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Discovery Holdings Limited - Transition To International Financial Reporting
Standards
DISCOVERY HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number: 1999/007789/06)
ISIN: ZAE000022331
Share Code: DSY
("Discovery")
TRANSITION TO INTERNATIONAL FINANCIAL REPORTING STANDARDS
Restatement of financial information for the year ended 30 June 2005 and the six
months ended 31 December 2004 under International Financial Reporting Standards
(IFRS)
INTRODUCTION
For periods ending on or before 30 June 2005, Discovery Holdings Limited
prepared its consolidated financial statements in accordance with South African
Statements of Generally Accepted Accounting Practice. In line with the Listing
Requirements of the JSE Limited, the Discovery Holdings Group ("Discovery") is
adopting IFRS with effect from 1 July 2005. As Discovery publishes comparative
information for one year in its financial statements, the date for transition to
IFRS is effectively 1 July 2004, which represents the start of the earliest
period of comparative information presented. The transition report ("the
report") therefore sets out the financial results of Discovery prepared in
accordance with IFRS from 1 July 2004. The report is prepared in accordance
with the transitional provisions set out in IFRS 1, First-time Adoption of
International Financial Reporting Standards, and other relevant standards and is
based on the final application of IFRS expected to apply as at 30 June 2006.
IFRS comprise International Financial Reporting Standards, International
Accounting Standards and Interpretations originated by the International
Financial Reporting Interpretations Committee (IFRIC) or the former Standing
Interpretations Committee (SIC). The standards referred to are set by the
International Accounting Standards Board (IASB).
BASIS OF PREPARATION
Discovery has prepared the consolidated preliminary balance sheet at 30 June
2005 and the consolidated preliminary income statement for the year then ended,
in accordance with IFRS ("the preliminary information") to establish the
financial position and results of operations of Discovery necessary to provide
the comparative information expected to be included in Discovery"s first set of
IFRS financial statements for the year ending 30 June 2006.
The board acknowledges its responsibility for the preparation of the preliminary
financial information which has been prepared in accordance with IFRS and
policies expected to be adopted when the board prepares Discovery"s first set of
IFRS financial statements for the year ending 30 June 2006. The board has
approved the preliminary financial information.
TRANSITIONAL ARRANGEMENTS
Discovery"s transition to IFRS has been performed in accordance with IFRS 1 and
other relevant standards as expected to be applicable at 30 June 2006.
The following dates are applicable for the transition to IFRS:
- 1 July 2004 - date of transition to IFRS, being the start of the earliest
period of comparative information;
- 31 December 2004 - six-month comparative period to 31 December 2005;
- 30 June 2005 - twelve-month comparative period to 30 June 2006.
VOLUNTARY EXEMPTIONS
In line with the requirements of IFRS 1, First-time Adoption of International
Financial Reporting Standards, Discovery applied the following exemptions as
detailed below:
- Property and equipment: A first-time adopter may elect to use the fair value
of individual property and equipment at transition date as the deemed cost.
Discovery is not making use of this transitional exemption and elects to measure
individual items of property and equipment at depreciated cost determined in
accordance with IFRS.
- Cumulative foreign currency translation adjustment: The cumulative foreign
currency translation reserve existing on transition to IFRS has been retained
and the option to reset the reserve to zero is not elected.
- Share-based payment transactions: Discovery has elected to apply the
provisions of IFRS 2, Share-based payments, to all share-based instruments or
payments, such as share options, granted on or after 7 November 2002, which have
not vested on 1 July 2005.
COMPARATIVES
Discovery has taken advantage of the exemption that allows comparative
information presented in the first year of adoption not to comply with IFRS 4,
Insurance contracts. The effective date of transition for this standard is 1
July 2005.
FURTHER DEVELOPMENTS IN IFRS REPORTING
IFRS is continuing to evolve through the issue and/or endorsement of new
Standards and Interpretations and developments in the application of recently
issued Standards. This may impact on future reported results and disclosure.
NOTES ON ADJUSTMENTS AS A CONSEQUENCE OF IFRS IMPLEMENTATION
The basis of material adjustments, net of the associated tax impact, as shown in
the accompanying restatement reconciliations are noted below:
IFRS ADJUSTMENTS
NOTE 1: IFRS 2, SHARE-BASED PAYMENTS
Discovery grants share options to employees under employee share incentive
schemes. Other than costs incurred in administering the schemes, which were
expensed as incurred, the schemes did not previously result in any expense in
the income statement, but rather a dilution in earnings per share when the
shares were issued. In accordance with the requirements of IFRS 2, Discovery now
recognises an expense in the income statement, with a corresponding credit to
equity, representing the value of employee share options granted, recognised on
a straight-line basis over the vesting periods of the options.
OTHER ADJUSTMENTS
The process of using IFRS implies not only the use of such standards, but also
uniformity in the way in which the standards are applied. Increased global
usage of international standards focuses attention on the way in which standards
should be applied, which in some cases may differ from South African practice.
NOTE 2: LEASES
In adopting IFRS, Discovery reassessed its lease contracts and disclosures and
made the following adjustments:
OPERATING LEASES
In the past, a common interpretation of IAS 17 (AC 105) in South Africa allowed
companies to recognise lease payments on a cash basis as this was considered the
most appropriate representation of the time pattern of the entity"s benefit
obtained from the leased asset. In aligning itself with IFRS, The South African
Institute of Chartered Accountants (SAICA) has revised its interpretation of IAS
17 (AC 105). As a result, operating lease expenses are now recognised on a
straight-line basis over the lease term, and not as cash is paid. This
adjustment has been accounted for in terms of IAS 8 (AC 103) with restatement of
prior year figures where necessary.
FINANCE LEASES
In implementing IFRS, Discovery reassessed its lease contracts and has
subsequently reclassified one lease as a finance lease. This adjustment has
been accounted for in terms of IAS 8 (AC 103) with restatement of prior year
figures.
NOTE 3: CASH EQUIVALENTS AND INVESTMENTS
In implementing IFRS, Discovery reassessed its disclosure of cash equivalents.
Cash equivalents which are held in investment portfolios have been reclassified
to investments. In line with IAS 7, cash equivalents only include items held for
the purpose of meeting short-term cash commitments rather than for investing or
other purposes.
AUDIT REPORT
The restatement of financial information for the preliminary opening IFRS
balance sheet as at 1 July 2004, the preliminary IFRS balance sheet and income
statement as at and for the year ended 30 June 2005 have been audited by the
group"s auditors PricewaterhouseCoopers Inc in terms of ISA 800 the Auditor"s
Report on Special Purpose Audit Engagements. Their unqualified report, dated 22
February 2006, is available for inspection at the group"s registered offices.
Their report includes the following emphases of matters:
Amendments to the interpretive guidance issued by the IASB, between the date of
this announcement and the finalisation of the financial statements for the year
ending 30 June 2006, may result in changes to the restatements published; and
Under IFRS, only a complete set of financial statements comprising balance
sheet, income statement, statement of changes in equity, and cash flow
statement, together with comparative information and explanatory notes, can
provide a fair presentation of the Group"s financial position, results of
operations, and cash flows in accordance with IFRS.
In addition, their report includes a scope restriction indicating that the 31
December balance sheet, 31 December income statements and 31 December associated
IFRS reconciliations were not audited and is therefore not covered in their
opinion.
By order of the board
LL Dippenaar A Gore
Chairman Chief Executive Officer
22 February 2006
DIRECTORS
LL Dippenaar (Chairman), A Gore (Chief Executive Officer), JM Robertson*, Dr BA
Brink, JP Burger, Dr NJ Dlamini, SB Epstein (USA), MI Hilkowitz (Israel), NS
Koopowitz*, Dr TV Maphai**, HP Mayers*, S Sebotsa**, B Swartzberg*, SV Zilwa, SD
Whyte*
*Executive **Appointed 8 December 2005
TRANSFER SECRETARIES
Computershare Investor Services 2004 (Pty) Limited
(Registration number 2004/003647/07)
Ground Floor, 70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
SPONSORS
Rand Merchant Bank (A division of FirstRand Bank Limited)
SECRETARY AND REGISTERED OFFICE
MJ Botha
155 West Street, Sandton, 2146
PO Box 786722, Sandton, 2146
Tel: (011) 529 2888
Fax: (011) 529 2958
www.discovery.co.za
INCOME STATEMENT
Prepared in accordance with IFRS
Year Six months
ended ended
30 June 31 December
2005 2004
R million Audited Unaudited
Premium income 1 820 824
Other income 2 209 1 016
Gross income of Group 4 029 1 840
Outward reinsurance premiums (378) (145)
Investment income 124 85
Realised and unrealised gains and losses 157 82
Net income 3 932 1 862
Policyholder benefits (841) (370)
Recoveries from reinsurers 262 99
Net policyholder benefits (579) (271)
Acquisition costs (714) (363)
Operating and administration expenses (2 166) (1 034)
Transfer from assets/liabilities under
insurance contracts 574 296
Fair value adjustment to liabilities
under investment contracts (122) (91)
Profit from operations 925 399
Local operations 1 154 517
Foreign operations (229) (118)
Financing costs (64) (28)
Foreign exchange loss - unrealised (8) (33)
Profit before taxation 853 338
Taxation (305) (143)
Profit after taxation 548 195
Attributable to:
Ordinary shareholders 557 195
Minority shareholders (9) -
548 195
Basic earnings per share (cents)
- undiluted 107,3 37,7
- diluted 103,0 36,7
Weighted number of shares in issue (000"s) 519 188 518 793
Diluted weighted number of shares (000"s) 553 227 549 271
RECONCILIATION OF INCOME STATEMENT
Net profit attributable to ordinary shareholders
Year Six months
ended ended
30 June 31 December
R million Notes 2005 2004
As previously reported 585 206
Adjustments for:
IFRS 2: Share-based payments 1 (20) (7)
Leases 2 (8) (4)
As reported under IFRS 557 195
BALANCE SHEET
Prepared in accordance with IFRS
30 June 31 December 1 July
2005 2004 2004
R million Audited Unaudited Audited
ASSETS
Cash and cash equivalents 916 1 029 845
Money market
- available-for-sale 53 60 56
- at fair value through
profit and loss 106 97 97
Government and public
authority stocks
- available-for-sale 146 135 130
- at fair value through
profit and loss 40 51 52
Equity investments
- available-for-sale 922 801 602
- at fair value through
profit and loss 337 322 251
Investment in associate 4 3 2
Investment assets 2 524 2 498 2 035
Loans and receivables 557 438 430
Taxation - 17 -
Deferred taxation 35 30 29
Assets arising from insurance
contracts 1 881 1 615 1 318
Intangible assets 45 42 38
Property and equipment 219 207 224
Total assets 5 261 4 847 4 074
LIABILITIES AND SHAREHOLDERS" FUNDS
Liabilities
Trade and other payables 951 790 624
Provisions 30 23 22
Taxation 17 - 43
Deferred taxation 323 262 128
Financial liabilities 619 891 756
- Investment contracts at
fair value through profit
and loss 483 470 400
- Borrowings at amortised
cost 136 421 356
Liabilities arising from
insurance contracts - 7 6
Liabilities arising from
reinsurance contracts 31 34 36
Total liabilities 1 971 2 007 1 615
Shareholders" funds
Share capital and share
premium 1 336 1 293 1 276
Reserves 1 887 1 480 1 116
3 223 2 773 2 392
Minority interest 67 67 67
Total shareholders" funds 3 290 2 840 2 459
Total liabilities and
shareholders" funds 5 261 4 847 4 074
RECONCILIATION OF ASSETS, LIABILITIES AND EQUITY
Assets
30 June 31 December 1 July
R million Notes 2005 2004 2004
As previously reported 5 216 4 803 4 032
Adjustments for:
IFRS 2: Share-based
payments 1 - - -
Leases 2 45 44 42
As reported under IFRS 5 261 4 847 4 074
RECONCILIATION OF ASSETS, LIABILITIES AND EQUITY
Liabilities
30 June 31 Decembe 1 July
R million 2005 2004 2004
As previously reported 1 874 1 915 1 529
Adjustments for:
IFRS 2: Share-based
payments - - -
Leases 97 92 86
As reported under IFRS 1 971 2 007 1 615
RECONCILIATION OF ASSETS, LIABILITIES AND EQUITY
Equity
30 June 31 December 1 July
R million 2005 2004 2004
As previously reported 3 342 2 888 2 503
Adjustments for:
IFRS 2: Share-based payments - - -
Leases (52) (48) (44)
As reported under IFRS 3 290 2 840 2 459
RECONCILIATION OF CHANGES IN EQUITY
Attributable to
ordinary shareholders
Share capital Share-based
and share payment
R million Notes premium reserve
As at 1 July 2004
As previously reported 1 276 -
Income statement movements
Share-based payments 1 - -
Leases 2 - -
As reported under IFRS 1 276 -
As at 31 December 2004
As previously reported 1 293 -
Income statement movements
Share-based payments 1 - 7
Leases 2 - -
As reported under IFRS 1 293 7
As at 30 June 2005
As previously reported 1 336 -
Income statement movements
Share-based payments 1 - 20
Leases 2 - -
As reported under IFRS 1 336 20
RECONCILIATION OF CHANGES IN EQUITY
Attributable to
ordinary shareholders
Investment Translation Hedging
R million reserve reserve Reserve
As at 1 July 2004
As previously reported 51 69 (6)
Income statement movements
Share-based payments - - -
Leases - - -
As reported under IFRS 51 69 (6)
As at 31 December 2004
As previously reported 199 78 -
Income statement movements
Share-based payments - - -
Leases - - -
As reported under IFRS 199 78 -
As at 30 June 2005
As previously reported 209 98 3
Income statement movements
Share-based payments - - -
Leases - - -
As reported under IFRS 209 98 3
RECONCILIATION OF CHANGES IN EQUITY ATTRIBUTABLE TO ORDINARY SHAREHOLDERS
Attribu-
table to
ordinary
share-
holders
Retained Minority
R million earnings interest Total
As at 1 July 2004
As previously reported 1 046 67 2 503
Income statement movements
Share-based payments - - -
Leases (44) - (44)
As reported under IFRS 1 002 67 2 459
As at 31 December 2004
As previously reported 1 251 67 2 888
Income statement movements
Share-based payments (7) - -
Leases (48) - (48)
As reported under IFRS 1 196 67 2 840
As at 30 June 2005
As previously reported 1 629 67 3 342
Income statement movements
Share-based payments (20) - -
Leases (52) - (52)
As reported under IFRS 1 557 67 3 290
Date: 23/02/2006 09:16:31 AM Supplied by www.sharenet.co.za
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