ANNUAL fiNANCiAL sTATEmENTs SHOPRITE HOLDINGS LIMITED AND ITS SUBSIDIARIES CONTENTs Certificate of company secretary 48 Currency of annual financial statements 48 Auditor’s report 49 Directors’ report 50 Balance sheet 52 Income statement 53 Statement of changes in equity 54 Cash flow statement 55 Notes to the annual financial statements 56 Accounting policies 56 Segmental analysis 66 Notes 68 Interests in subsidiaries 106 Shoprite Holdings Limited ANNUAL REPORT 2007 47 certificate by company secretary sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs In my capacity as the company secretary, I hereby confirm, in terms of the South African Companies Act, 1973, that for the year ended 30 June 2007, Shoprite Holdings Ltd has lodged with the Registrar of Companies all such returns as are required of a public company in terms of this Act, and that all such returns are, to the best of my knowledge and belief, true, correct and up to date. AN van Zyl 31 August 2007 currency of annual financial statements sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs The annual financial statements are expressed in South African rand. The approximate rand cost of a unit of the following currencies at year-end was: 2007 2006 USA dollar 7,0996 7,1100 Pound sterling 14,2248 13,0469 Euro 9,5529 9,0475 Zambian kwacha 0,0019 0,0021 Mozambican metical 0,2731 0,0003 Botswanan pula 1,1388 1,1732 Ugandan shilling 0,0045 0,0038 Malawian kwacha 0,0517 0,0523 Mauritian rupee 0,2283 0,2319 Angolan kwanza 0,0949 0,0887 Indian rupee 0,1742 0,1543 Ghanaian cedi 0,0008 0,0008 Madagascan ariary 0,0038 0,0033 Nigerian naira 0,0559 0,0556 Tanzanian shilling 0,0057 0,0057 Zimbabwean dollar 0,00005 0,0001 48 shoprite Holdings Limited ANNUAL REPORT 2007 independent auditor’s report to the members of shoprite Holdings Limited We have audited the annual financial statements and group annual In making those risk assessments, the auditor considers internal financial statements of Shoprite Holdings Ltd, which comprise the control relevant to the entity’s preparation and fair presentation of directors’ report, the balance sheet and the consolidated balance the financial statements in order to design audit procedures that are sheet as at 30 June 2007, the income statement and the consolidated appropriate in the circumstances, but not for the purpose of income statement, the statement of changes in equity and the expressing an opinion on the effectiveness of the entity’s internal consolidated statement of changes in equity, the cash flow statement control. An audit also includes evaluating the appropriateness of and the consolidated cash flow statement for the year then ended, accounting policies used and the reasonableness of accounting and a summary of significant accounting policies and other estimates made by management, as well as evaluating the overall explanatory notes, as set out on pages 50 to 106. presentation of the financial statements. DIreCtorS’ reSpoNSIBIlIty for the fINANCIAl We believe that the audit evidence we have obtained is sufficient and StAtemeNtS appropriate to provide a basis for our audit opinion. The company’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with opINIoN International Financial Reporting Standards and in the manner In our opinion, the financial statements present fairly, in all material required by the Companies Act of South Africa. This responsibility respects, the financial position of the company and of the group as of includes: designing, implementing and maintaining internal control 30 June 2007, and their financial performance and their cash flows relevant to the preparation and fair presentation of financial for the year then ended in accordance with International Financial statements that are free from material misstatement, whether due to Reporting Standards and in the manner required by the Companies fraud or error; selecting and applying appropriate accounting Act of South Africa. policies; and making accounting estimates that are reasonable in the circumstances. AuDItor’S reSpoNSIBIlIty Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. pricewaterhouseCoopers Inc. An audit involves performing procedures to obtain audit evidence Director: NH Döman about the amounts and disclosures in the financial statements. The Registered Auditor procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial Cape Town statements, whether due to fraud or error. 31 August 2007 Shoprite Holdings Limited ANNUAL REPORT 2007 49 directors’ report sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs NAture of BuSINeSS Ordinary dividends The Company, which is incorporated in the Republic of South Africa An interim cash dividend (no. 116) of 35,0 cents per share was paid and listed on JSE Limited (“JSE”) is an investment holding company. on 18 March 2007. It is envisaged that a final dividend (no. 117) of 66,0 cents per share, bringing the total dividend for the year to The Group comprises the following trading subsidiaries: 101,0 cents (2006: 73,0 cents) per ordinary share, will be declared shoprite Checkers (Pty) Ltd – controlling during October 2007. Supermarkets: The grocery, perishable, fruit and vegetables, meat ShAre CApItAl markets, delicatessen, fast foods, non-food, liquor store, pharmacies The authorised share capital remains unchanged at 650 000 000 and money market activities, trading through Shoprite, Shoprite Hyper, ordinary shares of 113,4 cents each. Checkers, Checkers Hyper and Usave in South Africa, Namibia, Lesotho, Swaziland and Mauritius. There was no movement in the number of issued ordinary shares during the year, which remains at 543 479 460 shares of 113,4 cents Franchise: The supermarket franchise business which encompasses each. four formats – OK Foods, OK Grocer, OK Minimark and OK Value in South Africa, Namibia and Botswana. The deferred share capital remained unchanged and is reflected in note 14 to the annual financial statements. Properties: Owns property strategically situated for its business in South Africa. GoING CoNCerN These annual financial statements have been prepared on a going Distribution: Distributes groceries and non-food merchandise to its concern basis. supermarket chains nationally and internationally and fresh produce to its supermarkets in South Africa. The Board has performed a formal review of the Group’s results and its ability to continue trading as a going concern in the foreseeable Furniture: The retail of furniture through OK Furniture, OK Power future and, based on this review, considers that the presentation of the Express and House and Home. financial statements on this basis is appropriate. shoprite international Ltd SpeCIAl reSolutIoNS Controls the retailing activities and owns strategically situated At the annual general meeting of Shoprite Holdings Ltd held on properties outside South Africa apart from the territories referred 23 October 2006, shareholders approved the following special to above. resolutions: Shoprite Holdings Ltd’s interest in its subsidiaries is set out on General approval to repurchase shares page 106 of the annual report. It was resolved that the Company and/or its subsidiaries be authorised GeNerAl preVIeW by way of a general approval contemplated in sections 85(2) and The Group’s headline earnings per share amounts to 202,2 cents for 85(3) of the Companies Act, to acquire the issued ordinary shares the year (2006: 146,7 cents). Details of the profit of Shoprite of the Company, upon such terms and conditions and in such amounts Holdings Ltd and the Group are contained in the income statement as the directors of the Company may from time to time determine, but with reference to the segment report and its financial statements subject to the Articles of Association of the Company, the provisions set out on pages 52 to 106. of the Act and the JSE Listing Requirements and any other exchange on which the shares of the Company may be quoted or listed, where The attributable interest of Shoprite Holdings Ltd in the taxed profits applicable. and losses of its subsidiaries for the period is as follows: specific approval to repurchase shares 2007 2006 It was resolved that the repurchase by the Company of: r’000 R’000 • up to 35 653 533 ordinary shares of 113,4 cents each from Total profits 1 324 601 1 131 176 Shoprite Checkers (Pty) Ltd, a wholly owned subsidiary of the Total losses 208 780 250 859 Company; and DIVIDeNDS • up to 481 036 ordinary shares of 113,4 cents each from the Preference dividends Shoprite Holdings Ltd Share Incentive Trust; Details are reflected in note 28 to the annual financial statements. 50 shoprite Holdings Limited ANNUAL REPORT 2007 at such times and in such quantities as the directors may determine • the deletion of the words “no dividends shall be payable except out of in their discretion and at the ruling price for the ordinary shares of the profits of the Company and” from Article 25.4; and the Company on the JSE at the relevant time, be approved in terms of • the deletion of Article 25.6 “The declaration of the directors as to section 85 of the Companies Act, subject to the Articles of Association the amount of the profits shall be conclusive”. of the Company and the JSE Limited Listing Requirements. DIreCtorS Amendment of the Articles of Association of the Company. Messrs JG Rademeyer, TRP Hlongwane, B Harisunker, JW Basson and It was resolved that the Articles of Association of the Company be CG Goosen retire as directors, in terms of paragraph 14.1 of the amended by: Articles of Association of the Company, at the annual general meeting, but being eligible, offer themselves for re-election. Directors’ and alternate director’s interests in ordinary shares Non- total Total Beneficial beneficial 2007 2006 CH Wiese 77 987 548 – 77 987 548 76 548 410 JW Basson 4 925 511 – 4 925 511 4 890 511 JJ Fouche 872 171 – 872 171 872 171 CG Goosen 1 023 249 – 1 023 249 1 023 249 B Harisunker 456 360 – 456 360 456 360 TRP Hlongwane 15 057 – 15 057 15 057 AE Karp – – – – JA Louw – 200 000 200 000 200 000 JF Malherbe 64 253 8 200 72 453 72 453 EL Nel – – – – JG Rademeyer 10 000 – 10 000 10 000 AN van Zyl 515 799 – 515 799 515 799 BR Weyers 100 000 175 000 275 000 300 000 JAL Basson 55 500 – 55 000 55 500 M Bosman 46 260 – 46 260 46 260 PC Engelbrecht 30 955 – 30 955 2 000 JD Wiese 14 074 – 14 074 14 074 Director’s interest in non-convertible, non-participating, no par value deferred shares total Total 2007 2006 CH Wiese 276 821 666 276 821 666 AuDItor lItIGAtIoN StAtemeNt PricewaterhouseCoopers Incorporated will continue in office in • Dispute with South African Breweries: The dispute between the accordance with Section 270(2) of the Companies Act. Group and South African Breweries regarding the purchase of OK Bazaars (1929) Ltd has not yet been resolved. poSt BAlANCe Sheet eVeNtS Other than the facts and developments reported in this annual report, • The directors are not aware of any legal or arbitration proceedings, there have been no material changes in the affairs or financial position including proceedings that are pending or threatened, that may have of the Company and the Group from 30 June 2007 to the date of this or have had in the recent past, being at least the previous 12 months, report. a material effect on the Company and Group’s financial position. holDING CompANy The Company has no holding company. An analysis of the main shareholders of the Company appears on page 107 of this report. Shoprite Holdings Limited ANNUAL REPORT 2007 51 balance sheet sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs as at 30 June 2007 Company Group 30 June 30 June 30 June 30 June 2006 2007 2007 2006 R’000 R’000 Notes R’000 R’000 ASSetS Non-current assets – – Property, plant and equipment 3 3 804 159 3 248 283 1 118 425 1 392 131 Interests in subsidiaries 5 – – – – Available-for-sale investments 6 23 738 13 846 – – Loans and receivables 7 43 990 38 817 112 56 Deferred tax assets 8 252 749 219 626 – – Intangible assets 9 277 901 235 866 – – Fixed escalation operating lease accrual 10 1 131 2 791 1 118 537 1 392 187 4 403 668 3 759 229 Current assets – – Inventories 11 3 699 199 3 269 500 – 2 871 Trade and other receivables 12 1 521 906 1 442 122 – – Derivative financial instruments 13 – 20 319 – 38 Current tax assets 16 110 30 025 – – Assets held for sale 4 220 139 163 876 750 676 147 205 Interests in subsidiaries 5 – – – – Available-for-sale investments 6 – 33 592 – – Loans and receivables 7 6 425 15 758 605 622 607 161 Cash and cash equivalents 2 012 226 1 207 971 1 356 298 757 275 7 476 005 6 183 163 2 474 835 2 149 462 Total assets 11 879 673 9 942 392 eQuIty Capital and reserves attributable to equity holders 616 583 616 583 Share capital 14 616 583 616 583 293 072 293 072 Share premium 293 072 293 072 – – Treasury shares 14 (277 538) (277 318) 1 532 912 1 232 629 Reserves 15 3 007 064 2 403 526 2 442 567 2 142 284 3 639 181 3 035 863 – – minority interest 49 590 47 005 2 442 567 2 142 284 Total equity 3 688 771 3 082 868 lIABIlItIeS Non-current liabilities 2 450 2 450 Borrowings 16 2 498 2 464 – – Deferred tax liabilities 17 8 803 7 400 – – Provisions 18 264 185 254 613 – – Fixed escalation operating lease accrual 19 448 702 452 732 2 450 2 450 724 188 717 209 Current liabilities 794 3 504 Trade and other payables 20 7 152 994 5 320 148 – – Derivative financial instruments 13 682 – 28 045 – Current tax liabilities 216 224 100 724 – – Provisions 18 70 732 48 952 – – Bank overdrafts 24 524 671 267 979 1 224 Shareholders for dividends 1 558 1 224 29 818 4 728 7 466 714 6 142 315 32 268 7 178 Total liabilities 8 190 902 6 859 524 2 474 835 2 149 462 Total equity and liabilities 11 879 673 9 942 392 52 shoprite Holdings Limited ANNUAL REPORT 2007 income statement sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs for the year ended 30 June 2007 Company Group 30 June 30 June 30 June 30 June 2006 2007 2007 2006 R’000 R’000 Notes R’000 R’000 – – Sales of merchandise 38 949 845 33 511 287 – – Cost of sales 30 952 417 26 715 806 – – Gross profit 7 997 428 6 795 481 34 695 174 209 Other operating income 21 798 454 765 180 – – Depreciation and amortisation 22 (517 397) (434 866) – – Operating leases 23 (997 735) (841 446) – – Employee benefits 24 (3 100 627) (2 815 830) (3 788) (18 043) Other expenses (2 582 431) (2 215 944) 30 907 156 166 Trading profit 1 597 692 1 252 575 48 255 (3 922) Exchange rate gains/(losses) 23 725 8 445 (108 280) 5 165 Income/(expenditure) of a capital nature 27 60 935 166 906 (29 118) 157 409 Operating profit/(loss) 25 1 682 352 1 427 926 41 926 51 048 Interest received 109 332 96 385 (157) (126) Finance costs 28 (83 570) (89 736) 12 651 208 331 Profit before tax 1 708 114 1 434 575 (63 010) (68 396) Tax 29 (622 586) (518 240) (50 359) 139 935 Profit after tax 1 085 528 916 335 – – Loss from discontinued operation 30 – (19 853) (50 359) 139 935 Profit for the year 1 085 528 896 482 Attributable to: (50 359) 139 935 Equity holders of the Company 1 076 071 890 132 – – Minority interest 9 457 6 350 (50 359) 139 935 1 085 528 896 482 Earnings per share from continued operations (cents) 31 212,1 179,4 Earnings per share (cents) 31 212,1 175,4 Diluted earnings per share from continued operations (cents) 31 203,9 172,7 Diluted earnings per share (cents) 31 203,9 168,9 55,0 81,0 Ordinary dividend per share paid (cents) 32 81,0 55,0 Shoprite Holdings Limited ANNUAL REPORT 2007 53 statement of changes in equity sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs for the year ended 30 June 2007 Attributable to equity holders Total Minority Share Share Treasury Other Retained R’000 Notes equity interest Total capital premium shares reserves earnings GROUP BAlANCe At 1 July 2005 2 265 877 41 759 2 224 118 616 583 293 072 (277 219) 77 221 1 514 461 Total recognised income 1 096 479 6 350 1 090 129 – – – 199 997 890 132 Profit for the year 896 482 6 350 890 132 890 132 Recognised in equity Net fair value movement on available-for-sale investments 15 14 338 14 338 14 338 Tax effect of net fair value movement on available-for-sale investments 15 (1 886) (1 886) (1 886) Foreign currency translation differences 15 187 545 187 545 187 545 Employee share option scheme – value of services provided 15 764 764 764 Net movement in treasury shares 14 (99) (99) ( 99) Transfer to contingency reserve 15 – – 273 (273) Dividends distributed to shareholders (280 153) (1 104) (279 049) (279 049) BAlANCe At 30 JuNe 2006 3 082 868 47 005 3 035 863 616 583 293 072 (277 318) 278 255 2 125 271 Total recognised income 1 103 845 9 457 1 094 388 – – – 18 317 1 076 071 Profit for the year 1 085 528 9 457 1 076 071 1 076 071 Recognised in equity Net fair value movement on available-for-sale investments 15 30 828 30 828 30 828 Tax effect of net fair value movement on available-for-sale investments 15 382 382 382 Realisation of profits on disposal of listed investment 15 (33 459) (33 459) (33 459) Foreign currency translation differences 15 20 566 20 566 20 566 Cash settlement of share options 14 (79 927) (79 927) (79 927) Net movement in treasury shares 14 (220) (220) (220) Transfer to contingency reserve 15 – – 2 952 (2 952) Dividends distributed to shareholders (417 795) (6 872) (410 923) (410 923) BAlANCe At 30 JuNe 2007 3 688 771 49 590 3 639 181 616 583 293 072 (277 538) 299 524 2 707 540 COmPANY BAlANCe At 1 July 2005 2 791 075 2 791 075 616 583 293 072 15 741 1 865 679 Total recognised income Profit for the year (50 359) (50 359) (50 359) Subsidiary company employee share option scheme – fair value of vested options 764 764 764 Dividends distributed to shareholders (298 913) (298 913) (298 913) BAlANCe At 30 JuNe 2006 2 442 567 2 442 567 616 583 293 072 16 505 1 516 407 Total recognised income Profit for the year 139 935 139 935 139 935 Dividends distributed to shareholders (440 218) (440 218) (440 218) BAlANCe At 30 JuNe 2007 2 142 284 2 142 284 616 583 293 072 16 505 1 216 124 54 shoprite Holdings Limited ANNUAL REPORT 2007 cash flow statement sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs for the year ended 30 June 2007 Company Group 30 June 30 June 30 June 30 June 2006 2007 2007 2006 R’000 R’000 Notes R’000 R’000 (261 920) (329 209) Cash flows from/(utilised by) operating activities 2 557 068 1 338 688 (29 118) 157 409 Operating profit/(loss) 1 682 352 1 427 926 (34 695) (174 209) Less: investment income (7 712) (11 086) 60 198 (983) Non-cash items 33.1 548 150 287 723 – – Payments for cash settlement of share options (62 021) – 2 544 (161) Changes in working capital 33.2 1 304 638 360 803 (1 071) (17 944) Cash generated from/(utilised by) continued operations 3 465 407 2 065 366 76 591 54 368 Interest received 113 222 102 392 (157) (126) Interest paid (83 570) (89 736) 30 170 889 Dividends received 3 822 5 079 (298 739) (439 973) Dividends paid 33.3 (417 461) (282 473) (38 574) (96 423) Tax paid 33.4 (524 352) (438 890) – – Cash utilised by discontinued operation 33.5 – (23 050) 230 803 330 748 Cash flows (utilised by)/from investing activities 33.6 (1 109 298) (1 097 877) – – Cash flows from financing activities 33.7 99 406 (31 117) 1 539 Net increase/(decrease) in cash and cash equivalents 1 447 869 241 217 636 739 605 622 Cash and cash equivalents at the beginning of the year 536 704 292 421 – – Effect of exchange rate movements on cash and cash equivalents 3 129 3 066 605 622 607 161 Cash and cash equivalents at the end of the year 1 987 702 536 704 Consisting of: 605 622 607 161 Cash and cash equivalents 2 012 226 1 207 971 – – Bank overdrafts (24 524) (671 267) 605 622 607 161 1 987 702 536 704 Shoprite Holdings Limited ANNUAL REPORT 2007 55 notes to the annual financial statements sHOPRiTE HOLDiNGs LimiTED AND iTs sUBsiDiARiEs for the year ended 30 June 2007 1 ACCouNtING polICIeS The principal accounting policies adopted in the preparation of the consolidated financial statements are set out below and are consistent with those applied in the previous year. The consolidated Group’s and separate Company’s financial statements were authorised for issue by the board of directors on 31 August 2007. 1.1 Basis of preparation The financial statements are prepared in accordance with and comply with International Financial Reporting Standards (IFRS) and the South African Companies Act (Act No 61 of 1973), as amended. The financial statements are prepared under the historical cost convention, as modified by the revaluation of certain financial instruments to fair value. 1.1.1 use of assumptions and estimates T he preparation of the financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are mainly the impairment of tangible and intangible assets; the estimation of useful lives of property, plant and equipment and intangible assets, and establishing uniform depreciation and amortisation methods; the likelihood that deferred and income taxes can be realised; the probability of doubtful debts; parameters for measuring post-employment medical benefits; classification of certain operations as discontinued and insurance transactions. The key estimates and assumptions relating to these areas are disclosed in the relevant notes to the financial statements. All estimates and underlying assumptions are based on historical experience and various other factors that management believes are reasonable under the circumstances. The results of these estimates form the basis of judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and any affected future periods. 1.1.2 use of adjusted measures The measures listed below are presented as management believes it to be relevant to the understanding of the Group’s financial performance. These measures are used for internal performance analysis and provide additional useful information on underlying trends to equity holders. These measures are not defined terms under IFRS and may therefore not be comparable with similarly titled measures reported by other entities. It is not intended to be a substitute for, or superior to, measures as required by IFRS. a) Trading profit on the face of the income statement, being the Group’s operating results excluding exchange rate differences and income or expenditure of a capital nature. b) Income or expenditure of a capital nature on the face of the income statement, being all income statement items of a capital nature as taken into account in the calculation of headline earnings per share. The principal items that will be included under this measurement are: gains and losses on disposal and scrapping of property, plant and equipment, intangible assets and assets held for sale; gains and losses on lease cancellations; impairments or reversal of impairments; any non-trading items such as gains and losses on disposal of investments, operations and subsidiaries. c) I nterest received on the face of the income statement, being only interest received on call and operating bank account balances. 1.2 Group accounting 1.2.1 Subsidiaries Subsidiaries are entities (including special purpose entities) which are, directly or indirectly, controlled by the Group. Control is established where the Group has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The purchase method of accounting is used to account for the acquisition. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at its fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of the acquisition over the fair value of the Group’s share of the identifiable net assets of the subsidiary acquired is recorded as goodwill. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. A subsidiary is consolidated from the date on which control is transferred to the Group and is no longer consolidated from the date that the entity ceases to comply with the definition of a subsidiary. 56 shoprite Holdings Limited ANNUAL REPORT 2007