report.
47Avusa annual report 2010
Annual financial statem
ents
DividendOn 23 June 2009, a maiden dividend of 60 cents per ordinary share was declared by the directors for the year ended 31 March 2009, and was paid to shareholders recorded in the register of members of the company at the close of business on Friday, 24 July 2009. Secondary tax on companies was paid at the statutory rate of 10%.
On 22 June 2010, a dividend (number 2) of 75 cents per ordinary share was declared by the directors for the year ended 31 March 2010, and is payable to shareholders recorded in the register of members of the company at the
close of business on Friday, 30 July 2010. Secondary tax on
companies will be payable at the statutory rate of 10%.
Post-balance sheet event As announced on 14 June 2010 on the JSE Limited’s SENS, Avusa has signed a memorandum of understanding to
acquire the entire issued share capitals of Hirt & Carter (Proprietary) Limited and Universal Print Group (Proprietary) Limited.
The proposed acquisition is subject to the conclusion of a due diligence investigation to the satisfaction of Avusa, to any regulatory approvals (including approval by the relevant competition authorities) as may be necessary to implement the transaction and to the approval by Avusa’s shareholders.
The proposed acquisition is attractive to Avusa as it offers Avusa new revenue streams with a presence in retail advertising production systems and related database management and development. In addition, the acquisition delivers resilient revenue bases and cash flows.
Special resolutions
The following special resolution was passed by the company:
Date of registration Summary of resolution
9 October 2009 Approved the general authority for the company to repurchase ordinary shares issued by the company.
The following special resolutions were passed by subsidiary companies:
Date of registration Name of subsidiary and summary of resolution
19 August 2009Avusa Management Services (Proprietary) LimitedAmendments to the articles of association pertaining to the borrowing powers of the directors and the quorum for directors’ meetings.
19 August 2009Career Junction (Proprietary) LimitedAmendment to the articles of association pertaining to the borrowing powers of the directors.
19 August 2009 Collage Litho (Proprietary) Limited (formerly The Print Factory (Proprietary) Limited)Amendments to the memorandum of association to change the name of the company and the main business and main object clauses to achieve alignment with the activities of the company.
48 Avusa annual report 2010
Directors’ report (continued)
Date of registration Name of subsidiary and summary of resolution
4 September 2009
23 December 2009
Avusa Publishing LimitedAmendments to the articles of association pertaining to the number of directors and the quorum for general meetings.Amendments to the memorandum of association to change the main business and main object clauses to achieve alignment with the activities of the company.
9 September 2009Avusa Media LimitedAmendments to the articles of association pertaining to the borrowing powers of the directors and the quorum for general meetings.
9 September 200923 December 2009
Avusa Retail LimitedAmendment to the articles of association pertaining to the borrowing powers of the directors.Amendments to the memorandum of association to change the main business and main object clauses to achieve alignment with the activities of the company.
9 September 200923 December 2009
New Holland Publishing (South Africa) (Proprietary) LimitedAmendment to the articles of association pertaining to the borrowing powers of the directors.Amendments to the memorandum of association to change the main business and main object clauses to achieve alignment with the activities of the company.
23 December 2009New Holland Publishing (Proprietary) LimitedAmendments to the memorandum of association to change the main business and main object clauses to achieve alignment with the activities of the company.
23 December 2009 Avusa Entertainment Investments (Proprietary) LimitedAmendments to the memorandum of association to change the main business and main object clauses to achieve alignment with the activities of the company.
25 March 2010At Velocity Logistics Limited (formerly Gallo Africa Limited)Amendments to the memorandum of association to change the name of the company and the main business and main object clauses to achieve alignment with the activities of the company.
49Avusa annual report 2010
Annual financial statem
ents
Directors and secretaryThe names of the directors in office are set out on pages 4 and 5 of the annual report. Mr ME Ramano retired as a non-executive director on 21 September 2009. Messrs S Matiwaza and Z Mtshotshisa resigned as alternate non-executive directors with effect from 30 September 2009.
In terms of article 33 of the company’s articles of association, Ms LM Machaba-Abiodun and Messrs TRA Oliphant and MSM Xayiya retire by rotation at the forthcoming annual general meeting.
The secretary of the company is Ms JR Matisonn. Her business and postal addresses appear on page 121.
Directors’ responsibility and opinionHaving considered all statements of fact and opinion in this annual report concerning the company and its subsidiaries, the directors:• accept, individually and collectively, full responsibility for
such statements;• consider that, to the best of their knowledge and belief,
there are no omissions of material facts or considerations relating to the company which would make any statement of fact or opinion relating to the company contained in this annual report false or misleading; and
• as far as possible, have made all reasonable enquiries.
Further, the directors are of the opinion that:• the issued share capital of the company is adequate for
the purposes of the business of the company and its subsidiaries;
• the working capital available to the company and its subsidiaries is sufficient for the group’s requirements for the foreseeable future;
• the consolidated assets of the company and its subsidiaries, fairly valued in accordance with International Financial Reporting Standards, exceed the consolidated liabilities of the company; and
• the company and its subsidiaries will be able to pay their debts as they become due in the ordinary course of business, and, accordingly, the annual financial statements have been prepared on a going-concern basis.
Independent auditorThe shareholders will be requested at the forthcoming annual general meeting to re-appoint Deloitte & Touche as the independent auditor of the company and to re-appoint Mr MH Holme of Deloitte & Touche as the designated partner.
50 Avusa annual report 2010
Audit and risk committee report
Terms of referenceThe work of the audit and risk committee (“the committee”) is guided by detailed terms of reference that incorporate the relevant provisions of the Companies Act of South Africa and that have been approved by the board. During the year under review, the committee’s terms of reference were updated in line with the King Report on Governance for South Africa 2009 (King III). Copies of the committee’s terms of reference are available on request from the company secretary. The amended terms of reference only come into effect in respect of the financial year ending 31 March 2011.
PurposeThe committee has an independent role, with accountability to shareholders in respect of its statutory duties, and to the board in respect of the duties assigned to it by the board. Except for its statutory duties, the committee has an oversight role and makes recommendations to the board.
The committee’s responsibilities include the following:Financial reportingThe committee oversees the company’s financial reporting, and, in particular:• Has regard to all factors and risks that may impact on the
integrity of the company’s integrated reporting; • Reviews the annual report, annual financial statements,
interim reports, preliminary or provisional results announcements, and any other releases of price-sensitive information, including prospectuses, circulars and trading statements;
• Reviews reporting concerning risk management in the company’s annual report;
• Reviews the disclosure of sustainability matters in the company’s annual report;
• Recommends to the board whether or not to engage an external assurance provider on material sustainability matters;
• Recommends the company’s annual report to the board;• Considers the frequency of issue of interim results; and• Considers whether the external auditor should perform
assurance procedures on the interim results.
Internal auditThe committee is responsible for overseeing the internal audit function, and, in particular approves the internal audit plans and assesses the performance of internal audit.
External auditThe committee is responsible for nominating, for approval at the company’s annual general meeting, the appointment of the external auditor and the designated partner, and for overseeing the external audit process. In this regard the committee:• Nominates the external auditor and the designated audit
partner for appointment by the shareholders;• Approves the terms of engagement and remuneration of
the external auditor;• Monitors the independence of the external auditor, and
reports thereon;• Sets a policy for non-audit services provided by the
external auditor;• Pre-approves any engagement for non-audit services to be
rendered by the external auditor;• Ensures that there is a process for the committee to be
informed of any reportable irregularities (as identified in the Auditing Profession Act, 2005) identified and reported by the external auditor;
• Reviews the quality and effectiveness of the external audit process;
• Performs the functions required by the Companies Act in respect of Avusa’s subsidiaries; and
• Ensures that the auditors attend the annual general meeting of the company to answer questions pertaining to the audit of the company’s annual financial statements.
RiskThe committee provides a forum for discussing business risk and control issues and for monitoring management’s enterprise-wide risk management processes including internal controls that have been implemented to curtail and minimise risk.
In particular, the committee reviews Avusa’s critical risk areas twice a year. The critical risk analysis is developed from the business unit level upwards, resulting in the identification of risk areas that are critical at group level. The audit and risk committee reports to the board on the group’s critical risk areas.
Reporting• The chairman of the committee reports to the board
on significant matters within the committee’s terms of reference.
51Avusa annual report 2010
Annual financial statem
ents
• The committee makes recommendations to the board on areas within its terms of reference where action or improvement is required.
• The chairman, or, in his/her absence, another member of the committee, attends the company’s annual general meeting to answer questions pertaining to the committee’s responsibilities and activities.
• The committee compiles a report to shareholders for inclusion in the company’s annual report.
MembershipThe committee is appointed by the board of directors for each financial year. The committee comprises the following independent non-executive directors: Messrs TA Wixley (chairman) and MD Brand, and Ms LM Machaba-Abiodun.
Members of the committee are all financially literate, with the requisite levels of financial expertise.
Executive directors, the external and internal auditors, as well as senior financial management attend the meetings of the committee.
External auditThe committee nominated Deloitte & Touche and Mr MH Holme as the external auditor and designated audit partner, respectively, for the 2010 audit. These appointments were confirmed by the board and the shareholders. The committee has satisfied itself through enquiry that the external auditor of Avusa Limited is independent in terms of the Companies Act and in terms of the standards of the auditing profession. The necessary assurance was sought and obtained from the external auditor that internal governance processes within the audit firm support and demonstrate the claim to independence.
The committee, after discussion with executive management, determined the terms of the audit engagement for the 2010 financial year. The final audit fee will be determined by the committee, based on an approved budget. The estimated audit fees are disclosed in note 5 to the financial statements.
There is a formal procedure that governs the process whereby the external auditor is considered for non-audit services, and each engagement for such work is reviewed and pre-approved by the committee.
Meetings are held with the external auditor where management is not present, and no material issues have been raised.
The committee has again nominated, for approval at the forthcoming annual general meeting, Deloitte & Touche as the external auditor, and Mr MH Holme as the designated audit partner, for the company’s 2011 financial year.
Avusa’s finance functionFurther to its review, the committee is satisfied as to the appropriateness of the expertise, adequacy of resources and experience of financial management of Avusa’s finance function.
Avusa’s financial directorIn terms of the JSE Listings Requirements, the committee confirms that the company’s financial director, Mr H Benatar, has the necessary expertise and experience to carry out his duties.
Annual financial statementsBased on its review, and on information supplied by management as well as the internal and external auditors, the committee recommended the 2010 annual financial statements for approval to the board. The board subsequently approved the financial statements which will be open for discussion at the forthcoming annual general meeting.
Attendance at audit and risk committee meetings
Name
11Jun09
11Nov
09
19Feb
10
TA Wixley (chairman) P P P
MD Brand P P P
LM Machaba-Abiodun P P P
P – Present.
Signed on behalf of the committee by:
Tom WixleyChairman
52 Avusa annual report 2010
Statements of comprehensive incomefor the year ended 31 March 2010
Group Company
Notes
2010
Rm
2009(restated)
Rm
2010
Rm
2009
Rm
Continuing operations Revenue 4 4 712 4 892 — —Cost of sales (3 039) (3 052) — —Gross profit 1 673 1 840 — —Operating expenses (1 426) (1 435) 3 7Operating costs 5 (1 315) (1 338) (9) (6)Depreciation 7 (84) (78) — —Amortisation 8 (22) (22) — —Goodwill impairment — (4) — —Share-based payments (5) 7 12 13
Profit from operations before exceptional items 247 405 3 7Exceptional items 9 3 (3) 2 (5)Profit from operations 250 402 5 2Net finance income 12 23 114 —Finance income 10 50 71 114 Finance costs 11 (38) (48) — —Share of profits of associates (net of income tax) 9 —Profit before taxation 271 425 119 2Taxation 12 (94) (132) (6) —Income tax expense (85) (130) — —Secondary tax on companies expense (9) (2) (6) —
Profit after taxation 177 293 113 2Discontinued operations Profit from discontinued operations 3 2 39Profit for the year 179 332 113 2
Other comprehensive incomeExchange differences on translation of foreign operations (2) (8)
Other comprehensive income for the year (net of income tax) (2) (8)Total comprehensive income for the year 177 324 113 2Profit attributable to:Owners of the company 159 308 113 2Non-controlling interest 20 24Profit for the year 179 332 113 2Total comprehensive income attributable to:Owners of the company 157 300 113 2Non-controlling interest 20 24Total comprehensive income for the year 177 324 113 2Earnings per ordinary share (cents) Basic 13.1 155 299 Diluted 13.1 155 299Earnings per ordinary share from continuing operation (cents) Basic 13.1 153 261 Diluted 13.1 153 261Earnings per ordinary share from discontinued operations (cents) Basic 13.1 2 38 Diluted 13.1 2 38Number of ordinary shares in issue (’000)At beginning and end of the year 103 821 103 821Weighted average for the year 102 449 102 940Weighted average for the year (diluted) 102 504 102 958
Annual financial statem
ents
53Avusa annual report 2010
Statements of financial positionas at 31 March 2010
Group Company
Notes
2010
Rm
2009(restated)
Rm
2008(restated)
Rm
2010
Rm
2009
Rm
ASSETS
Non-current assets 901 876 860 1 173 1 119
Property, plant and equipment 14 380 353 409 — —
Goodwill 15 223 219 219 — —
Other intangible assets 16 144 132 57 — —
Interests in subsidiaries 17 1 173 1 119
Interests in associates 18 45 38 44 — —
Deferred taxation assets 26 109 134 131 — —
Current assets 2 013 2 199 1 995 1 16
Inventories 19 493 524 488 — —
Trade and other receivables 20 899 1 066 1 043 1 1
Investments 21 — 15 20 — 15
Taxation prepaid 56 37 34 — —
Bank balances, deposits and cash 565 557 410 — —
Total assets 2 914 3 075 2 855 1 174 1 135
EQUITY AND LIABILITIES
Equity attributable to owners of the company 1 474 1 376 1 096 1 168 1 117
Share capital and premium 22 1 108 1 108 1 108 1 150 1 150
Other reserves 23 (39) (40) (12) (35) (35)
Accumulated profits 405 308 — 53 2
Non-controlling interest 107 97 40
Total equity 1 581 1 473 1 136 1 168 1 117
Non-current liabilities 245 263 299 — —
Long-term borrowings 24 3 3 34 — —
Post-retirement benefits liabilities 25 180 167 162 — —
Operating leases equalisation liabilities 43 70 89 — —
Deferred taxation liabilities 26 19 23 14 — —
Current liabilities 1 088 1 339 1 420 6 18
Trade and other payables 27 969 1 137 1 148 6 18
Provisions 28 35 30 30 — —
Taxation liabilities 13 22 22 — —
Bank overdrafts and other short-term borrowings 24 71 150 220 — —
Total equity and liabilities 2 914 3 075 2 855 1 174 1 135
54 Avusa annual report 2010
Statements of cash flowsfor the year ended 31 March 2010
Group Company
Notes
2010
Rm
2009(restated)
Rm
2010
Rm
2009
Rm
OPERATING ACTIVITIES
Net cash flows from operations before working capital changes 325 471 — —
Working capital changes 55 (26) — —
Net cash flows from operations 30 380 445 — —
Net finance income 12 22 — —
Taxation paid (104) (134) (6) —
Net cash flows from operating activities 288 333 (6) —
INVESTING ACTIVITIES
Income from investments 31 3 2 — —
Proceeds on disposal of investments 16 — 16 —
Acquisition of property, plant and equipment 34 (112) (123) — —
– to maintain operations (67) (83) — —
– to expand operations (45) (40) — —
Proceeds on disposal of property, plant and equipment 14 8 4 — —
Acquisition of other intangible assets (29) (48) — —
Acquisition of minority interests in subsidiaries — (16) — —
Acquisition of business 32 (1) — — —
Acquisition of subsidiaries 33 (5) 9 — —
Disposal of subsidiaries 33 2 51 — —
Acquisition of call options over Avusa shares — (23) — —
Net increase in long-term receivables and loans (3) (4) — —
Net cash flows from investing activities (121) (148) 16 —
FINANCING ACTIVITIES
Net decrease in borrowings (2) (37) — —
Dividends paid by subsidiaries to non-controlling interests (13) (10)
Decrease in loans owing by subsidiaries — — 52 —
Dividend paid (62) — (62) —
Net cash flows from financing activities (77) (47) (10) —
Net increase in cash and cash equivalents 90 138 — —
Cash and cash equivalents at beginning of the year 416 275 — —
Foreign operations translation adjustment (2) 3 — —
Cash and cash equivalents at end of the year 35 504 416 — —
Annual financial statem
ents
55Avusa annual report 2010
Statements of changes in equityfor the year ended 31 March 2010
Share capital and
premiumRm
Otherreserves
Rm
Accum-ulatedprofits
Rm
Owners’ interest
Rm
Non-controlling
interestRm
Totalequity
Rm
Group
Balance at 31 March 2008 as previously reported 1 150 (12) — 1 138 40 1 178
Restatement (see note 43) (42) — — (42) — (42)
Balance at 31 March 2008 (restated) 1 108 (12) — 1 096 40 1 136
Total comprehensive income for the year (8) 308 300 24 324
Equity-settled share incentive plans 3 — 3 — 3
Effect of acquisitions and disposals — — — 43 43
Dividends paid by subsidiaries to non-controlling interests — — — (10) (10)
Call options over Avusa shares (see note 13.1) (23) — (23) — (23)
Balance at 31 March 2009 1 108 (40) 308 1 376 97 1 473
Total comprehensive income for the year (2) 159 157 20 177
Equity-settled share incentive plans 3 — 3 — 3
Effect of acquisitions and disposals — — — 3 3
Dividends paid by subsidiaries to non-controlling interests — — — (13) (13)
Dividend paid — (62) (62) — (62)
Balance at 31 March 2010 1 108 (39) 405 1 474 107 1 581
Notes 22 23
Share capital and
premiumRm
Otherreserves
Rm
Accum-ulatedprofits
Rm
Owners’ interest
Rm
Company
Shares issued at a premium 1 150 1 150
Total comprehensive income for the year — 2 2
Effect of acquisitions and disposals (12) — (12)
Call options over Avusa shares (see note 13.1) (23) — (23)
Balance at 31 March 2009 1 150 (35) 2 1 117
Total comprehensive income for the year — 113 113
Dividends paid — (62) (62)
Balance at 31 March 2010 1 150 (35) 53 1 168
Notes 22 23
56 Avusa annual report 2010
Notes to the annual financial statementsfor the year ended 31 March 2010
1. PRESENTATION OF ANNUAL FINANCIAL STATEMENTS
These annual financial statements are presented in South African rand since that is the functional currency of the company and the presentation currency for the group. The company is incorporated and domiciled in South Africa.
These annual financial statements have been prepared using accounting policies compliant with International Financial Reporting Standards (IFRS), the JSE Limited’s Listings Requirements and the South African Companies Act.
The accounting policies and their application are consistent, in all material respects, with those detailed in Avusa’s 2009 annual report, except for the adoption on 1 April 2009 of those new and amended statements of generally accepted accounting practice and interpretations of statements of generally accepted accounting practice listed below, those amendments included in the International Accounting Standards Board’s annual improvements project where such amendments are effective for Avusa on 1 April 2009 and the correction of the application of the Nu Metro Films revenue recognition policy in respect of sales to television broadcasters (see note 43).
• New and amended statements and interpretations adopted by Avusa on 1 April 2009:
IFRS 2 Share-based Payment Amendments to vesting conditions and
cancellations IFRS 7 Financial Instruments: Disclosures Amendments enhancing disclosures
about fair value and liquidity risk IFRS 8 Operating Segments New standard on segment reporting,
replacing IAS 14 IAS 1 Presentation of Financial Statements Amendments to structure of financial
statements IAS 23 Borrowing Costs Amendments requiring capitalisation-only
model
IAS 32 Financial Instruments: Presentation Amendments to classification of certain
financial instruments IAS 39 Financial Instruments: Recognition and
Measurement Amendments regarding embedded
derivatives when reclassifying financial instruments
IFRIC 13 Customer Loyalty Programmes.
In addition, the revised formula for the calculation of headline earnings released by the South African Institute of Chartered Accountants (SAICA) in August 2009 in the form of Circular 3/2009 Headline Earnings, was adopted by Avusa on 31 August 2009 with no impact on the group’s reported headline earnings. The formula was revised by SAICA to align it with changes in IFRS.
The adoption of the new and amended statements of generally accepted accounting practice, interpretations of statements of generally accepted accounting practice, and improvements project amendments has not had a material effect on the group’s financial results, but has affected presentation and disclosure in the group’s financial statements.
The statement and interpretation which have had the most effect on their adoption by Avusa are IAS 1 Presentation of Financial Statements and IFRIC 13 Customer Loyalty Programmes.
IAS 1 Presentation of Financial Statements The amendments require information in financial
statements to be aggregated on the basis of shared characteristics, and introduce a statement of comprehensive income. This enables users to analyse changes in equity resulting from transactions with owners in their capacity as owners separately from “non-owner” changes.
The revisions include changes in the titles of some of the financial statements to reflect their function more clearly, for example, the balance sheet is renamed the statement of financial position.
57Avusa annual report 2010
Annual financial statem
ents
The adoption by Avusa of this amended statement has not had an impact on Avusa’s results or financial position, but has resulted in different presentation in the group’s financial statements.
IFRIC 13 Customer Loyalty Programmes IFRIC 13 affects entities that issue points to customers
entitling them to a discount on future purchases. The interpretation requires loyalty award credits to be accounted for as a separate component of the sale transaction in terms of which they are granted by allocating the sale proceeds between the loyalty award and the other components of the sale. The amount allocated to the loyalty award is determined by reference to its fair value and is deferred until the loyalty reward is redeemed.
Exclusive Books operates its Fanatics customer loyalty programme. The effect of IFRIC 13 is that Exclusive Books deducts the fair value of customer loyalty points from revenue rather than including it in marketing expenses, as was the previous accounting treatment. Accordingly, the revenue and operating costs were reduced by R8 million for the year ended 31 March 2009 (see note 43).
The following statements of generally accepted accounting practice, and interpretations of statements of generally accepted accounting practice, which were in issue but not yet effective at Avusa’s year-end date of 31 March 2010, will be adopted by Avusa as they become effective for Avusa:
• New and amended statements and interpretations effective for Avusa on 1 April 2010:
IFRS 1 First-time Adoption of International Financial Reporting Standards
Amendments relating to oil and gas assets, and determining whether an arrangement contains a lease
IFRS 2 Share-based Payment Amendments relating to group cash-
settled share-based payment transactions IFRS 3 Business Combinations Amendments to accounting for business
combinations
IAS 21 The Effects of Changes in Foreign Exchange Rates
Consequential amendments from changes to IFRS 3
IAS 27 Consolidated and Separate Financial Statements
Consequential amendments from changes to IFRS 3
IAS 28 Investments in Associates Consequential amendments from
changes to IFRS 3 IAS 31 Interests in Joint Ventures Consequential amendments from
changes to IFRS 3 IAS 39 Financial Instruments: Recognition and
Measurement Hedge accounting clarification IFRIC 17 Distributions of Non-cash Assets to
Owners IFRIC 18 Transfer of Assets from Customers.
• New and amended statements and interpretations effective for Avusa on or after 1 April 2011:
IFRS 9 Financial Instruments New standard that forms the first part of a
three-part project to replace IAS 39 IAS 24 Related Party Disclosures Clarification of definition of a related party IAS 32 Financial Instruments: Presentation Accounting for rights issues denominated
in a currency other than the functional currency of the issuer
IFRIC 19 Extinguishing Financial Liabilities With Equity Instruments.
In addition, the International Accounting Standards Board’s annual improvements project includes amendments to various statements. Certain of these amendments are effective for Avusa on 1 April 2010, with the others being effective in subsequent periods.
The adoption of the abovementioned statements, interpretations and improvements is not expected to have a material impact on Avusa’s financial results, but will impact disclosure in the financial statements.
58 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES Basis of consolidation The group annual financial statements incorporate
the financial statements of Avusa Limited and entities controlled by the company. Control is achieved where the company has the power to govern the financial and operating policies of an entity so as to obtain economic benefits from its activities.
The results of subsidiaries acquired or disposed of during the year are included in the group statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate.
All intra-group transactions and balances are eliminated on consolidation.
The company carries its investments in subsidiaries, associates and joint ventures at cost less accumulated impairment losses.
Minority interests in the net assets of consolidated subsidiaries are identified separately from the group’s equity therein. Minority interests consist of the amount of those interests at the date of the original business combination and the minority’s share of changes in equity since the date of the combination. Losses applicable to the minority in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the group except to the extent that the minority has a binding obligation and is able to make an additional investment to cover the losses.
Business combinations The acquisition of subsidiaries is accounted for using
the purchase method. The cost of the acquisition is measured at the aggregate of the fair values, at the date of acquisition, of assets given, liabilities incurred or assumed, and equity instruments issued in exchange for control of the acquiree, plus any costs directly attributable to the business combination. The acquiree’s identifiable assets, liabilities and contingent liabilities which meet the conditions for recognition under IFRS 3 Business Combinations are recognised at their fair values at the acquisition date, except for non-current
assets (or disposal groups) which are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, which are recognised and measured at fair value less costs to sell.
Goodwill arising on acquisition is recognised as an asset and initially measured at cost, being the excess of the cost of the business combination over the group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised. If, after reassessment, the group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities exceeds the cost of the business combination, the excess is recognised immediately in profit or loss.
The interest of minority shareholders in the acquiree is measured at the minority’s proportion of the net fair value of the assets, liabilities and contingent liabilities recognised.
Interests in joint ventures A joint venture is a contractual arrangement whereby
the group and other parties undertake an economic activity which is subject to joint control, that is when the strategic financial and operating policy decisions relating to the activities require the unanimous consent of the parties sharing control.
Where a group entity undertakes its activities under joint venture arrangements directly, the group’s share of jointly controlled assets and liabilities is recognised in the financial statements of the relevant entity and classified according to its nature. Liabilities and expenses incurred directly in respect of interests in jointly controlled assets are accounted for on an accrual basis. Income from the sale or use of the group’s share of the output of jointly controlled assets, and its share of joint venture expenses, are recognised when it is probable that the economic benefits associated with the transactions will flow to or from the group and their amount can be measured reliably.
Joint venture arrangements which involve the establishment of a separate entity in which each venturer
59Avusa annual report 2010
Annual financial statem
ents
has an interest are referred to as jointly controlled entities. The group reports its interests in jointly controlled entities using proportionate consolidation, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5. The group’s share of the assets, liabilities, income and expenses of jointly controlled entities is combined with the equivalent items in the consolidated financial statements on a line-by-line basis.
Any goodwill arising on the acquisition of the group’s interest in a jointly controlled entity is accounted for in accordance with the group’s accounting policy for goodwill arising on the acquisition of a subsidiary.
Where the group transacts with its jointly controlled entities, unrealised profits and losses are eliminated to the extent of the group’s interest in the joint venture.
Interests in associates An associate is an entity over which the group has
significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the strategic financial and operating policy decisions of the investee but is not control or joint control over those policies.
The results and assets and liabilities of associates are incorporated in these annual financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the group’s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the group’s interest in that associate (which includes any long-term interests which, in substance, form part of the group’s net investment in the associate) are not recognised.
Any excess of the cost of acquisition over the group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of the associate
recognised at the date of acquisition is recognised as goodwill. The goodwill is included within the carrying amount of the investment and is assessed for impairment as part of the investment. Any excess of the group’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognised immediately in profit or loss.
Where a group entity transacts with an associate of the group, profits and losses are eliminated to the extent of the group’s interest in the relevant associate.
Goodwill The accounting for goodwill arising on the acquisition of
subsidiaries, joint ventures and associates is described above. Goodwill is not amortised.
For the purpose of impairment testing, goodwill is allocated to each of the group’s cash-generating units expected to benefit from the synergies of the combination. 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. If the recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets of the unit. An impairment loss recognised for goodwill is not reversed in a subsequent period.
On disposal of subsidiaries, joint ventures and associates, the attributable amount of goodwill is included in the determination of the profit or loss on disposal.
Non-current assets held for sale 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. The 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.
60 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (continued) Non-current assets held for sale (continued) Non-current assets and disposal groups classified as
held for sale are measured at the lower of their carrying amount and fair value less costs to sell, and are not depreciated.
Revenue recognition Revenue is measured at the fair value of the consideration
received or receivable and represents amounts received and receivable for goods and services provided in the normal course of business, net of discounts and sales-related taxes.
The sale of goods is recognised when the goods are delivered and title has passed. The rendering of services is recognised as the service is provided.
Interest income is accrued on a time basis, by reference to the principal outstanding and the interest rate applicable.
Dividend income from investments is recognised when the shareholder’s right to receive payment has been established.
Revenue from royalties is recognised on an accrual basis in terms of the relevant royalty agreement.
Leasing Leases are classified as finance leases whenever the
terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Assets held under finance leases are recognised as assets at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of
the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalised in accordance with the group’s policy on borrowing costs (see below).
Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease, or on another basis if more representative of the time pattern of the user’s benefit. Benefits received and receivable as an incentive to enter into an operating lease are spread on a straight-line basis over the lease term.
Rental income from operating leases is recognised on a straight-line basis over the term of the relevant lease, or on another basis if more representative of the term pattern of the user’s benefit.
Foreign currencies The individual financial statements of each group entity
are presented in the currency of the primary economic environment in which the entity operates (its functional currency).
For the purpose of these group annual financial statements, the results and financial position of each entity are expressed in South African rand, which is the functional currency of the company, and the presentation currency for the group.
In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency are recognised at the rates of exchange prevailing at the dates of the transactions. At each reporting date, monetary items denominated in foreign currencies are retranslated at the rates ruling at the reporting date. Non-monetary items carried at fair value which are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair
61Avusa annual report 2010
Annual financial statem
ents
value was determined. Non-monetary items which are measured in terms of historical cost in a foreign currency are not retranslated.
Exchange differences arising on the settlement of monetary items, and on the retranslation of monetary items, are included in profit or loss for the period. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period except for differences arising on the retranslation of non-monetary items in respect of which gains and losses are recognised directly in equity. For such non-monetary items, any exchange component of that gain or loss is also recognised directly in equity.
In order to mitigate its exposure to certain foreign exchange risks, the group enters into forward exchange contracts (see below).
For the purpose of presenting these group annual financial statements, the assets and liabilities of the group’s foreign operations are expressed in South African rand using exchange rates prevailing at the reporting date. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are classified as equity and transferred to the group’s foreign currency translation reserve. This includes exchange differences arising on loans extended from one entity to another within the same group, as these loans are regarded as part of the net investment in a foreign operation if settlement of the loans is neither planned nor likely to occur in the foreseeable future. Such translation differences are recognised in profit or loss in the period in which the foreign operation is disposed of.
Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and translated at the closing rate.
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 added 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.
Retirement benefit costs
Payments to defined contribution retirement benefit
plans are recognised as an expense as they fall due.
For defined benefit retirement benefit plans, the cost
of providing benefits is determined using the projected
unit credit method, with actuarial valuations being
carried out at three-year intervals by independent
actuaries.
Post-retirement benefits
The group’s post-retirement benefits are valued
annually by independent actuaries, with any gains and
losses being recognised in profit or loss.
Taxation
Income taxation expense represents the sum of the
taxation currently payable and deferred taxation.
The taxation currently payable is based on taxable
profit for the year. Taxable profit differs from profit as
reported in the statement of comprehensive income
because it excludes items of income or expense which
are taxable or deductible in other years and it further
excludes items which are never taxable or deductible.
62 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (continued) Taxation (continued) Deferred taxation is recognised on differences between
the carrying amounts of assets and liabilities in the financial statements and the corresponding taxation bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred taxation liabilities are generally recognised for all taxable temporary differences and deferred taxation assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
The carrying amount of deferred taxation assets is
reviewed at each reporting 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 taxation is calculated at the taxation rates which are expected to apply in the period when the liability is settled or the asset realised.
Deferred taxation assets and liabilities are set off against each other when there is a legally enforceable right to set off current tax assets against current tax liabilities when they relate to income taxes levied by the same taxation authority and when the group intends to settle its current tax assets and liabilities on a net basis.
Property, plant and equipment Property, plant and equipment are stated at cost
less accumulated depreciation and any accumulated impairment losses. Land is not depreciated.
Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the group’s accounting policy.
Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.
Depreciation is charged so as to write off the cost of property (other than land), plant and equipment to their estimated residual values over their estimated useful lives.
Leasehold improvements and assets held under finance leases are depreciated to their estimated residual values over their expected useful lives or, where shorter, the term of the relevant lease.
Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their own estimated useful lives.
Useful lives, residual values and methods of depreciation are reviewed annually.
The following life spans were used during the year to depreciate property, plant and equipment to estimated residual values:
Plant, furniture and equipment 3 – 20 years
Leasehold improvements 3 – 10 years
Buildings 15 – 50 years
Vehicles 3 – 5 years
Capitalised leased assets 3 – 5 years
The gain or loss arising on the disposal or scrapping of an item of property, plant and equipment is recognised immediately in profit or loss.
Intangible assets other than goodwill Intangible assets other than goodwill are recognised
initially at cost if acquired separately, and at fair value if acquired as part of a business combination. If assessed as having an indefinite useful life, the intangible asset is not amortised, but is tested for impairment annually and impaired if required. If assessed as having a finite useful life, it is amortised over its estimated useful life,
63Avusa annual report 2010
Annual financial statem
ents
and tested for impairment if there is an indication that an impairment is required.
The cost of acquiring publishing rights and titles is
capitalised as an intangible asset. Publishing rights
and titles acquired are presumed to have an indefinite
life unless there are indications that require a shorter
life. Publishing rights and titles are assessed annually
regarding estimated economic useful life and impairment.
Where events and circumstances no longer support an
indefinite useful life assessment, the asset is impaired or
the life assessment is changed from indefinite to finite,
with the change being accounted for as a change in
accounting estimate. Costs to develop publishing titles
internally are recognised in profit or loss.
The following lifespans were used during the year to
amortise intangible assets assessed as having finite
useful lives:
Patents and trademarks 10 – 20 years
Licences 3 – 5 years
Publishing rights and titles 10 – 15 years
Computer software 3 – 5 years
Impairment of tangible and intangible assets other than goodwill
At each reporting date, the carrying amounts of tangible
and intangible assets are reviewed to determine whether
there is any indication that those assets have suffered
an impairment loss. If such an indication exists, the
recoverable amount of the asset is estimated in order
to determine the extent of any impairment. Where it is
not possible to estimate the recoverable amount of an
individual asset, the recoverable amount of the cash-
generating unit to which the asset belongs is estimated.
Recoverable amount is the higher of fair value less
costs to sell and value in use. In assessing value in
use, the estimated future cash flows are discounted to
their present value using a pre-tax discount rate which
reflects current market assessments of the time value of money and the risks specific to the asset.
If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss.
Where an impairment loss subsequently reverses, the carrying amount of the asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but with the increased carrying amount not exceeding the carrying amount which would have been determined had no impairment loss been recognised for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognised immediately in profit or loss.
Inventories Inventories are stated at the lower of cost and net
realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads which have been incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. Write-downs to net realisable value are recognised in profit or loss.
Financial instruments Financial assets and financial liabilities are recognised
when the group becomes a party to the contractual provisions of the instrument.
Trade receivables Trade receivables are recognised initially at fair value,
and are subsequently carried at amortised cost using the effective interest rate method. Appropriate allowances for estimated irrecoverable amounts are recognised in profit or loss when there is objective evidence that the asset is impaired. The allowance recognised is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the effective interest rate.
64 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
2. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) Trade receivables (continued) Music, film and video contract advances Music contract advances are recognised in profit or
loss on payment or release of the product, whichever is the earlier. Film contract advances are recognised in profit or loss on first release of the product.
Investments Investments, including those in subsidiaries, are
recognised and derecognised on a trade date basis where the purchase or sale of an investment is under a contract whose terms require delivery of the investment within the time frame established by the market concerned, and are recognised initially at fair value plus directly attributable transaction costs.
An impairment loss is recognised in profit or loss when there is objective evidence that the investment is impaired, and is measured as the difference between the investment’s carrying amount and the present value of estimated future cash flows. Impairment losses are reversed in subsequent periods when an increase in the investment’s recoverable amount can be related objectively to an event occurring after the impairment was recognised, subject to the restriction that the carrying amount of the investment at the date the impairment is reversed shall not exceed what the investment’s cost would have been had the impairment not been recognised.
Investments classified as financial assets at fair value through profit or loss are measured at subsequent reporting dates at fair value, with gains and losses arising from changes in fair value being recognised in profit or loss. On disposal, the difference between the net disposal proceeds and the carrying amount is recognised in profit or loss.
Call options over Avusa shares The cost of call options which Avusa has over its own
shares is deducted from equity, with the number of call options offset against the issued and weighted average number of shares in issue for the calculation of earnings per share.
Cash and cash equivalents Cash and cash equivalents comprise cash on hand,
demand deposits, and other short-term highly liquid investments which are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Cash and cash equivalents are recognised initially at fair value, with any changes in fair value being recognised in profit or loss.
Equity instruments Equity instruments issued by the company are recorded
at the proceeds received, net of direct issue costs.
Bank borrowings Interest-bearing bank loans and overdrafts are
measured at fair value.
Trade payables Trade payables are measured at fair value.
Forward exchange contracts Forward exchange contracts are recognised initially
at fair value at the contract date, and are remeasured to fair value at subsequent reporting dates, with gains and losses arising from changes in fair value being recognised in profit or loss.
Provisions Provisions are recognised when there is a present
obligation as a result of a past event, and it is probable that the obligation will need to be settled. Provisions
65Avusa annual report 2010
Annual financial statem
ents
are measured at the directors’ best estimate of the expenditure required to settle the obligation at the reporting date, and are present valued where the effect of discounting is material.
Share-based payments Share-based payments are issued to certain employees.
Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at the grant date is expensed on a straight-line basis over the vesting period, based on the estimate of the incentives which will eventually vest, and adjusted for the effect of non-market vesting conditions.
For cash-settled share-based payments, a liability aligned to the portion of the services received is recognised at fair value at each reporting date.
Judgements made by management In applying the group’s accounting policies, the
following significant judgements have been made:
Deferred taxation assets Deferred taxation assets are recognised to the extent
that it is probable that taxable profits will be available in future against which the deferred taxation assets can be utilised. The future availability of taxable profits is based on management’s judgements regarding future business plans.
Asset lives and residual values Property (other than land), plant and equipment and
significant components thereof are depreciated to their residual values over their estimated useful lives. Methods of depreciation, residual values and estimated useful lives are reviewed annually, based on management’s judgement of relevant factors and conditions.
Impairment of tangible and intangible assets
At each reporting date, the carrying amounts of tangible
and intangible assets are reviewed to determine whether
there is any indication that an asset may be impaired.
If any such indication exists, the recoverable amount
of the asset is then estimated in order to determine the
extent of any impairment.
Irrespective of whether there is any indication of
impairment, intangible assets with indefinite useful
lives and intangible assets not yet available for use are
also tested annually for impairment by comparing their
carrying amounts with their recoverable amounts.
Goodwill acquired in a business combination is also
tested annually for impairment.
In its impairment testing, management takes into
account various considerations, including future cash
flows expected to be generated by the assets under
review.
Sources of estimation uncertainty
Valuation of post-retirement benefits
The actuarial valuations of post-retirement benefits
are based on estimations, including discount rates
and healthcare cost inflation rates. The group’s post-
retirement benefits are valued annually by independent
actuaries.
Valuation of share-based payments
The valuation models used to value share-based
payments include estimates as to expected incentive
lives, volatilities, vestings, dividend yields and risk-
free interest rates. The group’s share-based payments
schemes are valued annually by independent
actuaries.
66 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Group
2010Rm
2009Rm
3. DISCONTINUED OPERATIONS
Discontinued operations comprise Avusa’s Nigerian and Kenyan interests which were sold at the end of September 2008.
Revenue — 80
Cost of sales — (40)
Gross profit — 40
Operating expenses — (58)
Operating costs — (51)
Depreciation — (7)
Amortisation — —
Loss from operations — (18)
Net finance costs — (4)
Loss before taxation — (22)
Taxation — —
Loss after taxation before profit on sale — (22)
Non-controlling interest — (1)
— (23)
Sale of Nigerian and Kenyan interests
Profit on sale 2 62
Profit from discontinued operations 2 39
Cash generated by operations — 7
Net interest paid — (4)
Net cash flows from operating activities — 3
Net cash flows from investing activities — (1)
Net cash flows from financing activities — (7)
Foreign operations translation adjustment — 1
Cash flows from discontinued operations — (4)
Disposals of assets and liabilities on sale
Non-current assets — 85
Current assets — 9
Non-current liabilities — 10
Current liabilities — 150
4. REVENUE (restated)
Continuing operations
Goods sold 4 310 4 401
Services rendered 402 491
4 712 4 892
Annual financial statem
ents
67Avusa annual report 2010
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
5. OPERATING COSTS
Operating costs are stated after charging (crediting):
Continuing operations
Auditors’ remuneration – group auditors 13 12 1 1
Audit fees 12 11 1 1
Fees for other services 1 1 — —
Auditors’ remuneration – other auditors 2 3 — —
Audit fees 1 1 — —
Fees for other services 1 2 — —
Operating lease charges 210 200 — —
– land and buildings 199 188 — —
– equipment and vehicles 11 12 — —
Net foreign exchange (profits) losses
– realised (6) — — —
– unrealised 6 (1) — —
Impairment of property, plant and equipment (note 14) — 3 — —
Charge for post-retirement benefits 13 9 — —
Retirement benefit plan contributions 69 69 — —
– defined contribution plans 68 68 — —
– defined benefit plan (note 39) 1 1 — —
Staff costs (includes retirement benefit plan contributions) 1 113 1 153 — —
68 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
6. BUSINESS AND GEOGRAPHICAL SEGMENTS
6.1 Business segments
Continuing operations
Media Rm
Retail Rm
Enter-tainment
Rm
Books andMaps
Rm
Sub-total Rm
EliminationsRm
Sub-total Rm
CorporateRm
Share-basedpayments
RmTotal
Rm
Discontinuedoperations
Rm
2010
Revenue 1 986 1 131 1 022 573 4 712 — 4 712 — — 4 712 —
Inter-segment revenue* 232 1 47 153 433 (433) — — — — —
2 218 1 132 1 069 726 5 145 (433) 4 712 — — 4 712 —
Profit (loss) from operations before exceptional items 127 63 30 59 279 — 279 (27) (5) 247 —
Depreciation and amortisation 40 18 23 25 106 — 106 — — 106 —
Capital expenditure
Property, plant and equipment 22 31 33 25 111 — 111 1 — 112 —
Intangible assets 11 10 1 7 29 — 29 — — 29 —
Segment assets 1 125 499 551 706 2 881 — 2 881 33 — 2 914 —
Segment liabilities 391 411 137 380 1 319 — 1 319 14 — 1 333 —
2009 (restated)
Revenue 2 228 1 074 980 610 4 892 — 4 892 — — 4 892 80
Inter-segment revenue* 219 1 43 131 394 (394) — — — — —
2 447 1 075 1 023 741 5 286 (394) 4 892 — — 4 892 80
Profit (loss) from operations before exceptional items 252 79 13 83 427 — 427 (29) 7 405 (18)
Depreciation and amortisation 37 19 21 23 100 — 100 — — 100 7
Impairment losses
Property, plant and equipment — 3 — — 3 — 3 — — 3 —
Goodwill 2 — — 2 4 — 4 — — 4 —
Capital expenditure
Property, plant and equipment 31 26 40 25 122 — 122 — — 122 1
Intangible assets 14 22 2 10 48 — 48 — — 48 —
Segment assets 1 164 441 496 790 2 891 — 2 891 184 — 3 075 —
Segment liabilities 444 379 254 504 1 581 — 1 581 21 — 1 602 —
2008 (restated)
Segment assets 1 127 417 437 690 2 671 — 2 671 41 — 2 712 143
Segment liabilities 234 92 500 465 1 291 — 1 291 20 — 1 311 408**
* Charged on arm’s length terms** Includes inter-group liabilities
Annual financial statem
ents
69Avusa annual report 2010
6. BUSINESS AND GEOGRAPHICAL SEGMENTS
6.1 Business segments
Continuing operations
Media Rm
Retail Rm
Enter-tainment
Rm
Books andMaps
Rm
Sub-total Rm
EliminationsRm
Sub-total Rm
CorporateRm
Share-basedpayments
RmTotal
Rm
Discontinuedoperations
Rm
2010
Revenue 1 986 1 131 1 022 573 4 712 — 4 712 — — 4 712 —
Inter-segment revenue* 232 1 47 153 433 (433) — — — — —
2 218 1 132 1 069 726 5 145 (433) 4 712 — — 4 712 —
Profit (loss) from operations before exceptional items 127 63 30 59 279 — 279 (27) (5) 247 —
Depreciation and amortisation 40 18 23 25 106 — 106 — — 106 —
Capital expenditure
Property, plant and equipment 22 31 33 25 111 — 111 1 — 112 —
Intangible assets 11 10 1 7 29 — 29 — — 29 —
Segment assets 1 125 499 551 706 2 881 — 2 881 33 — 2 914 —
Segment liabilities 391 411 137 380 1 319 — 1 319 14 — 1 333 —
2009 (restated)
Revenue 2 228 1 074 980 610 4 892 — 4 892 — — 4 892 80
Inter-segment revenue* 219 1 43 131 394 (394) — — — — —
2 447 1 075 1 023 741 5 286 (394) 4 892 — — 4 892 80
Profit (loss) from operations before exceptional items 252 79 13 83 427 — 427 (29) 7 405 (18)
Depreciation and amortisation 37 19 21 23 100 — 100 — — 100 7
Impairment losses
Property, plant and equipment — 3 — — 3 — 3 — — 3 —
Goodwill 2 — — 2 4 — 4 — — 4 —
Capital expenditure
Property, plant and equipment 31 26 40 25 122 — 122 — — 122 1
Intangible assets 14 22 2 10 48 — 48 — — 48 —
Segment assets 1 164 441 496 790 2 891 — 2 891 184 — 3 075 —
Segment liabilities 444 379 254 504 1 581 — 1 581 21 — 1 602 —
2008 (restated)
Segment assets 1 127 417 437 690 2 671 — 2 671 41 — 2 712 143
Segment liabilities 234 92 500 465 1 291 — 1 291 20 — 1 311 408**
* Charged on arm’s length terms** Includes inter-group liabilities
70 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
6. BUSINESS AND GEOGRAPHICAL SEGMENTS (continued)
6.2 Geographical segments
Continuing operationsThe group’s operations are arranged into two geographical segments, namely South Africa and International. International operations are located in Botswana, Namibia, Australia, New Zealand and the United Kingdom.
Group
Revenue
2010
Rm
2009(restated)
Rm
South Africa 4 532 4 694
International 180 198
4 712 4 892
Segment assets
Capital expenditure on property, plant,
equipment and intangible assets
2010
Rm
2009(restated)
Rm
2008(restated)
Rm
2010
Rm
2009
Rm
Assets excluding goodwill 2 691 2 856 2 499 141 170
South Africa 2 557 2 717 2 316 140 168
International 134 139 183 1 2
Goodwill 223 219 213
2 914 3 075 2 712 141 170
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
7. DEPRECIATION
Continuing operations
Plant, furniture and equipment 78 72 — —
Leasehold improvements 3 3 — —
Buildings 1 1 — —
Vehicles 2 2 — —
84 78 — —
Annual financial statem
ents
71Avusa annual report 2010
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
8. AMORTISATION
Continuing operations
Patents and trademarks 1 4 — —
Licences 2 2 — —
Computer software 17 15 — —
Contracts and customer relationships 2 1 — —
22 22 — —
9. EXCEPTIONAL ITEMS
Continuing operations
Profit on disposal of property (note 14) 4 — — —
Loss on closure of Career Junction Middle East business (4) — — —
Fair value adjustment of investments 2 (5) 2 (5)
Pension fund surplus apportionment 1 1 — —
Other — 1 — —
3 (3) 2 (5)
10. FINANCE INCOME (restated)
Continuing operations
Interest received 50 71 — —
Bank deposits 46 65 — —
Associates 1 1 — —
Other 3 5 — —
Dividends received
Subsidiaries 114 —
50 71 114 —
11. FINANCE COSTS
Continuing operations
Interest paid
Borrowings 38 42 — —
Obligations under finance leases — 6 — —
38 48 — —
72 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Group Company
2010
Rm
2009(restated)
Rm
2010
Rm
2009
Rm
12. TAXATION
Continuing operations
Current taxation 74 133 6 —
South African normal taxation
– current year 66 121 — —
– prior year (over) under provision (1) 10 — —
Secondary tax on companies 9 2 6 —
Deferred taxation (note 26) 20 (1) — —
Current year 31 (2) — —
Prior year (over) under provision (11) 1 — —
94 132 6 —
• South African normal taxation is calculated at 28% (2009: 28%) of the estimated taxable income for the year. The closing balance on deferred taxation is calculated at 28% (2009: 28%).
• Taxation of foreign subsidiaries is calculated at the rates prevailing in their respective jurisdictions.
% % % %
Tax rate reconciliation
Continuing operations
Taxation at the standard rate 28 28 28 28
Tax effect of expenses which are not deductible in determining taxable income 2 4 3 72
Non-taxable income (1) — (31) (100)
Utilisation of tax losses not previously recognised — (2) — —
Deferred tax assets not raised on computed losses 3 — — —
Secondary tax on companies 3 1 5 —
35 31 5 —
• The group’s estimated assessable losses available for the reduction of future taxable income, and not taken into account in the computation of the deferred taxation assets, amounted to R31 million (2009: R33 million).
• The company has no available secondary tax on companies credits.
Annual financial statem
ents
73Avusa annual report 2010
13. EARNINGS AND DIVIDENDS PER ORDINARY SHARE
Group
13.1 Earnings per ordinary shareAt 31 March 2010, Avusa held 1 357 478 call options over Avusa shares as hedges against share incentives granted. 382 734 call options were acquired by Avusa as part of the assets purchased from ElementOne, 997 244 were bought in October 2008 and 22 500 were sold at the end of November 2009. The call options over Avusa shares, which have zero strike prices, and are treated for accounting purposes as treasury shares, have expiry dates ranging from 1 July 2011 to 30 June 2014.
2010 2009
Shares in issue at beginning of the year 103 821 159 103 821 159
Less: Call options over Avusa shares (1 357 478) (1 379 978)
Adjusted shares in issue at end of the year 102 463 681 102 441 181
Weighted average for the year 102 448 681 102 939 803
Weighted average for the year (diluted) 102 503 924 102 958 271
The dilution arises as a result of equity-settled share incentives in issue.
The calculation of basic earnings and headline earnings per ordinary share is based on earnings of R159 million (2009: R308 million) and headline earnings of R153 million (2009: R249 million) respectively, and on a weighted average of 102 448 681 (2009: 102 939 803) ordinary shares in issue.
The calculation of diluted earnings and headline earnings per ordinary share is based on earnings of R159 million (2009: R308 million) and headline earnings of R153 million (2009: R249 million) respectively, and on a weighted average of 102 503 924 (2009: 102 958 271) diluted ordinary shares in issue.
Reconciliation between earnings and headline earnings
2010
Rm
2009(restated)
Rm
Earnings 159 308
Profit on disposal of property, plant and equipment (4) —
Profit on sale of Nigerian and Kenyan interests (2) (62)
Impairment of property, plant and equipment — 3
Total tax effect — —
Attributable to non-controlling interest — —
Headline earnings 153 249
Earnings per ordinary share (cents)
Basic 155 299
Diluted 155 299
Earnings per ordinary share from continuing operations (cents)
Basic 153 261
Diluted 153 261
Earnings per ordinary share from discontinued operations (cents)
Basic 2 38
Diluted 2 38
Headline earnings per ordinary share (cents)
Basic 149 242
Diluted 149 242
74 Avusa annual report 2010
13. EARNINGS AND DIVIDENDS PER ORDINARY SHARE (continued)
13.2 Dividends per ordinary shareOn 23 June 2009, a maiden dividend of 60 cents per ordinary share was declared by the directors for the year ended 31 March 2009, and was paid to shareholders recorded in the register of members of the company at the close of business on Friday, 24 July 2009.
On 22 June 2010, a dividend (number 2) of 75 cents per ordinary share was declared by the directors for the year ended 31 March 2010, and is payable to shareholders recorded in the register of members of the company at the close of business on Friday, 30 July 2010.
Group
Plant, furniture
andequipment
Rm
Leaseholdimprove-
mentsRm
Freehold land and
buildings Rm
Vehicles Rm
Capitalisedleased assets
RmTotal
Rm
14. PROPERTY, PLANT AND EQUIPMENT
COST
Balance at 31 March 2008 892 45 45 31 12 1 025
Additions at cost 112 3 4 3 1 123
Acquisition of subsidiaries and businesses 12 — — — — 12
Disposal of subsidiaries (125) (23) (11) (15) (11) (185)
Other disposals (42) — — (4) — (46)
Assets written off — (5) — — — (5)
Transfer to other intangible assets (7) — — — — (7)
Foreign exchange differences (1) (1) — 1 (1) (2)
Balance at 31 March 2009 841 19 38 16 1 915
Additions at cost 108 3 — 1 — 112
Acquisition of subsidiaries and businesses 7 — — — 1 8
Other disposals (36) — (3) (1) — (40)
Foreign exchange differences (1) (1) — — — (2)
Balance at 31 March 2010 919 21 35 16 2 993
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Annual financial statem
ents
75Avusa annual report 2010
Group
Plant, furniture
andequipment
Rm
Leaseholdimprove-
mentsRm
Freehold land andbuildings
RmVehicles
Rm
Capitalisedleased assets
RmTotal
Rm
14. PROPERTY, PLANT AND EQUIPMENT (continued)
ACCUMULATED DEPRECIATION AND IMPAIRMENT
Balance at 31 March 2008 568 22 11 14 1 616
Charge for the year 77 3 1 4 — 85
Impairment 3 — — — — 3
Acquisition of subsidiaries and businesses 7 — — — — 7
Disposal of subsidiaries (88) (9) (1) (6) (1) (105)
Other disposals (39) — — (3) — (42)
Assets written off — (4) — — — (4)
Foreign exchange differences 2 (1) — 1 — 2
Balance at 31 March 2009 530 11 11 10 — 562
Charge for the year 78 3 1 2 — 84
Acquisition of subsidiaries and businesses 4 — — — 1 5
Other disposals (32) — (3) (1) — (36)
Foreign exchange differences (2) — — — — (2)
Balance at 31 March 2010 578 14 9 11 1 613
CARRYING AMOUNT
At 31 March 2009 311 8 27 6 1 353
At 31 March 2010 341 7 26 5 1 380
PROFIT ON DISPOSALS
For the year ended 31 March 2009
Proceeds 3 — — 1 — 4
Net book value of disposals 3 — — 1 — 4
Profit on disposals — — — — — —
For the year ended 31 March 2010
Proceeds 4 — 4 — — 8
Net book value of disposals 4 — — — — 4
Profit on disposals — — 4 — — 4
• Registers containing details of the freehold land and buildings are available for inspection at the registered office of the company.
• Property, plant and equipment with a net book value of R7 million (2009: R3 million) was encumbered as reflected in note 24.
76 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Group
2010Rm
2009Rm
15. GOODWILL
COST
Balance at beginning of the year 249 245
Acquisition of subsidiaries 4 8
Acquisition of non-controlling interests — 14
Reallocation to other intangible assets — (12)
Disposal of subsidiaries — (6)
Balance at end of the year 253 249
ACCUMULATED IMPAIRMENT
Balance at beginning of the year 30 26
Impairment — 4
Balance at end of the year 30 30
CARRYING AMOUNT
At beginning of the year 219 219
At end of the year 223 219
The carrying amount of goodwill includes the following major items:
• R81 million arises in connection with the acquisition of the 40% minority stake in Career Junction.• R42 million arises on acquisition of an initial 60% interest and a subsequent 20% stake in Airport Media.• R40 million arises in connection with the acquisition of the 40% minority stake in Compact Disc Technologies.• R20 million arises on acquisition of the interest in New Africa Publications.
The carrying amounts of goodwill in respect of other cash-generating units are not significant in comparison with the group’s total carrying amount of goodwill.
Cash flows used in impairment testing of goodwill were projected based on five-year periods, using estimated future growth rates discounted by the group’s cost of capital.
Annual financial statem
ents
77Avusa annual report 2010
Group
Patents and
trademarksRm
LicencesRm
Publishing rights and
titlesRm
Computersoftware
Rm
Contractsand
customerrelationships
RmTotal
Rm
16. OTHER INTANGIBLE ASSETS
COST
Balance at 31 March 2008 62 24 80 95 — 261
Additions at cost — 3 — 45 — 48
Disposals — — — (17) — (17)
Foreign exchange differences (1) — (2) (1) — (4)
Transfer from property, plant and equipment — — — 7 — 7
Reallocation from goodwill 5 — — — 12 17
Acquisition of subsidiaries and businesses — — — — 26 26
Balance at 31 March 2009 66 27 78 129 38 338
Additions at cost — 1 — 28 — 29
Disposals — — — (6) — (6)
Foreign exchange differences (1) — — — — (1)
Acquisition of subsidiaries and businesses — — 1 — 4 5
Balance at 31 March 2010 65 28 79 151 42 365
ACCUMULATED AMORTISATION AND IMPAIRMENT
Balance at 31 March 2008 62 22 59 61 — 204
Charge for the year 4 2 — 15 1 22
Disposals — — — (17) — (17)
Foreign exchange differences (1) — (1) (1) — (3)
Balance at 31 March 2009 65 24 58 58 1 206
Charge for the year 1 2 — 17 2 22
Disposals — — — (6) — (6)
Foreign exchange differences (1) — — — — (1)
Balance at 31 March 2010 65 26 58 69 3 221
CARRYING AMOUNT
At 31 March 2009 1 3 20 71 37 132
At 31 March 2010 — 2 21 82 39 144
Based on their nature, publishing rights and titles have no foreseeable limit to the period over which they are expected to be available for use. Accordingly, they are assessed as having indefinite useful lives, and are not amortised. Their carrying values are detailed above.
78 Avusa annual report 2010
Group Company
2010Rm
2009Rm
2008Rm
2010Rm
2009Rm
17. INTERESTS IN SUBSIDIARIES
Unlisted shares at cost less amount written off 415 415
Net amount owing by subsidiaries 758 704
Amount owing to subsidiaries (18) —
Amount owing by subsidiaries 776 704
1 173 1 119
Details of interests in directly held subsidiaries are set out in Annexure 1 on pages 106 and 107.
18. INTERESTS IN ASSOCIATES
45 38 — —
Unlisted shares at cost less amount written off 1 2 — —
Amount owing by associates 24 29 — —
Share of post-acquisition reserves 20 7 — —
45 38 — —
Directors’ valuation of interests in unlisted associates 45 38 — —
Details of the group’s interests in associates are set out in Annexures 2 and 3 on pages 108 to 110.
19. INVENTORIES (restated) (restated)
Merchandise 451 466 444 — —
Work in progress 5 5 5 — —
Raw materials 34 45 31 — —
Consumable stores and maintenance spares 3 8 8 — —
493 524 488 — —
Inventories write-offs expensed 10 2 3 — —
Inventories recognised as an expense in cost of sales 1 161 1 113 1 022 — —
Notes to the annual financial statements (continued)for the year ended 31 March 2010Notes to the annual financial statements (continued)for the year ended 31 March 2010
Annual financial statem
ents
79Avusa annual report 2010
Group Company
2010Rm
2009Rm
2008Rm
2010Rm
2009Rm
20. TRADE AND OTHER RECEIVABLES (restated) (restated)
Trade receivables 685 842 858 — —
Gross 708 858 885 — —
Allowances for doubtful receivables (23) (16) (27) — —
Sundry receivables 109 127 82 1 1
Prepayments 105 97 103 — —
899 1 066 1 043 1 1
Movement in allowances for doubtful receivables
Balance at beginning of the year 16 27 21 — —
Provided during the year 19 13 21 — —
Utilised during the year (3) (5) (9) — —
Reversed during the year (9) (10) (7) — —
Foreign exchange differences — — 1 — —
Net disposal of subsidiaries — (9) — — —
Balance at end of the year 23 16 27 — —
The directors consider that the carrying amount of trade and other receivables approximates their fair value.
21. INVESTMENTS
Unlisted investments — 15 — 15
Directors’ valuation of investments — 15 — 15
The unlisted investments comprised 22 500 call options (with a strike price of R97,71 per option) over 119 250 MTN Group shares and 22 500 ElementOne shares, and 360 234 call options (each with a zero strike price) over 360 234 ElementOne shares, and were acquired by Avusa from ElementOne as part of the hedging instrument in respect of the share incentives rolled over from ElementOne to Avusa.
The options subject to a strike price were valued using a Black-Scholes option pricing model solved numerically with an explicit finite difference technique. The options with zero strike prices were valued with reference to prices quoted on the JSE.
The investments were designated as financial assets at fair value through profit or loss, in order to achieve accounting symmetry.
The call options were all sold during the year.
80 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Group Company
2010Rm
2009Rm
2008Rm
2010Rm
2009Rm
22. SHARE CAPITAL AND PREMIUM (restated) (restated)Authorised share capital1 000 000 000 ordinary shares of 0,1 cent each 1 1 1 1 1
Issued and fully paid-up share capital103 821 159 ordinary shares of 0,1 cent each — — — — —Share premiumBalance at beginning of the year 1 108 1 108 1 150 1 150 1 150Adjustment (see note 43) (42)Balance at end of the year 1 108 1 108 1 108 1 150 1 150
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
23. OTHER RESERVESForeign currency translation reserve (10) (8)Equity-settled share incentives outstanding 6 3Call options over Avusa shares (35) (35) (35) (35)
(39) (40) (35) (35)
24. BORROWINGSUnsecured• Bank overdrafts 61 141 — — Bank overdrafts bear interest at rates related to prime.• Various borrowings 7 7 — — The loans are interest-free with no fixed terms of repayment.Total unsecured borrowings 68 148 — —
Secured• Hire purchase agreements The agreements have interest rates varying from prime to
prime less 1,5%, and repayment terms ranging from three to five years. The underlying assets provide the security. 2 3 — —
• Finance leases Interest rates vary from 13,0% to 16,0%. The leases are
repayable within three to five years and are secured by the underlying assets. 4 2 — —
Total secured borrowings 6 5 — —
Total borrowings 74 153 —Maturities of the above borrowings:Within one year 71 150 — —In the second to fifth years inclusive 3 3 — —
Total borrowings 74 153 — —Amount due within one year shown under current liabilities 71 150 — —Total long-term borrowings 3 3 — —
Assets encumberedProperty, plant and equipment (note 14) 7 3 — —In terms of its articles of association, the company’s borrowing powers are unrestricted.
Annual financial statem
ents
81Avusa annual report 2010
Group
2010 2009
25. POST-RETIREMENT BENEFITS LIABILITIESCertain group operations have unfunded obligations to provide post-retirement medical aid benefits to certain of their pensioners and employees on their retirement. An obligation in respect of post-retirement medical aid benefits no longer forms part of the conditions of employment for new employees. The quantum of the post-retirement medical aid obligation is determined on an annual basis by independent actuaries.
Principal actuarial assumptions
Discount rate 9,25% p.a. 9,00% p.a.
Healthcare cost inflation rate 7,50% p.a. 7,25% p.a.
Number of members
In-service 457 501
Pensioners 437 447
894 948
Rm Rm
Post-retirement benefits liabilities at beginning of the year 175 169
Current service costs 4 5
Interest costs 15 14
Expected employer benefit payments (8) (8)
186 180
Actuarial loss (gain) 3 (5)
Post-retirement benefits liabilities at end of the year 189 175
Amounts payable within one year (9) (8)
Non-current liabilities 180 167
The present value of the unfunded obligation is fully provided.
The effect of a one percentage point movement in the assumed healthcare cost trend rate on:
Aggregate of current service costs and interest costs
-1% (19) (18)
+1% 21 20
Accumulated post-retirement benefits liabilities
-1% (19) (8)
+1% (3) 8
Experience adjustments arising on plan liabilities 3 (5)
Contributions expected to be paid in next financial year 9 9
82 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Group
Balance at31 March
2009Rm
Credit(charge)
to incomeRm
Chargeto equity
Rm
Balance at31 March
2010Rm
26. DEFERRED TAXATION
Taxation effect of:
Excess taxation allowances over depreciation charge (22) (3) — (25)
Excess taxation allowances over amortisation charge (1) (2) — (3)
Post-retirement benefits liabilities 49 3 — 52
Accounting provisions 37 (1) — 36
Pension fund surplus apportionment (2) (1) — (3)
Rolled-over share-based payments liabilities 5 (3) — 2
IFRS 3 adjustment on acquisition of subsidiaries (8) 1 (1) (8)
Assessable losses 28 (9) — 19
Operating leases equalisation liabilities 25 (5) — 20
111 (20) (1) 90
Reconciled as follows:
Deferred taxation assets 134 109
Deferred taxation liabilities (23) (19)
Deferred taxation assets have been raised on assessable losses where future taxable profits are expected.
Annual financial statem
ents
83Avusa annual report 2010
Group Company
2010Rm
2009Rm
2008Rm
2010Rm
2009Rm
27. TRADE AND OTHER PAYABLES (restated) (restated)
Trade payables 933 1 094 1 095 1 1
Share-based payments liabilities 5 17 31 5 17
Current portion of operating leases equalisation liabilities 22 18 15 — —
Current portion of post-retirement benefits liabilities 9 8 7 — —
969 1 137 1 148 6 18
The directors consider that the carrying amount of trade and other payables approximates their fair value.
Group
Balance at31 March
2009Rm
Providedduring
the yearRm
Utilisedduring
the yearRm
Reversedduring
the yearRm
Balance at31 March
2010Rm
28. PROVISIONS
Overage 2 25 (14) — 13
Turnover rent 9 5 (7) — 7
Onerous leases 6 — (1) (3) 2
Audit fees 13 13 (13) — 13
30 43 (35) (3) 35
• Overage The provision represents royalties which are payable by Nu Metro Films to the studio houses. The provision is based on
royalty percentages, and the amount finally paid is dependent on the performance of the films.
• Turnover rent The provision is in respect of certain sites at Exclusive Books, Van Schaik Bookstore and Nu Metro Cinemas, and
represents the excess of “turnover rent” over “base rent” which is payable to landlords.
• Onerous leases The provision arises at Nu Metro Cinemas and Exclusive Books, and is in respect of sub-economic leases. The provision
is calculated based on discounted future rental costs.
84 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
29. FINANCIAL INSTRUMENTS
Capital risk managementThe group defines total capital as “total equity” plus “long-term borrowings” as reflected in the statement of financial position.
The group’s objectives of capital management are to safeguard the group’s ability to continue as a going concern so as to provide returns to shareholders and other benefits to other stakeholders.
The group may issue or repurchase shares, return capital to shareholders, pay dividends or raise debt in order to maintain or change the capital structure.
Capital is monitored using the gearing ratio.
Significant accounting policiesDetails of significant accounting policies, including recognition criteria and the basis of measurement in respect of each category of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.
Financial risk managementThe group does not trade in financial instruments, including derivative financial instruments, for speculative purposes. The group is, however, still exposed in the normal course of its operations to financial risks. In order to minimise these risks, the group may enter into transactions that make use of financial instruments. The group’s risk management process uses formally documented policies and frameworks, including limits and reporting structures, to control and monitor financial risk.
Categories of financial instrumentsFVTPL*
Rm
Loans and receivables
RmTotal
Rm
Financial assets
2010
Investments — — —
Trade and sundry receivables — 794 794
Bank balances, deposits and cash — 565 565
— 1 359 1 359
2009 (restated)
Investments 15 — 15
Trade and sundry receivables — 969 969
Bank balances, deposits and cash — 557 557
15 1 526 1 541
2008 (restated)
Investments 20 — 20
Trade and sundry receivables — 940 940
Bank balances, deposits and cash — 410 410
20 1 350 1 370
* FVTPL – The investments, which are managed and evaluated on a fair value basis, were designated as financial assets at fair value through profit or loss. The directors consider that the carrying amount of the investments approximates their fair value.
Annual financial statem
ents
85Avusa annual report 2010
29. FINANCIAL INSTRUMENTS (continued)
Categories of financial instruments (continued)
Loans andpayables
RmTotal
Rm
Financial liabilities
2010
Obligations due under finance leases and hire purchase agreements 6 6
Interest-bearing borrowings 61 61
Interest-free borrowings 7 7
Trade and other payables 969 969
1 043 1 043
2009 (restated)
Obligations due under finance leases and hire purchase agreements 5 5
Interest-bearing borrowings 141 141
Interest-free borrowings 7 7
Trade and other payables 1 137 1 137
1 290 1 290
2008 (restated)
Obligations due under finance leases and hire purchase agreements 53 53
Interest-bearing borrowings 193 193
Interest-free borrowings 8 8
Trade and other payables 1 148 1 148
1 402 1 402
Liquidity riskLiquidity risk is the risk of being unable to meet a financial commitment. The company manages its liquidity risk by holding cash balances and by maintaining banking facilities. In addition, actual, forecast and budgeted cash flows are regularly prepared and reviewed.
The following table details the contractual maturity for non-derivative financial liabilities. The table has been compiled based on the undiscounted cash flows of financial liabilities based on the earliest date for the repayment of the liability. The cash flows include both principal and interest payments.
86 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
29. FINANCIAL INSTRUMENTS (continued)
Group
Averageinterest rate
(%)
Less than 1 year
Rm1 – 2 years
Rm2 – 5 years
Rm
Greater than5 years
RmTotal
Rm
2010Obligations due under finance leases and hire purchase agreements 13,4% 2 2 2 — 6Interest-bearing borrowings Prime 61 — — — 61Interest-free borrowings — 7 — — — 7Trade and other payables — 969 — — — 969
1 039 2 2 — 1 043
2009 (restated)Obligations due under finance leases and hire purchase agreements 13,4% 2 3 — — 5Interest-bearing borrowings Prime 141 — — — 141Interest-free borrowings — 7 — — — 7Trade and other payables — 1 137 — — — 1 137
1 287 3 — — 1 290
2008 (restated)Obligations due under finance leases and hire purchase agreements 12,4% 22 17 14 — 53Interest-bearing borrowings Prime 193 — — — 193Interest-free borrowings — 5 3 — — 8Trade and other payables — 1 148 — — — 1 148
1 368 20 14 — 1 402
At 31 March 2010, the company had R250 million (2009: R60 million) of available banking facilities.
Credit riskCredit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss. The group deals with creditworthy counterparties as a means of mitigating the risk of financial loss from defaults. Use is made of independent credit rating agencies, publicly available financial information and internal trading records to rate customers and potential customers. Exposures to and credit ratings of counterparties are regularly monitored. The aggregate value of transactions concluded is spread amongst approved counterparties.
The group does not have any significant credit risk exposure to any single counterparty or any group of counterparties having similar characteristics. The credit risk on liquid funds is limited because the counterparties are banks with high credit ratings assigned by international credit-rating agencies.
The carrying amount of financial assets represents the maximum exposure to credit risk. Collateral is taken and credit insurance is purchased where practical.
2010
Rm
2009(restated)
Rm
2008(restated)
Rm
Trade and sundry receivables 794 969 940Bank balances, deposits and cash 565 557 410
1 359 1 526 1 350
Trade receivablesTrade receivables comprise a large number of customers spread across all business units.
Credit risk is limited due to the large customer base. Operational management evaluates the creditworthiness of customers before any credit facilities are granted, and thereafter on a regular basis. Each business unit establishes an allowance for doubtful receivables which represents an estimate of potential losses in respect of amounts owed by trade debtors. Credit terms vary between business units but the majority of the customers are given terms between 30 and 60 days.
Annual financial statem
ents
87Avusa annual report 2010
29. FINANCIAL INSTRUMENTS (continued)2010
Rm
2009(restated)
Rm
2008(restated)
Rm
Aging of trade receivables (gross)Current 363 413 43230 days 201 259 26260 days 58 67 6790 days 30 39 55120 days 56 80 69
708 858 885
Aging of allowance for doubtful receivablesCurrent — — —30 days — — —60 days 3 — —90 days 1 1 1120 days 19 15 26
23 16 27
Aging of trade receivables (net)Current 363 413 43230 days 201 259 26260 days 55 67 6790 days 29 38 54120 days 37 65 43
685 842 858
Aging of trade receivables past dueCurrent — — —30 days 7 14 3160 days 35 36 4490 days 30 39 54120 days 52 75 67
124 164 196
Aging of trade receivables past due net of impairmentsCurrent — — —30 days 7 14 3160 days 32 36 4490 days 29 38 53120 days 33 60 41
101 148 169
Aging of trade receivables neither past due nor impairedCurrent 363 413 43230 days 194 245 23160 days 23 31 2390 days — — 1120 days 4 5 2
584 694 689
Debtors days (excluding discontinued operations)Group 46 54 59
88 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
29. FINANCIAL INSTRUMENTS (continued)2010
Rm
2009(restated)
Rm
2008(restated)
Rm
Segmental analysis of trade receivables (net)
Media 295 392 432
Retail 64 74 49
Entertainment 21 38 30
Books and Maps 305 338 333
Discontinued operations — — 14
685 842 858
Segmental analysis of trade receivables neither past due nor impaired
Media 270 358 375
Retail 55 66 45
Entertainment 18 31 18
Books and Maps 241 239 244
Discontinued operations — — 7
584 694 689
The Books and Maps trade receivables include the Associated Music Distributors (AMD) debtors book, which includes the factored trade receivables of the Home Entertainment and Music businesses.
Market riskThe group’s activities expose it to the market risks of changes in foreign currency exchange rates, interest rates and investment values.
Foreign currency riskThe group operates in a global business environment and therefore enters into transactions in currencies other than functional currencies. Exposure to the risk of fluctuating foreign currency exchange rates is reduced by the group’s policy to use forward exchange contracts where practical. The group does not enter into derivative contracts for speculative purposes.
Foreign amounts
Rand contract amounts
Rand fair value amounts
Group2010
m2009
m2010
Rm2009
Rm2010
Rm2009
Rm
US dollar 4,2 4,2 31 40 33 44
British pound 2,3 2,4 26 32 27 37
Euro (0,4) (0,7) (4) (8) (4) (8)
Australian dollar — 0,2 — 1 — 1
Hong Kong dollar 0,1 0,7 — 1 — 1
Singapore dollar 1,4 1,3 8 8 8 9
61 74 64 84
Exchange rates to South African randAt year-end, there were no material foreign currency-denominated assets or liabilities not covered by forward exchange contracts. Accordingly, there was no material sensitivity at year-end to exchange rate fluctuations.
Annual financial statem
ents
89Avusa annual report 2010
29. FINANCIAL INSTRUMENTS (continued)
Year-end closing rate 2010 2009
US dollar 7,29 9,57
British pound 11,05 13,70
Euro 9,83 12,62
Australian dollar 6,67 6,56
New Zealand dollar 5,16 5,35
Botswana pula 1,08 0,82
Interest rate riskThe group was exposed to interest rate risk as entities in the group borrowed funds at both fixed and floating interest rates. The exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk section of this note. During the year under review, the group did not use any forward interest rate contracts to manage this risk.
The sensitivity analysis below was prepared based on the exposure to interest rates at the balance sheet date. For floating rate liabilities, the analysis was prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 100 basis point increase or decrease represents a reasonably possible change in interest rates.
100 basis point change in interest rates
IncreaseRm
DecreaseRm
2010
(Loss) profit (4) 3
2009
(Loss) profit (12) 10
Equity price riskThe company is exposed to equity price risks as a result of its unlisted investments.
The sensitivity analysis below was prepared based on the exposure to equity prices at the balance sheet date. A 10% increase or decrease represents a reasonably possible change in equity prices.
10% changein equity prices
IncreaseRm
DecreaseRm
2010
(Loss) profit — —
2009
(Loss) profit 1 (1)
90 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
30. RECONCILIATION OF PROFIT BEFORE TAXATION TO NET CASH FLOWS FROM OPERATIONS (restated)
Profit before taxation 271 403 119 2
Adjusted for:
Share of profits of associates (9) — — —
Finance income (50) (72) (114) —
Finance costs 38 53 — —
Depreciation 84 85 — —
Amortisation 22 22 — —
Goodwill impairment — 4 — —
Increase in post-retirement benefits liabilities 13 6 — —
Non-cash portion of exceptional items (3) 3 (2) 5
Impairment of property, plant and equipment — 3 — —
Share incentive schemes (9) (11) (12) (13)
Operating leases equalisation liabilities (27) (16) — —
Other non-cash items (5) (9) 9 6
Operating cash flows before movements in working capital 325 471 — —
Movements in working capital 55 (26) — —
Decrease (increase) in inventories 36 (39) — —
Decrease (increase) in trade and other receivables 179 (33) — (1)
(Decrease) increase in trade and other payables (160) 46 — 1
Net cash flows from operations 380 445 — —
31. INCOME FROM INVESTMENTSCash dividends received from associates 3 2 — —
Annual financial statem
ents
91Avusa annual report 2010
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
32. ACQUISITION AND DISPOSAL OF INTERESTS IN BUSINESSES, ASSOCIATES AND OTHER INVESTMENTSAcquisition of interest in business2010• Kwana Distributors on 1 September 2009Intangible assets 1 — — —Total net assets acquired 1 — — —Total consideration 1 — — —Settled by:Cash (1) — — —
Net cash outflow arising on acquisitionCash consideration paid (1) — — —
33. ACQUISITION AND DISPOSAL OF SUBSIDIARIES33.1 Acquisition of subsidiaries
2010• Mega Digital (Proprietary) Limited on
1 July 2009 (50,1%)• Boo Media and Communication (Proprietary)
Limited on 1 October 2009 (51%)2009• Random House Struik (Proprietary) Limited
on 1 August 2008 (50,1%)• Collage Litho (Proprietary) Limited (formerly
The Print Factory (Proprietary) Limited) on 1 December 2008 (70%)
Net assets acquiredProperty, plant and equipment 3 5 — —Intangible assets 4 26 — —Other non-current assets — (9) — —Net current assets 4 13 — —Bank balances, deposits and cash 3 18 — —Long-term borrowings (3) (2) — —Non-current liabilities (1) (2) — —Net current liabilities (3) — — —
Total net assets acquired 7 49 — —Minority interests (3) (48) — —Goodwill 4 8 — —
Total consideration 8 9 — —Settled by:Cash (8) (9) — —
Net cash outflow arising on acquisitionsCash consideration paid (8) (9) — —Cash consideration received — 11 — —Net bank balances, deposits and cash acquired 3 7 — —
(5) 9 — —
92 Avusa annual report 2010
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
33. ACQUISITION AND DISPOSAL OF SUBSIDIARIES (continued)
33.2 Disposal of subsidiaries
2010
• During the year, the final proceeds on the disposal of the Kenyan subsidiaries were received
2009
• Nigerian and Kenyan subsidiaries at the end of September 2008
Net assets disposed
Property, plant and equipment — (80) — —
Goodwill — (6) — —
Other non-current assets — (7) — —
Long-term borrowings — 70 — —
Net current liabilities — 30 — —
Net bank balances and bank overdrafts — 25 — —
Total net liabilities disposed — 32 — —
Minority interests — 4 — —
Profit on sale (2) (62) — —
Total consideration (2) (26) — —
Settled by:
Cash 2 26 — —
Net cash inflow arising on disposals
Cash consideration received 2 26 — —
Net bank balances and bank overdrafts disposed — 25 — —
2 51 — —
34. ACQUISITION OF PROPERTY, PLANT AND EQUIPMENT
Additions:
• to maintain operations 67 83 — —
• to expand operations 45 40 — —
Total additions (note 14) 112 123 — —
Annual financial statem
ents
93Avusa annual report 2010
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
35. CASH AND CASH EQUIVALENTS
Bank balances, deposits and cash 565 557 — —
Bank overdrafts (note 24) (61) (141) — —
504 416 — —
Bank balances, deposits and cash have original maturities of three months or less. The carrying amounts of these assets approximate their fair values.
Bank overdrafts comprise:
South African rand 48 125 — —
Foreign currencies 13 16 — —
61 141 — —
36. CONTINGENT LIABILITIES
Claims which may result from pending litigation 2 2 — —
Licence fee dispute with the South African Revenue Service — 7 — —
Rental dispute — 1 — —
2 10 — —
Other than as disclosed above, there are no legal proceedings of which the group is aware which may have a material effect on the group’s financial position.
37. CAPITAL EXPENDITURE COMMITMENTS
Contracted but not provided for 1 10 — —
Authorised but not yet contracted for 184 23 — —
185 33 — —
The authorised but not yet contracted for capital expenditure commitments include printing press approval.
38. LEASE COMMITMENTS
Outstanding commitments for future minimum lease payments under non-cancellable operating leases fall due as follows:
Within one year 169 176 — —
In the second to fifth years inclusive 408 380 — —
After five years 336 55 — —
913 611 — —
Lease payments recognised in profit or loss are reflected in note 5.
Lease commitments in respect of the renewal of the head office lease are included in the periods beyond one year.
The lease commitments detailed above do not include turnover rent to the extent that turnover rent exceeds base rent.
94 Avusa annual report 2010
39. RETIREMENT BENEFIT PLANSThe group has retirement benefit plans covering substantially all employees. Eligible employees are members of either defined contribution or defined benefit plans administered by the group, or are members of funds associated with industry or employee organisations.
The South African retirement benefit plans are governed by the Pension Funds Act, 1956. The assets of the plans are held separately from those of the group, in funds under the control of trustees. The cost charged to profit or loss represents contributions payable to the plans by the group at rates specified in the rules of each plan (note 5).
Defined contribution plansThe defined contribution plans are designed to provide a lump sum on retirement or a combination of a lump sum and a pension. The benefits are dependent on the investment performance of the plans. Both employees and group companies contribute to the plans on a fixed contribution basis. Apart from contributions paid, the group has no further obligations in respect of these plans.
The Avusa Limited Pension Fund, although it is principally a defined contribution plan, includes an element of defined benefits. Details relating to the fund’s defined benefit membership are presented below. Valuations are done at three-year intervals. The last valuation was performed as at 30 June 2007 utilising the following principal actuarial assumptions:
2007%
Discount rate 5,0 p.a.
Expected return on plan assets 9,2 p.a.
Future salary increase 6,5 p.a.
Future pension increase 4,5 p.a.
The membership of the fund was:
In-service defined benefit members 28
The financial condition of the defined benefit element of the fund was:
Rm
Fair value of plan assets 21
Fair value of plan liabilities (21)
Fair value of plan surplus —
The amounts recognised in income are as follows (note 5): Group
2010Rm
2009Rm
Current service cost of in-service defined benefit members 1 1
Defined benefit plan It is the policy of the group to ensure that the Johnnic Entertainment Pension Fund is adequately funded to provide for the pension liabilities of members of the fund. The current service cost is charged to the income statement in the year in which the related services are rendered by the in-service members. Actuarial valuations are carried out at three-year intervals by independent actuaries using the projected unit credit method. The effects of differences between assumptions and actual experience, changes in actuarial assumptions, and amendments to plans are spread over the estimated average remaining working lives of employees. The statutory actuarial valuation as at 31 December 2007 concluded that the fund was in a sound financial condition at that date.
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Annual financial statem
ents
95Avusa annual report 2010
39. RETIREMENT BENEFIT PLANS (continued)
The principal actuarial assumptions used in the valuation were:
2007%
Discount rate 5,7 p.a.
Expected return on plan assets 8,5 p.a.
Future salary increase 6,7 p.a.
Future pension increase 2,3 p.a.
The membership of the fund was:
In-service members 13
Pensioner members 377
390
The financial condition of the fund was:
Rm
Fair value of plan assets 167
Fair value of plan liabilities (including employer surplus) (149)
Fair value of plan surplus 18
The fair value of the plan surplus has not been recognised as an asset by Avusa as the group has no legal access to the funds.
The fund’s actuaries have advised that the fund was in a sound financial position as at 31 March 2010.
Group Company
2010Rm
2009Rm
2010Rm
2009Rm
40. RELATED PARTY TRANSACTIONS
Directors’ remuneration
Non-executive directors
Fees for services as directors 3 4
Executive directors 10 10
Salaries 4 4
Bonuses and performance-related payments 6 6
Total directors’ remuneration 13 14
Paid by subsidiaries (10) (10)
3 4
The remuneration of executive directors is determined by the remuneration, human resources and transformation committee having regard to comparable market information. In the case of non-executive directors, retainers and fees are approved by the shareholders. Further information regarding the remuneration of individual directors is set out in the remuneration, human resources and transformation committee report on pages 98 to 105.
Other related party transactionsTransactions between the company and its subsidiaries have been eliminated on consolidation and are not disclosed in this note.
Transactions between the group and its associates were concluded at arm’s length.
Key management personnel are defined as members of the company’s board of directors.
96 Avusa annual report 2010
41. JOINT VENTURES% %
I-Net Bridge (Proprietary) Limited 83,3 83,3
BDFM Publishers (Proprietary) Limited 50,0 50,0
African Business Channel (Proprietary) Limited 50,0 50,0
Northern Titles (Proprietary) Limited 50,0 50,0
The following amounts are included in the group’s financial statements as a result of proportionate consolidation of the joint ventures:
Rm Rm
Revenue 261 275
Profit from operations 13 18
Non-current assets 51 46
Current assets 120 110
Non-current liabilities (31) (29)
Current liabilities (73) (93)
Cash and cash equivalents 74 61
Contingent liabilities and commitments 6 6
42. SHARE-BASED PAYMENTS
During the year, the following were (charged) credited to the income statement: (5) 7
Cash-settled incentives (2) 10
Equity-settled incentives (3) (3)
Share-based payments liabilities in respect of cash-settled incentives – current 5 17
Equity: equity-settled share incentive plans 6 3
Total intrinsic value of liabilities in respect of vested share-based incentives 5 17
The group’s share-based incentives include both cash-settled and equity-settled incentives. The cash-settled incentives are fully vested, and comprise the remaining liabilities towards participants in respect of incentives assumed by Avusa from ElementOne.
The share-based incentives were valued by Alexander Forbes Financial Services using models which they developed. The models are stochastic models, based on the standard binomial options pricing model (which is mathematically consistent with the Black-Scholes model) but which allow for the particular features of employee share incentives to be realistically modelled.
Further information on Avusa’s share-based incentives is set out in the remuneration, human resources and transformation committee report on pages 98 to 105.
Notes to the annual financial statements (continued)for the year ended 31 March 2010
Annual financial statem
ents
97Avusa annual report 2010
43. RESTATEMENTSComparatives have been restated in respect of the following:
2009restatement
Rm
2008restatement
Rm
Adoption of IFRIC 13 Customer Loyalty ProgrammesUpon the adoption by Exclusive Books of IFRIC 13, the fair value of customer loyalty points that were previously included in marketing expenses is now deducted from revenue. (See note 1 above.)Decrease in revenue (8)Decrease in operating costs (8)
Inter-group revenue eliminationsData relating to inter-group sales within the Entertainment business unit available from an upgraded management information system has resulted in an adjustment to the prior year’s inter-group revenue elimination.Increase in revenue 15Increase in cost of sales 15
Revenue recognitionThe time of recognising Nu Metro Films revenue relating to sales to television broadcasters has been changed from the time that the sale agreements are entered into, to the time that the broadcasters have the right to screen the programmes. This change has been implemented to better align the application of the revenue recognition policy to the requirements of IAS 18 Revenue. The settlement in shares by Avusa of its March 2008 acquisition of ElementOne’s operating media and entertainment assets at their carrying values, resulted in the recognition of share premium. To the extent that the above restatement reduced the March 2008 net asset value of the assets acquired, the restatement has been adjusted against the group’s share premium. Statement of comprehensive incomeIncrease in revenue 10Decrease in cost of sales (2)Increase in operating costs 4Decrease in finance income (3)Increase in profit after taxation 3Increase in earnings per ordinary share (cents)Basic 3Diluted 3Increase in headline earnings per ordinary share (cents)Basic 3Diluted 3Statement of financial positionIncrease in inventories 21 19Decrease in accounts receivable (58) (58)Increase in payables 2 3Statement of changes in equityDecrease in share premium (42)Statement of cash flowsIncrease in net cash flows from operations before working capital changes 5Decrease in working capital changes (5)There is no impact on net cash flows from operations
98 Avusa annual report 2010
Remuneration, human resources and transformation committee report
The board presents its remuneration, human resources and transformation report which has been prepared on the recommendation of the remuneration, human resources and transformation committee.
Responsibilities of the committeeThe key responsibilities of the remuneration, human resources and transformation committee during the year under review were to:• determine the company’s remuneration policy and
philosophy for executive directors and senior management, with remuneration agreed after performance reviews;
• determine specific remuneration packages for executive directors of the company;
• determine the criteria necessary to measure the performance of the executive directors in discharging their functions and responsibilities;
• review and recommend suitable share incentive plans for executive directors and senior management;
• review management’s proposals regarding non-executive directors’ fees and make recommendations to the board for approval by shareholders, with the responsibilities and fees at both board and committee levels benchmarked against the market;
• review and recommend to the board for approval the company’s human resources and transformation strategies, policies and plans; and
• analyse, monitor and evaluate the company’s human resources and transformation plans, as approved by the board.
The committee reviews the company’s remuneration philosophy and structure each year to ensure that the remuneration framework remains effective in supporting the company’s business objectives, in line with best practice, and fairly rewards individuals for the contribution that they make to the business, having regard to the size and complexity of the group’s operations and the need to retain, motivate and attract employees.
The committee intends that base salary and total remuneration of executive directors should be in line with the market.
The total remuneration package links corporate and individual performance with an appropriate balance between short and long-term elements, and fixed and variable components. The policy is designed to incentivise executives to meet the company’s key objectives. The committee considers that the targets set for the different elements of performance-related remuneration are both appropriate and demanding in the context of the business environment and the challenges with which the group is faced.
Summary of activity during the yearDuring the year, the committee conducted its annual review of the remuneration policy to ensure that the overall remuneration structure continues to promote the company’s business strategy.
The committee recommended salary increases and bonuses. The committee also recommended share-based incentive grants after having reviewed the related available headroom and targets.
The committee reviewed the amendments required to be made to the Avusa Limited share incentive plans arising from the introduction of the new Schedule 14 of the JSE Listings Requirements.
Human resources matters covering staff training and development, succession management, recruitment and termination trends were reviewed. A performance evaluation of the group chief executive officer was conducted.
With the constant improvement of Avusa’s demographic profile being a key driver of Avusa’s transformation process, the committee made enquiries of management regarding its transformation strategy, and carefully reviewed the company’s detailed employment equity policy and its ongoing implementation, together with Avusa’s investments in training and human capital development.
Advisers to the committeeThe committee has access to detailed external information and research on market data and trends from independent consultants, and engaged PricewaterhouseCoopers during the year to advise on compensation-related matters.
99Avusa annual report 2010
Annual financial statem
ents
Remuneration policy
Attendance at remuneration, human resources and transformation committee meetings
Name23 June
20095 October
200917 November
200918 March
2010
MD Brand (chairman) P P P PYZ Cuba P P P PDB Ntsebeza P P P P
P – Present.
The group chief executive officer and chief financial officer attend meetings of the committee and recuse themselves during discussions and decisions regarding their own remuneration and benefits. Other management personnel are invited as required.
Non-executive directors’ fees2010 2009
ChairmanR
OtherR
ChairmanR
OtherR
Annual retainersBoard 764 295 236 250 727 900 225 000Audit and risk committee 114 240 67 200 108 800 64 000Remuneration, human resources and transformation committee 95 025 50 400 90 500 48 000Investment committee 95 025 50 400 90 500 48 000Nominations committee 95 025 50 400 90 500 48 000Ad hoc committees 95 025 50 400 90 500 48 000Fees per meetingAdditional board and committee meetings held outside the framework of normal meetings 8 400 8 400 8 000 8 000
Executive remuneration Executive remuneration consists of the following three components:
Salary and benefitsThe guaranteed portion of remuneration comprises salary and benefits. Base salaries reflect the role, job size and responsibility of the executive.
Annual bonus Variable remuneration consists of an annual performance bonus linked to a performance rating of financial and operational objectives which are set and agreed at the beginning of the financial year. The larger part of the bonus accrues in respect of the achievement of financial objectives. The financial and operational weightings reflect both group and individual objectives. The bonuses payable to the key executives, being the group chief executive officer’s direct reports, and other staff are deliberated on and agreed by the group chief executive officer and the Avusa chairman. The agreed bonus proposals, together with the Avusa chairman’s proposal regarding the group chief executive officer’s bonus, are then referred to the committee which considers the bonuses for approval. The
annual bonus is settled in cash. The committee continues to be satisfied that the performance targets are challenging and promote the company’s business strategy.
Share-based incentives The long-term performance component comprises various share-based incentive plans designed to reward executives for achieving sustainability of earnings and to promote a retention strategy. In addition, the share-based incentive plans are intended to align management and shareholder interests in that performance conditions governing the vesting of scheme instruments are related to earnings.
Non-executive remuneration Non-executive directors’ fees comprise annual retainers which are reviewed annually.
Non-executive directors are not eligible to participate in any of the company’s share-based incentive plans.
Shareholders will be invited to approve the remuneration policy by means of a non-binding advisory vote to be taken at the company’s forthcoming annual general meeting.
100 Avusa annual report 2010
Director
Directors’fees
R000
2010
DB Ntsebeza 910
MD Brand 398
YZ Cuba 382
LM Machaba-Abiodun 303
TRA Oliphant 287
ME Ramano1 136
MJ Willcox 236
MSM Xayiya 287
TA Wixley 401
3 3401 Retired 21 September 2009.
Director
Directors’fees
R000
2009
DB Ntsebeza1 428
MD Brand 424
YZ Cuba2 315
LM Machaba-Abiodun 531
TRA Oliphant 395
ME Ramano 686
MJ Willcox3 321
MSM Xayiya2 225
TA Wixley 468
3 7931 Appointed 30 September 2008.2 Fees were paid to Mvelaphanda Management Services (Proprietary) Limited.3 Fees were paid to Mvelaphanda Management Services (Proprietary) Limited up to 31 December 2008.
Executive directors’ emolumentsDetails regarding executive directors’ share incentives are set out on pages 103 to 105.
DirectorSalaryR000
Retirementand medical
benefitsR000
Otherbenefits1
R000
Total cost to company
R000
Annualincentive
bonus2
R000
Retention bonusR000
Total R000
2010
PC Desai 2 672 363 115 3 150 3 750 — 6 900
H Benatar 1 235 151 — 1 386 1 320 — 2 706
3 907 514 115 4 536 5 070 — 9 606
2009
PC Desai 2 546 339 116 3 001 2 885 1 500 7 386
H Benatar 1 176 144 — 1 320 1 250 — 2 570
3 722 483 116 4 321 4 135 1 500 9 9561 Travel allowance.2 Earned in respect of the prior year. The 2009 financial results delivered a 29% increase in headline earnings per share over 2008.
Executive directors do not receive fees as directors.
The group chief executive officer has a five-year fixed-term service contract to 31 March 2013. The service contract can be renewed.
Remuneration, human resources and transformation committee report (continued)
101Avusa annual report 2010
Annual financial statem
ents
Avusa Limited share incentive plansThe Avusa Limited share incentive plans include performance conditions set by the remuneration, human resources and transformation committee at the time of allocation of the incentives. The performance conditions determine the vesting of the incentives on the vesting dates, the first of which falls on 30 June 2011.
The Avusa Limited share incentive plans comprise the following:
Share Appreciation Right SchemeThese incentives qualify, subject to performance conditions, for Avusa shares at the allocation prices. The incentives are accounted for as equity-settled, and vest, subject to the meeting of the performance conditions, at the end of the three-year performance periods which run from 1 April 2008 to 31 March 2011 and from 1 April 2009 to 31 March 2012. The performance conditions are related to earnings before interest and tax (EBIT) relative to the budgeted EBIT over the three-year performance period. If the performance conditions are not met then retesting is allowed after the fourth year, using a four-year performance period. Similar retesting is allowed after the fifth year using a five-year performance period. If the performance condition is not met after the fifth year, then the incentives lapse.
Long-Term Incentive PlanThese incentives qualify, subject to performance conditions, for Avusa shares at the allocation prices. The incentives are accounted for as equity-settled, and vest, subject to the meeting of the performance conditions, at the end of the three-year performance periods which run from 1 April 2008
to 31 March 2011 and from 1 April 2009 to 31 March 2012. The performance conditions are related to EBIT relative to the budgeted EBIT over the three-year performance period. If the performance conditions are not met, then the incentives lapse.
Deferred Bonus PlanThese incentives qualify, subject to performance conditions, for Avusa shares at the allocation prices. The incentives are accounted for as equity-settled, and vest, subject to the meeting of the performance conditions at the end of the three-year performance periods which run from 1 April 2008 to 31 March 2011 and from 1 April 2009 to 31 March 2012. The performance conditions are that the recipient remains in the Avusa group’s employ for the three-year performance periods.
The share-based incentives are valued annually by Alexander Forbes Financial Services using models which they developed. The models are stochastic models, based on the standard binomial options pricing model (which is mathematically consistent with the Black-Scholes model) but which allow for the particular features of employee share incentives to be realistically modelled. The valuation models include estimates as to expected incentive lives, volatilities, dividend yields and risk-free interest rates.
The company is limited to 10 382 116 shares, being 10% of its 103 821 159 issued ordinary shares, in settlement of benefits under its share incentive schemes.
The following information is provided in respect of the Avusa Limited share incentive plans as at 31 March:
2010 2009
Maximum number of ordinary shares available for allocation 9 384 872 10 382 116Number of share incentives granted during the year (1 435 228) (997 244)Number of share incentives lapsed during the year 41 492 —
Number of ordinary shares still available for allocation 7 991 136 9 384 872
Number of share incentives outstanding at 1 April 2008 —Granted 997 244Lapsed —
Number of share incentives outstanding at 31 March 2009 997 244
Granted 1 435 228Lapsed (41 492)
Number of share incentives outstanding at 31 March 2010 2 390 980
102 Avusa annual report 2010
Remuneration, human resources and transformation committee report (continued)
Grant date Expiry date
Allocation price
RVesting
date
Number of share
incentives
1 July 20081 30 June 2015 23,94 30 June 2011 564 6921 July 20082 30 June 2011 0,00 30 June 2011 377 5131 July 20083 30 June 2011 0,00 30 June 2011 55 039
Number of share incentives outstanding at 31 March 2009 997 244
1 July 20081 30 June 2015 23,94 30 June 2011 547 3811 July 20082 30 June 2011 0,00 30 June 2011 367 8951 July 20083 30 June 2011 0,00 30 June 2011 55 0391 July 20091 30 June 2016 18,20 30 June 2012 807 5121 July 20092 30 June 2012 0,00 30 June 2012 545 4051 July 20093 30 June 2012 0,00 30 June 2012 67 748
Number of share incentives outstanding at 31 March 2010 2 390 9801 Share Appreciation Right Scheme.2 Long-Term Incentive Plan.3 Deferred Bonus Plan.
Share incentives rolled over from ElementOneThese incentives were all fully vested on their roll-over from ElementOne, and are accounted for as cash-settled. The incentives granted in 2000 qualified for the value of one Avusa share, one ElementOne share, and 5,3 MTN Group shares, less the allocation price. The incentives granted in 2002, 2003 and 2004 qualified for the value of one Avusa share and one ElementOne share. As at 31 March 2010, apart from 16 830 incentives (2009: 354 706 incentives), the value of the ElementOne shares had been exercised by the incentive holders.
Number of share incentives outstanding at 1 April 2008 382 734
Lapsed —
Exercised (28 028)
Number of share incentives outstanding at 31 March 2009 354 706
Lapsed —
Exercised (87 602)
Number of share incentives outstanding at 31 March 2010 267 104
Grant date Expiry date
Allocation price
RVesting
date
Number of share
incentives
3 January 2000 2 January 2010 97,71 Vested 16 0001 May 2002 30 April 2012 0,00 Vested 13 5001 July 2003 30 June 2013 0,00 Vested 124 5621 July 2004 30 June 2014 0,00 Vested 200 644
Number of share incentives outstanding at 31 March 2009 354 706
1 May 2002 30 April 2012 0,00 Vested 8 5001 July 2003 30 June 2013 0,00 Vested 92 1721 July 2004 30 June 2014 0,00 Vested 166 432
Number of share incentives outstanding at 31 March 2010 267 104
103Avusa annual report 2010
Annual financial statem
ents
Executive directors’ interests in Avusa Limited share incentive plans
Director
Balanceof share
incentives at 1 April
2009
Numberof share
incentivesgranted
during theyear
Numberof share
incentivesexercisedduring the
year
Balanceof share
incentives at 31 March
2010 Grant date
Allocation price
RVesting
date
Number of share
incentives
2010
PC Desai 125 791 212 084 — 337 875
1 July 2008 23,94 30 June 2011 50 1251
0,00 30 June 2011 50 1252
0,00 30 June 2011 25 5413
1 July 2009 18,20 30 June 2012 86 5381
0,00 30 June 2012 86 5382
0,00 30 June 2012 39 0083
H Benatar 44 110 60 924 — 105 034
1 July 2008 23,94 30 June 2011 22 0551
0,00 30 June 2011 22 0552
1 July 2009 18,20 30 June 2012 30 4621
0,00 30 June 2012 30 4622
169 901 273 008 — 442 909
Director
Balanceof share
incentives at 1 April
2008
Numberof share
incentivesgranted
during theyear
Numberof share
incentivesexercisedduring the
year
Balanceof share
incentives at 31 March
2009 Grant date
Allocation price
RVesting
date
Number of share
incentives
2009
PC Desai — 125 791 — 125 791
1 July 2008 23,94 30 June 2011 50 1251
0,00 30 June 2011 50 1252
0,00 30 June 2011 25 5413
H Benatar — 44 110 — 44 110
1 July 2008 23,94 30 June 2011 22 0551
0,00 30 June 2011 22 0552
— 169 901 — 169 9011 Share Appreciation Right Scheme.2 Long-Term Incentive Plan.3 Deferred Bonus Plan.
104 Avusa annual report 2010
Remuneration, human resources and transformation committee report (continued)
Group
2010Rm
2009Rm
SHARE-BASED PAYMENTS
During the year, the following were (charged) credited to the income statement: (5) 7
Cash-settled incentives (2) 10
Equity-settled incentives (3) (3)
Share-based payments liabilities in respect of cash-settled incentives – current 5 17
Equity: equity-settled share incentive plans 6 3
Total intrinsic value of liabilities in respect of vested share-based incentives 5 17
Executive directors’ interests in share incentives rolled over from ElementOne
Director
Balanceof share
incentives at 1 April
2009
Numberof share
incentivesexercisedduring the
year
Balanceof share
incentives at 31 March
2010 Grant date
Allocation price
RVesting
date
Number of share
incentives
2010PC Desai 163 948 (10 000) 153 948
1 July 2003 0,00 Vested 44 8481 July 2004 0,00 Vested 109 100
Director
Balanceof share
incentives at 1 April
2008
Numberof share
incentivesexercisedduring the
year
Balanceof share
incentives at 31 March
2009 Grant date
Allocation price
RVesting
date
Number of share
incentives
2009PC Desai 163 948 — 163 948
3 January 2000 97,71 Vested 10 0001 July 2003 0,00 Vested 44 8481 July 2004 0,00 Vested 109 100
105Avusa annual report 2010
Annual financial statem
ents
The Johnnic Communications Limited share incentive scheme was terminated in March 2008 in advance of the sale and unbundling of the company’s operating media and entertainment assets. Avusa assumed the liability for all rolled-over, unsettled share incentives, and ownership of a hedging investment covering the liability.
On 14 and 17 December 2009, PC Desai exercised the 10 000 share incentives granted to him on 3 January 2000
by Johnnic Communications Limited with a 2 January 2010 expiry date, in exchange for 186 898 Avusa shares in settlement of an after-tax gain of R3 233 340 (R5 388 900 pre-tax).
On 3 August 2009, PC Desai exercised the ElementOne portion of the 153 948 share incentives granted to him in 2003 and 2004 and rolled over from ElementOne, realising a pre-tax gain of R1 693 428.
106 Avusa annual report 2010
Interests in directly held subsidiariesfor the year ended 31 March 2010
ANNEXURE 1
Issuedordinary
share capitalRm
Interest in issued Carrying amountordinary share capital Shares Loans
Subsidiary Principal activityCountry ofincorporation
2010%
2009%
2010Rm
2009Rm
2010Rm
2009Rm
Unlisted
Avusa Media Limited Newspaper, magazine, digital and out-of-home publishing, distribution and advertising
South Africa * 100 100 194 194 4001 3251
Avusa Retail Limited General and academic book retail South Africa * 100 100 59 59 39 —
New Holland Publishing (Proprietary) Limited Book and map publishing and distribution South Africa * 100 100 68 68 — —
Avusa Entertainment Limited Investment holding South Africa 4 100 100 94 94 18 5
At Velocity Logistics Limited (formerly Gallo Africa Limited) Music production and distribution South Africa 13 100 100 — — 1672 1672
Avusa Management Services (Proprietary) Limited Management services South Africa * 100 100 — — (18) 553
Advowson Investments (Proprietary) Limited Investment holding South Africa * 100 100 — — 152 152
Avusa Africa Mediatainment (Proprietary) Limited Dormant South Africa * 100 100 — — — —
Avusa Group Services (Proprietary) Limited Dormant South Africa * —4 100 — — — —
415 415 758 704
* Less than R1 million.1 Includes R85 million owing by subsidiary of Avusa Media Limited.2 Fully subordinated.3 R36 million subordinated.4 De-registered in March 2010.
Annual financial statem
ents
107Avusa annual report 2010
ANNEXURE 1
Issuedordinary
share capitalRm
Interest in issued Carrying amountordinary share capital Shares Loans
Subsidiary Principal activityCountry ofincorporation
2010%
2009%
2010Rm
2009Rm
2010Rm
2009Rm
Unlisted
Avusa Media Limited Newspaper, magazine, digital and out-of-home publishing, distribution and advertising
South Africa * 100 100 194 194 4001 3251
Avusa Retail Limited General and academic book retail South Africa * 100 100 59 59 39 —
New Holland Publishing (Proprietary) Limited Book and map publishing and distribution South Africa * 100 100 68 68 — —
Avusa Entertainment Limited Investment holding South Africa 4 100 100 94 94 18 5
At Velocity Logistics Limited (formerly Gallo Africa Limited) Music production and distribution South Africa 13 100 100 — — 1672 1672
Avusa Management Services (Proprietary) Limited Management services South Africa * 100 100 — — (18) 553
Advowson Investments (Proprietary) Limited Investment holding South Africa * 100 100 — — 152 152
Avusa Africa Mediatainment (Proprietary) Limited Dormant South Africa * 100 100 — — — —
Avusa Group Services (Proprietary) Limited Dormant South Africa * —4 100 — — — —
415 415 758 704
* Less than R1 million.1 Includes R85 million owing by subsidiary of Avusa Media Limited.2 Fully subordinated.3 R36 million subordinated.4 De-registered in March 2010.
108 Avusa annual report 2010
Group interests in associatesas at 31 March 2010
ANNEXURE 2
Effective interestCost less amount
written off LoansShare of post-
acquisition reserves Total
Associate Principal activityCountry ofincorporation
Financial year-end
2010%
2009%
2010Rm
2009Rm
2010Rm
2009Rm
2010Rm
2009Rm
2010Rm
2009Rm
Unlisted
Allied Media Distributors (Proprietary) Limited Distribution of publications South Africa December 30,0 30,0 — — — — 2 2 2 2
Allied Publishing Limited Distribution of publications South Africa December 50,0 50,0 1 1 — — 1 1 2 2
Banner News Agency (Proprietary) Limited Property investment holding South Africa December 28,6 28,6 — — — — — — — —
CareerJunction Middle East FZ LLC1 On-line recruitment United Arab Emirates March 49,0 49,0 — 1 — 5 — (6) — —
Exclusive Books Airport (Proprietary) Limited Book retail South Africa March 40,0 40,0 — — — — 1 1 1 1
The Newspaper Printing Company Printing South Africa December 35,0 35,0 — — 24 24 — — 24 24
Three Groups Cinemas (Proprietary) Limited Cinemas South Africa March 50,0 50,0 — — — — 6 4 6 4
Warner Music Gallo Africa (Proprietary) Limited Music South Africa March2 40,0 40,0 — — — — 10 5 10 5
1 2 24 29 20 7 45 381 At 31 March 2010, the unrecognised share of the associate’s losses was nil (2009: R779 000).2 Year-end changed to March.
Annual financial statem
ents
109Avusa annual report 2010
ANNEXURE 2
Effective interestCost less amount
written off LoansShare of post-
acquisition reserves Total
Associate Principal activityCountry ofincorporation
Financial year-end
2010%
2009%
2010Rm
2009Rm
2010Rm
2009Rm
2010Rm
2009Rm
2010Rm
2009Rm
Unlisted
Allied Media Distributors (Proprietary) Limited Distribution of publications South Africa December 30,0 30,0 — — — — 2 2 2 2
Allied Publishing Limited Distribution of publications South Africa December 50,0 50,0 1 1 — — 1 1 2 2
Banner News Agency (Proprietary) Limited Property investment holding South Africa December 28,6 28,6 — — — — — — — —
CareerJunction Middle East FZ LLC1 On-line recruitment United Arab Emirates March 49,0 49,0 — 1 — 5 — (6) — —
Exclusive Books Airport (Proprietary) Limited Book retail South Africa March 40,0 40,0 — — — — 1 1 1 1
The Newspaper Printing Company Printing South Africa December 35,0 35,0 — — 24 24 — — 24 24
Three Groups Cinemas (Proprietary) Limited Cinemas South Africa March 50,0 50,0 — — — — 6 4 6 4
Warner Music Gallo Africa (Proprietary) Limited Music South Africa March2 40,0 40,0 — — — — 10 5 10 5
1 2 24 29 20 7 45 381 At 31 March 2010, the unrecognised share of the associate’s losses was nil (2009: R779 000).2 Year-end changed to March.
110 Avusa annual report 2010
Group attributable interests in associates
ANNEXURE 3
2010Rm
2009Rm
STATEMENT OF FINANCIAL POSITION
ASSETS AND LIABILITIES
Tangible and intangible assets 21 22
Investments and long-term receivables 3 3
Current assets 98 89
Total assets 122 114
Long-term borrowings 36 44
Current liabilities 66 62
Total liabilities 102 106
Attributable net asset value 20 8
Indebtedness 24 29
Other 1 1
Carrying value 45 38
STATEMENT OF COMPREHENSIVE INCOME
Revenue 189 195
Profit (loss) before taxation 13 (1)
Taxation (4) (2)
Profit (loss) for the year 9 (3)
111Avusa annual report 2010
Shareholder information
ANNEXURE 3
2010Rm
2009Rm
STATEMENT OF FINANCIAL POSITION
ASSETS AND LIABILITIES
Tangible and intangible assets 21 22
Investments and long-term receivables 3 3
Current assets 98 89
Total assets 122 114
Long-term borrowings 36 44
Current liabilities 66 62
Total liabilities 102 106
Attributable net asset value 20 8
Indebtedness 24 29
Other 1 1
Carrying value 45 38
STATEMENT OF COMPREHENSIVE INCOME
Revenue 189 195
Profit (loss) before taxation 13 (1)
Taxation (4) (2)
Profit (loss) for the year 9 (3)
Notice of annual general meeting
AVUSA LIMITED Incorporated in the Republic of South Africa(Registration number: 2008/002461/06)Share code: AVU ISIN code: ZAE000115895(Avusa or the company)
Notice is hereby given that the annual general meeting of shareholders of the company will be held in the auditorium, ground floor, 4 Biermann Avenue, Rosebank, Johannesburg on Monday, 20 September 2010 at 12:30 for the purpose of considering and, if deemed fit, passing, with or without modification, the following resolutions:
1. to receive, consider and adopt the annual financial statements of the company and the group for the year ended 31 March 2010, together with the directors’ and independent auditors’ reports;
2. to re-elect, by separate resolutions, each of the following directors who retire by rotation in accordance with the company’s articles of association:
2.1 Ms LM Machaba-Abiodun; 2.2 Mr TRA Oliphant; and 2.3 Mr MSM Xayiya.
These retiring directors are eligible and available for re-election. Brief biographies of these directors appear on pages 4 and 5 of the annual report;
3. to re-appoint Deloitte & Touche as independent auditor of the company from the conclusion of this annual general meeting until the next annual general meeting of the company;
4. to re-appoint Mr MH Holme of Deloitte & Touche as the designated audit partner from the conclusion of this annual general meeting until the next annual general meeting of the company; and
as special business, to consider and, if deemed fit, pass, with or without modification, the following resolutions:
5. Special resolution number 1: General authority to repurchase shares
“Resolved that the company approves, as a general approval contemplated in sections 85 and 89 of the Companies Act, 61 of 1973, as amended (the Act), the acquisition by the company (or by a subsidiary of the company) of ordinary shares issued by the company on such terms and conditions and in such amounts as the directors of the company may decide, but subject always to the provisions of the Act and the Listings Requirements of the JSE Limited (JSE), which general approval shall endure until the forthcoming annual general meeting of the company (whereupon this approval shall lapse unless it is renewed at the aforementioned annual general meeting), provided that it shall not extend beyond 15 months from the date of registration of this special resolution, subject to the following limitations:
• the repurchase of securities is implemented through the order book of the JSE trading system, without any prior understanding or arrangement between the company and the counterparty;
• the company is authorised thereto by its articles of association;
• the general repurchase by the company is limited to a maximum of 20% in aggregate of the company’s issued share capital in any one financial year;
• the general repurchase by the subsidiaries of the company is limited to a maximum of 10% in aggregate of the company’s issued share capital in any one financial year;
• the repurchase is not made at a price greater than 10% above the weighted average of the market value for the securities for the five business days immediately preceding the date on which the transaction was effected;
• the repurchase does not take place during a prohibited period as defined in paragraph 3.67 of the JSE Listings Requirements, unless there is a repurchase programme in place where the dates and quantities of securities to be traded during the relevant period are fixed (not subject to any variation) and full details of the programme have been disclosed in an announcement over SENS prior to the commencement of the prohibited period;
112 Avusa annual report 2010
• the company publishes an announcement after it or its subsidiaries have cumulatively acquired 3% of the number of ordinary shares in issue at the time that the shareholders’ authority for the purchase is granted and for each 3% in aggregate of the initial number acquired thereafter;
• the company and the group are in a position to repay their debts in the ordinary course of business during the following year;
• the assets of the company and the group, fairly valued in accordance with International Financial Reporting Standards, are in excess of the liabilities of the company and the group during the following year;
• the ordinary share capital and reserves of the company and the group are adequate for the next 12 months;
• the available working capital is adequate to continue the operations of the company and the group during the following year;
• prior to entering the market to proceed with the repurchase, the company’s sponsor has complied with its responsibilities contained in Schedule 25 of the JSE Listings Requirements; and
• the company appoints only one agent to effect any repurchases on its behalf.”
The reason for and effect of special resolution number 1 is to authorise the company and its subsidiaries, by way of general approval, to acquire the company’s own issued ordinary shares, on terms and conditions and in amounts to be determined by the directors of the company, subject to certain statutory provisions, the JSE Listings Requirements and the limitations set out above.
Directors’ statement regarding the utilisation of the authority soughtThe board of directors of the company has no current plans to use this authority, but is seeking its renewal to ensure that the company has the necessary flexibility in managing its capital resources.
Other disclosure in terms of the JSE Listings Requirements The following additional information, some of which may appear elsewhere in the annual report of which this notice forms part, is provided in terms of the JSE Listings Requirements for purposes of this general authority:• Directors – pages 4 and 5;• Major beneficial shareholders – page 45; • Directors’ interests in ordinary shares – page 46; and• Share capital of the company – page 80.
Litigation statement The directors of the company, whose names appear on pages 4 and 5 of the annual report of which this notice forms part, are not aware of any legal or arbitration proceedings, including proceedings which are pending or threatened, which may have or have had in the recent past (being the previous 12 months) a material effect on the group’s financial position.
Directors’ responsibility statement The directors, whose names appear on pages 4 and 5 of the annual report, collectively and individually, accept full responsibility for the accuracy of the information pertaining to special resolution number 1 and certify that, to the best of their knowledge and belief, there are no facts which have been omitted which would make any statement false or misleading, and that all reasonable enquiries to ascertain such facts have been made and that the special resolution contains all information relevant to special resolution number 1.
Material changes Other than the facts and developments reported on in the annual report, there have been no material changes in the affairs or financial position of the company and its subsidiaries since the date of signature of the audit report and up to the date of this notice.
Notice of annual general meeting (continued)
113Avusa annual report 2010
Shareholder information
6. Ordinary resolution number 1: Approval of increase in non-executive directors’ fees
“Resolved that the remuneration of the non-executive directors be increased with effect from 1 October 2010 as set out below:
Board (annual retainer)
Chairman R810 200Other R250 400
Audit and risk committee (annual retainer)
Chairman R131 400Other R73 900
Remuneration, human resources and transformation committee (annual retainer)
Chairman R100 700Other R53 400
Investment committee (annual retainer)
Chairman R100 700Other R53 400
Nominations committee (annual retainer)
Chairman R100 700Other R53 400
Ad hoc committees (annual retainer)
Chairman R100 700Other R53 400
Additional board and committee meetings held outside the framework of normal meetings
Per meeting R8 900”
7. Ordinary resolution number 2: Appointment of the audit and risk committee
“Resolved that the appointment with effect from 1 April 2010 of the following independent non-executive directors as members of the audit and risk committee be and it is hereby ratified: Mr TA Wixley, Mr MD Brand and Ms LM Machaba-Abiodun.”
8. Ordinary resolution number 3: Appointment of the chairman of the audit and risk committee
“Resolved that the appointment with effect from 1 April 2010 of Mr TA Wixley as the chairman of the audit and risk committee be and it is hereby ratified.”
9. Ordinary resolution number 4: Compliance with the new Schedule 14 of the JSE Listings Requirements
“Resolved that the company hereby approves the amendments to be made to the Avusa Limited Share Appreciation Right Scheme 2008, the Avusa Limited Long-Term Incentive Plan 2008 and the Avusa Limited Deferred Bonus Plan 2008, collectively referred to as “the Plans”, in order to achieve compliance with the new Schedule 14 of the JSE Listings Requirements.
The Plans will be available for inspection during normal business hours at the registered office of the company from the date of issue of the annual report of which this notice forms part, up to and including the date of the annual general meeting.
Ordinary resolution number 4 is required, under the JSE Listings Requirements, to be passed by achieving a 75% majority of the votes cast in favour of such resolution by all members present or represented by proxy and entitled to vote at the annual general meeting, excluding the votes attaching to all shares owned or controlled by persons who are existing participants in the Plans.”
A summary of the amendments to be made to the Plans is attached as Annexure 1 to this notice and a summary of the salient terms of the Plans is attached as Annexure 2.
The amendments are administrative in nature, and will not
have a material effect on the Plans.
10. Ordinary resolution number 5: Authority to sign documentation
“Resolved that any director of the company or the company secretary be and is hereby authorised to take all actions necessary and sign all documents required to give effect to the abovementioned special resolution number 1 and ordinary resolutions numbers 1, 2, 3 and 4.”
11. Ordinary resolution number 6: Non-binding advisory vote approving the company’s remuneration policy
“Resolved that the company’s remuneration policy as detailed in the remuneration, human resources and transformation committee report on page 99 be and it is hereby approved and adopted.”
114 Avusa annual report 2010
Voting and proxiesA shareholder of the company entitled to attend, speak and vote at the annual general meeting is entitled to appoint one or more proxies to attend, speak and vote in his/her stead. The proxy need not be a shareholder of the company. A form of proxy is enclosed for the convenience of any certificated and own-name-registered dematerialised shareholder who cannot attend the annual general meeting but who wishes to be represented thereat.
On a show of hands, every shareholder of the company present in person or represented by proxy shall have one vote only. On a poll, every shareholder of the company present in person or represented by proxy shall have one vote for every share held in the company by such shareholder.
Forms of proxy may also be obtained on request from the company’s registered office. The completed forms of proxy must be deposited at, posted to or faxed to the company’s transfer secretaries at the address below, to be received by them no later than 12:30 on Friday, 17 September 2010. Any member who completes and lodges a form of proxy will nevertheless be entitled to attend, speak and vote in person at the annual general meeting should the member subsequently decide to do so.
Shareholders, other than own-name-registered dematerialised shareholders, who have dematerialised their shares through a central securities depository participant (CSDP) or broker, who wish to attend the annual general meeting, must request their CSDP or broker to issue them with a letter of representation.
Should shareholders who have dematerialised their shares wish to vote by proxy, they must provide their CSDP or broker with their voting instructions in terms of the custody agreement entered into between themselves and their CSDP or broker, in the manner, and within the cut-off time, as stipulated in the custody agreement.
By order of the board
JR Matisonn Transfer secretariesCompany secretary Computershare Investor Services25 August 2010 (Proprietary) Limited 70 Marshall StreetRegistered office Johannesburg, 20014 Biermann Avenue Rosebank, 2196 PO Box 61051Johannesburg Marshalltown, 2107
PO Box 1746Saxonwold, 2132
Annexure 1 – Summary of the amendments to be made to
the Plans
“The amendments to be made to the Plans to achieve
compliance with the new Schedule 14 of the JSE Listings
Requirements are summarised as follows:
(a) Amending the Plans to clarify that non-executive
directors of the company are excluded from participating
in the Plans;
(b) Amending the definition of “employee” to clarify that
employees who are within 12 months of retirement are
not entitled to new grants/offers under the Plans;
(c) Insertion of a definition of “JSE Listings Requirements”;
(d) Reference to a fixed aggregate number of shares, being
10 382 116 being available for utilisation under the Plans
and clarification around how that limit is calculated. The
original aggregate percentage of shares as approved
by shareholders in 2008, being 10%, was retained and
converted to a number;
(e) Reference to a fixed number of shares, being 1 038 212,
which can be acquired under the Plans by any one
participant. The original percentage of shares that can
be acquired by any one participant as approved by
shareholders in 2008, being 1%, was retained and
converted to a number;
Notice of annual general meeting (continued)
115Avusa annual report 2010
Shareholder information
(f) Explaining the basis upon which the grants/offers are made under the Plans, namely that grants/offers are based on an employee’s grade and annual salary;
(g) Rewording of the settlement methods available to the company or participating company, namely either an acquisition of shares on the market or the issue of shares to a participant, the costs in each instance being borne by either the company, where the participant is employed by the company, or the participating company, where the participant is employed by the participating company;
(h) Removal of the discretion of the remuneration, human resources and transformation committee to determine the rights of participants who leave the employment of the company or of a participating company. In terms of the JSE Listings Requirements the committee is not permitted to exercise discretion to determine the rights of participants on the termination of employment;
(i) Addition of the provision that in the event of an internal reconstruction or if any other corporate action occurs which does not involve a substantial change in the ultimate control of the company, but which affects grants, the action that the committee may take as it considers appropriate to protect the interest of participants must give participants an entitlement to the same proportion of the equity capital as that to which they were entitled prior to the occurrence of the internal reconstruction or corporate action;
(j) Addition of a provision that in the event of a liquidation of the company, any grants/offers that have not yet vested will lapse;
(k) Addition of a provision that shares will only be purchased or issued once the employee/s to whom they will be allocated has/have been formally identified through a letter of grant/offer;
(l) Addition of a provision that the company will ensure compliance with the provisions of the JSE Listings Requirements regarding dealings in securities by directors;
(m) Addition of the amendment to the Avusa Limited Share Appreciation Right Scheme 2008 and Avusa Limited Long-Term Incentive Plan 2008 that the discretion afforded to the remuneration, human resources and transformation committee to change performance conditions specified in letters of grant/offer has been removed, as the JSE requires that the basis upon which grants/offers are made is fixed at the date of grant/offer; and
(n) Addition of the amendment to the Avusa Limited Deferred Bonus Plan 2008 that shares allocated for purposes of the Deferred Bonus Plan cannot be voted at general or annual general meetings.”
Annexure 2 – Summary of the salient terms of the PlansIntroductionAvusa currently operates three share incentive plans, namely the Share Appreciation Right Scheme 2008 (SAR), Long-Term Incentive Plan 2008 (LTIP) and the Deferred Bonus Plan 2008 (DBP). The primary intent of the Plans is to purchase shares in the market to settle any benefits, so that the Plans do not have any dilutionary impact on shareholders.
The Plans also support the principle of alignment of management and shareholder interests, with performance conditions which govern the vesting of the incentives being related to earnings before interest and tax over rolling three-year performance periods.
Under the SAR, participants can exercise their rights from the third year following the grant date, provided the performance condition has been met. On the exercise of the rights, participants receive the appreciation in the share price, settled in shares.
In terms of the LTIP, participants are granted conditional awards to receive shares on the vesting date (three years from the grant date), provided the performance condition has been met.
Under the DBP, participants use a portion of the after-tax component of their bonus to acquire pledged shares, and receive matching shares, provided that such participants are still Avusa employees and the owners of the pledged shares after a three-year vesting period.
The salient terms of the Plans are set out in further detail below.
EligibilityThe SAR, LTIP and DBP are offered to any person (including executive directors) holding full-time salaried employment or office of any participating company who is not within 12 months of retirement date, but excluding any non-executive director.
116 Avusa annual report 2010
The basis for making awardsThe basis upon which the SAR, LTIP and DBP are granted takes account of the employee’s total cost-to-company package and job grade, and, in the case of the DBP, the employee’s after-tax annual bonus. Participants are not required to pay for the making of the awards.
Plan and individual limits Subject to an adjustment upon the occurrence of a variation in share capital of the company, the company cannot allocate or use more than 10 382 116 shares, being 10% of its issued ordinary shares, in settlement of benefits under the Plans. Shares that are forfeited by participants revert back to the Plans.
Any one participant cannot be allocated in excess of 1 038 212 shares, being 1% of the issued ordinary shares of the company.
Delivery of sharesThe shares delivered under the Plans shall have all rights attaching to ordinary shares in the issued ordinary capital of the company and shall rank pari passu in all respects with the existing shares in the share capital of the company.
Termination of employment and exceptions A participant who resigns or is dismissed for lawful reason forfeits all his awards.
If a participant’s employment with the group terminates prior to the vesting date by reason of his retrenchment, ill health, disability, death or any other reason which the remuneration, human resources and transformation committee (remco) may consider appropriate, a pro-rata portion of the awards shall vest early. The portion that vests under the SAR and LTIP reflects the number of months served of the performance period and, in the opinion of the remco, the extent to which the performance condition has been satisfied. In terms of the DBP, the proportion reflects the number of months of the pledge period that has been served up to the date of termination of employment.
Retirees continue to participate in the incentive plans (as regards grants that they had received prior to their retirement) as if they had continued to remain in employment of the company.
Reconstruction or takeover In the event of a reconstruction or takeover of the company before the vesting date, the remco shall, prior to the reconstruction or takeover, review the performance conditions and the extent to which they have been satisfied up to the date of the reconstruction or takeover, and calculate the number of awards to vest under the Plans. All matching shares under the DBP will automatically vest.
If there is an internal reconstruction or other event which does not involve any change in the ultimate control of the company, and therefore is not a reconstruction or takeover, or if any other corporate action occurs which may affect grants, including the shares ceasing to be listed on the JSE, the remco may take such action as it considers appropriate to protect the interests of participants, so as to give participants an entitlement to the same proportion of the equity capital of the company, as that to which they were entitled prior to the occurrence of the corporate action, including converting grants into equivalent grants in respect of shares in one or more other companies.
Variation in share capital In the event of a subdivision, consolidation or other event affecting the share capital of the company, the remco must, and in the case of a capitalisation issue, special dividend, rights issue, capital reduction, a demerger (in whatever form) or in the event of the company making distributions including a distribution in specie or a payment in terms of section 90 of the Companies Act (other than a dividend paid in the ordinary course of business out of the current year’s retained earnings) or in terms of a repurchase of shares before the vesting date, the remco may make such adjustment to the grants already made as it thinks is required to give participants an entitlement to the same portion of the equity capital of the company as that to which they were entitled prior to the occurrence of the relevant event. Any adjustment to the awards must be reported in the company’s annual financial statements.
Notice of annual general meeting (continued)
117Avusa annual report 2010
Form of proxy (for use by certificated and own-name-registered dematerialised shareholders only)
AVUSA LIMITED (the company)Incorporated in the Republic of South Africa(Registration number: 2008/002461/06)Share code: AVU ISIN code: ZAE000115895
For the annual general meeting on Monday, 20 September 2010
A shareholder of the company entitled to attend, speak and vote at the annual general meeting is entitled to appoint one or more proxies to attend, speak and vote in his/her stead.
I/We (name in block letters)
of (address) being (a) shareholder(s) of the company,
and entitled to votes, do hereby appoint of
or failing him/her, the chairman of the meeting, as my/our proxy to represent me/us at the annual general meeting to be held in the auditorium, ground floor, 4 Biermann Avenue, Rosebank, Johannesburg on Monday, 20 September 2010 at 12:30 to vote in favour, against or to abstain from voting on:
In favour Against Abstain
1. The adoption of the company and group annual financial statements for the year ended 31 March 2010
2. The re-election, by separate resolutions, of each of the following directors:
2.1 Ms LM Machaba-Abiodun;
2.2 Mr TRA Oliphant; and
2.3 Mr MSM Xayiya
3. The re-appointment of Deloitte & Touche as the independent auditor of the company
4. The re-appointment of Mr MH Holme as the designated audit partner
5. Special resolution number 1: General authority to repurchase shares
6. Ordinary resolution number 1: Approval of increase in non-executive directors’ fees
7. Ordinary resolution number 2: Appointment of the audit and risk committee
8. Ordinary resolution number 3: Appointment of the chairman of the audit and risk committee
9. Ordinary resolution number 4: Compliance with the new Schedule 14 of the JSE Listings Requirements
10. Ordinary resolution number 5: Authority to sign documentation
11. Ordinary resolution number 6: Non-binding advisory vote approving the company’s remuneration policy
Signed at on 2010
Signature of shareholder(s)
Assisted by (where applicable)
Note1. Mark with an “X” whichever is applicable. Unless otherwise directed, the proxy will vote as he/she thinks fit.2. If this proxy form is signed under power of attorney, such power of attorney, unless previously registered with the
company, must accompany it, failing which the proxy form cannot be used at the meeting.3. This proxy form must be signed, dated and returned to reach the company’s transfer secretaries, Computershare Investor
Services (Proprietary) Limited, 70 Marshall Street, Johannesburg, 2001; PO Box 61051, Marshalltown, 2107, no later than 12:30 on Friday, 17 September 2010.
Shareholder information
118 Avusa annual report 2010
1. The deletion of any printed matter and the completion of any blank spaces need not be signed or initialled. Any alteration or correction must be initialled by the signatory(ies).
2. Shareholders who have dematerialised their shares and wish to attend the annual general meeting must contact their central securities depository participant (CSDP) or broker who will provide them with the necessary authority to attend the annual general meeting, or they may instruct their CSDP or broker as to how they wish to vote in this regard. This has to be done in terms of the agreement entered into between such shareholder and the CSDP or broker. However, those shareholders who are recorded in the sub-register in electronic format in their own name are entitled to complete the proxy form.
3. The chairman of the meeting will be entitled to decline to accept the authority of a person signing the proxy form under a power of attorney or on behalf of a company unless that person’s power of attorney is deposited at the offices of the company’s transfer secretaries no later than 12:30 on Friday, 17 September 2010.
4. If two or more proxies attend the meeting, then the person attending the meeting whose name appears first on the proxy form and whose name is not deleted, will be regarded as the validly appointed proxy.
5. Where there are joint holders of shares, any one shareholder may sign the form of proxy. In the case of joint shareholders, the senior shareholder who tenders a vote will be accepted to the exclusion of other joint holders. Seniority will be determined by the order in which names stand in the register of shareholders.
6. Documentary evidence establishing the authority of a person signing this form of proxy in a representative capacity must be attached to this form of proxy unless previously recorded by the company’s transfer secretaries or waived by the chairman of the annual general meeting.
7. The completion and lodging of this form of proxy will not preclude the shareholder who grants this proxy from attending the meeting, and speaking and voting in person to the exclusion of any proxy appointed in terms hereof, should such shareholder wish to do so.
8. A company or any other body corporate wishing to vote on a show of hands should ensure that the resolution required by section 188 of the South African Companies Act, 61 of 1973, as amended (the Act), to authorise a representative to vote is passed by its directors or other governing body. Resolutions authorising representatives in terms of section 188 of the Act must be received by the company’s transfer secretaries no later than 12:30 on Friday, 17 September 2010.
Notes to the form of proxy
119Avusa annual report 2010
AVUSA LIMITED
ELECTRONIC REPORTING
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Please complete this form and fax it to Computershare on +27 11 668 7719 or mail it to PO Box 61051, Marshalltown, 2107, South Africa
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Indicate your preference below by placing an “X” in the appropriate box and countersigning your selection alongside the option elected.
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Avusa LimitedIncorporated in the Republic of South AfricaCompany registration number: 2008/002461/08JSE share code: AVUISIN code: ZAE000115895
DirectorateDB Ntsebeza (chairman)PC Desai* (group chief executive officer) H Benatar* (chief financial officer)MD Brand YZ Cuba LM Machaba-AbiodunTRA OliphantMJ WillcoxTA WixleyMSM Xayiya * Executive.
Company secretary and registered officeJR Matisonn4 Biermann AvenueRosebank, 2196Johannesburg
PO Box 1746Saxonwold, 2132
Telephone: +27 11 280 3000Fax: +27 11 280 5099Internet: http://www.avusa.co.za
Legal advisersWerksmans Inc.155 Fifth StreetSandown, 2196Sandton
Private Bag 10015Sandton, 2146
Corporate advisers and sponsorNedbank CapitalA division of Nedbank LimitedThird Floor, Block FCorporate Place135 Rivonia RoadSandown, 2196Sandton
PO Box 1144Johannesburg, 2000
Transfer SecretariesComputershare Investor Services (Proprietary) Limited70 Marshall StreetJohannesburg, 2001
PO Box 61051Marshalltown, 2107
Share care lineComputershare Investor Services (Proprietary) Limited70 Marshall StreetJohannesburg, 2001
PO Box 62212Marshalltown, 2107
Telephone: National 0861 100 917International +27 11 870 8224
AuditorsDeloitte & ToucheDeloitte PlaceThe Woodlands Office Park20 Woodlands DriveWoodmead, Sandton
Private Bag X6Gallo Manor, 2052
BankersThe Standard Bank of South Africa Limited7th FloorStandard Bank Centre3 Simmonds StreetJohannesburg, 2001
PO Box 61029Marshalltown, 2107
Corporate information
Shareholders’ diary
Financial year-end 31 March Year-end results Announced JuneAnnual report Posted AugustAnnual general meeting SeptemberInterim results Announced November
Dates subject to alteration.
121Avusa annual report 2010
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BASTION GRAPHICS
www.avusa.co.za
AVU
SA annual report 2010