Notes to the summarised consolidated financial statements
for the year ended 30 September 2016

1.
Basis of preparation
The summarised consolidated financial statements are prepared in accordance with the requirements of the JSE Limited Listings Requirements for preliminary reports, and the requirements of the Companies Act of South Africa applicable to summarised financial statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts and the measurement and recognition requirements of International Financial Reporting Standards (IFRS), the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and the Financial Pronouncements as issued by the Financial Reporting Standards Council, and to also, as a minimum, contain the information required by IAS 34: Interim Financial Reporting.
The summarised consolidated financial statements have been prepared under the supervision of the chief financial officer,
G Fullerton CA(SA).
2.
Accounting policies and computation methodology
The accounting policies applied in the preparation of the consolidated financial statements for 2016, from which the summarised financial statements were derived, are in terms of IFRS and are consistent with the accounting policies adopted and methods of computation used in the preparation of the previous year’s consolidated financial statements except for the depreciation method applied to plant in the Bevcan operations and the remeasurement of trading profit as defined (note 3).
Change in accounting estimate
As of 1 October 2015, the group changed its method of depreciating plant and equipment at its Bevcan operations from the straight-line method to the units of production method, as it was felt that the latter method reflects more appropriately the pattern of the consumption of the future economic benefits embodied in the assets concerned. In accordance with IAS 16: Property, Plant and Equipment, this is a change in an accounting estimate and is therefore applied prospectively in terms of IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors. The impact of the change in depreciation method for the year ended 30 September 2016 is a decrease in the depreciation expense of R122.0 million.
Remeasurement of trading profit
During the year, the group reassessed its disclosure of gains and losses arising from the translation of financial instruments. Previously, all gains and losses arising from the translation of financial instruments were regarded as not being part of the normal trading activities of the group and therefore recognised as “abnormal” gains and losses ie outside of trading profit as defined below (note 3). Following this reassessment, only losses on the translation of financial instruments arising from the illiquidity in Angola and Nigeria were regarded as “abnormal” and have been disclosed as such, while other translation gains and losses were now regarded as being part of the group’s normal trading activities and have therefore been recognised as being part of trading profit. Consequently, trading profit from continuing operations for the comparative period has been restated to R1 839.6 million from R1 820.5 million, with the trading profit for all segments for segmental reporting purposes being impacted.
2016
R million
2015
R million
3.
Included in operating profit are:
Depreciation 863.1   758.7  
Amortisation 48.6   43.6  
Reconciliation of operating profit and trading profit1
Operating profit 2 162.8   1 681.4  
Net abnormal (gain)/loss2 (257.7) 158.2  
Profit on disposal of property subject to sale and leaseback (1 318.9) –  
Profit on disposal of other property (15.2) (102.5)
Profit on disposal of investments (3.5) –  
Devaluation loss arising from Angolan and Nigerian illiquidity 681.0   160.5  
Net impairment losses on property, plant, equipment, intangible assets, investments and shareholder loans 360.4   121.4  
Retrenchment and restructuring costs 34.1   77.3  
Gain on revaluation and consolidation of Zimbabwe associates –   (124.2)
Business acquisition-related costs 4.4   25.7  
Trading profit 1 905.1   1 839.6  
1 Trading profit is the main measure of profitability used for segmental reporting purposes.
2 Abnormal (gains)/losses are defined as (gains)/losses which do not arise from normal trading activities or are of such size, nature or incidence that their disclosure is relevant to explain the performance for the year.
4.
Sale and leaseback transaction
The group entered into a sale and leaseback transaction for the sale and leaseback of 15 of its industrial properties in South Africa effective 1 September 2016.
The selling prices of the properties were determined by an independent valuer and confirmed through a comprehensive market review. The future lease payments are similar to past rentals paid by the operations to the corporate services segment of the group. Overall the transaction is positive for headline earnings per share (HEPS).
Fourteen of the properties were leased for a period of fifteen years with an option to renew the lease agreements for one additional period of 10 years, and an option to repurchase the properties at market related prices on termination of the lease agreements. One property was leased for a period of three years. Escalation of lease payments is provided for in the agreements at inflation-related rates.
In terms of the lease agreements, the group remains responsible for all maintenance, insurance, rates and taxes (“triple net” lease).

2016
R million
2015
R million
Disposal of properties subject to the transaction
Net proceeds on disposal of properties* 1 701.1
Net carrying value of properties disposed (382.2)
Profit on disposal of properties 1 318.9
Future minimum lease payments
2017 145.9
2018 – 2021 681.1
2022 onwards 2 709.5
Total 3 536.5
* Transaction proceeds were R1 744.0 million which included one property sold outright for R12.0 million; transaction costs incurred were R30.9 million.
5.
Business combinations
In the previous financial year, the group consolidated Hunyani Holdings Ltd (Hunyani) and Megapak Zimbabwe (Pvt) Ltd (Megapak) with effect from 1 December 2014. These entities, situated in Zimbabwe, were previously recognised as associates and equity accounted as such. The revaluation of the group’s original interest in Hunyani and Megapak resulted in gains of R14.2 million and R9.3 million respectively.
As part of this process, the group restructured its subsidiary, CarnaudMetalbox Zimbabwe Ltd, and Megapak under Hunyani, and Hunyani was renamed Nampak Zimbabwe Ltd. The transaction also involved the group increasing its effective interest in the Nampak Zimbabwe Ltd group to 51.43%.
2016
R million
2015
R million
Fair value of previously held interests 184.9
Plus: Non-controlling interests recognised 356.8
Less: Fair value of identifiable net assets acquired (642.4)
Gain arising on consolidation (100.7)
6.
Disposal of operations
An agreement for the sale of Nampak’s 50% shareholding in, and loans to, Sancella SA (Pty) Ltd was entered into on 21 July 2015, with the transaction being effective 1 December 2015. The proceeds from the sale were applied to settle the outstanding loan balances.
The loans had been impaired to the amount expected to be recovered in terms of the transaction as at 30 September 2015 and no further loss was recognised on the recovery of the net carrying values of these loans on the effective date of the transaction.
During the previous year, the group disposed of the following businesses:
  • Nampak Corrugated and Nampak Tissue businesses effective 1 April 2015;
  • Nampak Flexibles and Nampak Recycling businesses effective 1 July 2015;
  • Nampak Sacks business effective 29 September 2015.
The above disposals are consistent with the group’s strategy of exiting its non-core and underperforming businesses.
The results of the discontinued operations included in the statement of comprehensive income are set out below.
2016
R million
2015
R million
Results of the discontinued operations for the year
Revenue 3 385.7
Expenses (3 560.7)
Loss before tax (175.0)
Attributable income tax benefit 8.1
(166.9)
Loss on disposal of operations (350.2)
Attributable income tax benefit 122.3
(227.9)
Loss for the year from discontinued operations (394.8)
Proceeds on disposal of the discontinued operations
Fair value of net assets disposed 2 331.3
Non-controlling interest released 2.6
Goodwill disposed 34.0
Loss on disposal of operations (350.2)
Total disposal consideration 2 017.7
Less: Deferred sales proceeds (35.0)
Net inflow on disposal 1 982.7
7.
Determination of headline earnings
Continuing operations
Profit attributable to equity holders of the company for the year 1 610.4 1 438.0
Less: Preference dividend (0.1) (0.1)
Basic earnings 1 610.3 1 437.9
Adjusted for:
Net impairment losses on property, plant, equipment, intangible assets and investments 360.8 121.4
Net profit on disposal of investments (3.5)
Gain on revaluation and consolidation of Zimbabwe associates (124.2)
Profit on disposal of property subject to sale and leaseback (1 318.9)
Net loss/(profit) on disposal of other property, plant, equipment and intangible assets 6.8 (102.8)
Tax effects and non-controlling interests 25.4 (21.2)
Headline earnings for the year 680.9 1 311.1
Continuing and discontinued operations
Profit attributable to equity holders of the company for the year 1 610.4 1 043.2
Less: Preference dividend (0.1) (0.1)
Basic earnings 1 610.3 1 043.1
Adjusted for:
Net impairment losses on property, plant, equipment, intangible assets and investments 360.8 121.4
Net (profit)/loss on disposal of investments and businesses (3.5) 350.2
Gain on revaluation and consolidation of Zimbabwe associates (124.2)
Profit on disposal of property subject to sale and leaseback (1 318.9)
Net loss/(profit) on disposal of other property, plant, equipment and intangible assets 6.8 (99.2)
Tax effects and non-controlling interests 25.4 (144.4)
Headline earnings for the year 680.9 1 146.9
8.
Cash and cash equivalents/(net overdraft) at end of year
Bank balances, deposits and cash equivalents* 2 835.4 1 587.4
Bank overdrafts (993.4) (3 672.3)
1 842.0 (2 084.9)
* Cash equivalents include US dollar indexed Angolan kwanza bonds of R617.4 million (2015: Nil).
9.
Carrying amount of financial instruments
The carrying amounts of financial instruments as presented on the statement of financial position are measured as follows:
At fair value – level 2
Financial assets 178.2
Derivative financial assets 178.2
Financial liabilities 40.7 75.3
Derivative financial liabilities 40.7 75.3
At cost
Financial assets 12.7
Investments 12.7
At amortised cost
Financial assets 5 789.7 4 608.4
Non-current financial assets 56.4 33.0
Trade receivables and other current assets (excluding prepayments) 2 897.9 2 865.8
Bank balances, deposits and cash equivalents 2 835.4 1 587.4
Assets classified as held for sale* 122.2
Financial liabilities 12 152.9 12 433.4
Non-current loans and borrowings 6 202.1 4 212.0
Trade payables and other current liabilities (excluding provisions) 4 628.0 4 102.3
Bank overdrafts and current loans 1 322.8 4 119.1
* Current portion of loan to Sancella SA (Pty) Ltd.
10.
Supplementary information
Capital expenditure 1 443.6 2 195.2
Expansion 951.7 771.0
Replacement 475.7 1 352.6
Intangibles 16.2 71.6
Capital commitments 454.4 1 500.1
Contracted 276.3 727.2
Approved not contracted 178.1 772.9
Lease commitments (including sale and leaseback transaction) 3 759.5 175.6
Land and buildings 3 732.2 150.6
Other 27.3 25.0
Contingent liabilities 83.6 64.2
Customer claims and guarantees 6.7 14.8
Tax contingent liabilities 76.9 49.4
11.
Share statistics
Ordinary shares in issue (‘000) 688 668 702 497
Ordinary shares in issue – net of treasury shares (‘000) 639 884 630 057
Weighted average number of ordinary shares on which basic earnings and headline earnings per share are based (‘000) 632 667 629 726
Weighted average number of ordinary shares on which diluted earnings and diluted headline earnings per share are based (‘000) 634 335 637 369
12.
Translation reserve movement
Due to the strengthening of the rand towards the end of the financial year, a translation loss of R509.4 million (2015: R774.6 million gain) was recognised for the year. The key closing exchange rates at 30 September were $1: R13.72 (2015: $1: R13.86) and £1: R17.80 (2015: £1: R20.97).
13.
Related-party transactions
Group companies, in the ordinary course of business, entered into various purchase and sale transactions with associates, joint ventures and other related parties. The effect of these transactions is included in the financial performance and results of the group.
14.
Independent auditor’s opinion
The auditors, Deloitte & Touche, have issued their opinion on the consolidated financial statements for the year ended 30 September 2016. The audit was conducted in accordance with International Standards on Auditing. They have issued an unmodified audit opinion. These summarised financial statements have been derived from the group financial statements and are consistent in all material respects with the consolidated financial statements. Copies of their audit reports are available for inspection at the company’s registered office. Any reference to future financial performance included in this announcement, has not been reviewed or reported on by the company’s auditors.