VOLU
ME 02
CEF (STATE-OWNED-COMPANY) LIIMITED 152 ANN CRESCENT BLOCK C, UPPER GRAYSTON OFFICE PARK STRATHAVON, SANDTON TEL +27 010 201 4700
Reg. No. 1976/001441/07
P O BOX 786141 SANDTON 2146 SOUTH AFRICA FAX: +27 010 201 4900
TABLE OF CONTENTS CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 VOLUME 2
1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14.
PetroSA Gryphon Marin Permit (SOC) Ltd PetroSA Iris (SOC) Ltd PetroSA Rehabilitation (non-profit Company) PetroSA Sudan (SOC) Ltd PetroSA Synfuels International (SOC) Ltd PetroSA Themis (SOC) Ltd SFF Association (NPC) (SFF) South African Agency for Promotion of Petroleum Exploration and Exploitation (SOC) Ltd (Petroleum Agency SA) (PASA) South African Gas Development Company (SOC) Ltd (iGas) South African National Energy Research Institute (NPC) (SANERI) South African Supplier Development Agency (NPC) (SASDA) SASDA Verification (SOC) Ltd The Petroleum Oil and Gas Corporation of South Africa (Namibia) (SOC) Ltd The Petroleum Oil and Gas Corporation of South Africa (SOC) Ltd (PetroSA)
3 18 32 51 65 79 93 160 227 273 295 336 347 361
DIRECTORS: DR S MTHEMBI-MAHANYELE (CHAIRPERSON), MR S MNCWANGO (EXECUTIVE), MR R BOQO, MR R JAWOODEEN, MS B MABUZA, MS X MTWA, MR L MULAUDZI, MR T SETHOSA (ALTERNATE), GROUP COMPANY SECRETARY: MR A HAFFEJEE
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 1 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 2 of 446
PetroSA Gryphon Marin Permit SOC Ltd (Registration number 2004/010369/07) Financial statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) and Ms LE Bakoro CA(SA) (Group Chief Financial Officer) respectively. Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 3 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
The company held the PetroSA Group interest in the exploration, appraisal, development and production of hydrocarbon reserves
Directors
Mr L E Moser Mr AT Dippenaar
Registered office
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499 The Petroleum Oil and Gas Corporation of South Africa SOC Limited (PetroSA) incorporated in South Africa
Holding company
Ultimate shareholder
South African Government
Auditors
Auditor-General of South Africa Registered Auditors
Secretary
Mr J C Nell
Company registration number
2004/010369/07
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 4 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Report of the Auditor General
3-4
Directors' Responsibilities and Approval
5
Directors' Report
6-7
Statement from Company Secretary
8
Statement of Financial Position
9
Statement of Changes in Equity
10
Accounting Policies
11 - 12
Notes to the Financial Statements
13
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 5 of 446
Report of the auditor-general to Parliament on PetroSA Gryphon Marin Permit SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of PetroSA Gryphon Marin Permit SOC Limited set out on pages 9 to 13 which comprise the statement of financial position as at 31 March 2014 and statement of changes in equity for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of PetroSA Gryphon Marin Permit SOC Limited as at 31 March 2014 in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa.
Additional matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 6 of 446
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the directors’ report and the company secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following predetermined objectives, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant for the year under review
Compliance with legislation 11. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
Internal control 12. I considered internal control relevant to my audit of the financial statements and compliance with legislation. I did not identify any deficiencies in internal control which was considered to be sufficiently significant for the inclusion in this report.
Pretoria 29 July 2014
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 7 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 8 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Directors' Report The directors present their annual report that forms part of the audited annual financial statements of the company for the year ended 31 March 2014. 1.
Directors The directors of the company during the year and at the date of this report are as follows: Name Mr L E Moser Mr E G September Mr G Griessel Mr A T Dippenaar
Date of appointment Non-executive Non-executive Non-executive Non-executive
26 July 2013 26 July 2013
Date of resignation 31 January 2014 16 May 2014
Board Audit and Risk Committee PetroSA Gryphon Marin Permit SOC Ltd does not have a Board Audit and Risk Committee currently and the PetroSA Board Audit and Risk Committee fulfills this role. 2.
Secretary Mr J C Nell was appointed as secretary of the company on the 26 July 2013 and, his business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Nature of business Main business and operations The company will hold the PetroSA Group interest in the exploration, appraisal, development & production of hydrocarbon reserves.
4.
Review of financial position The company's business and operations and the results thereof are clearly reflected in the attached annual financial statements. The company is dormant and therefore did not trade during the year under review.
5.
Authorised and issued share capital Details of the share capital of the company are set out in note 3 to the annual financial statements.
6.
Dividends No dividends were declared or paid to the shareholder during the current year (2013: R nil).
7.
Shareholder compact The strategic objective of the company is in line with the PetroSA Group strategic objectives, and therefore reference should be made to the Shareholder Compact of PetroSA.
8.
Subsequent events The directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which significantly affect the financial position of the company or the results of the operations. 6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 9 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Directors' Report 9.
Shareholder The company is a wholly-owned subsidiary of PetroSA SOC Ltd.
10. Annual general meeting The annual general meeting will be held in terms of section 61 of the Companies Act of 2008.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 10 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 11 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R
2013 R
Assets Non-Current Assets Loan to shareholder
1
60
60
2
60
60
Equity and Liabilities Equity Share capital
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 12 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity Share capital R Balance at 01 April 2012 Balance at 01 April 2013 Balance at 31 March 2014
60 60 60
Note(s)
2
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 13 of 446
Total equity R 60 60 60
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies used by the company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. With the promulgation of the new Companies Act of 2008, SA GAAP was withdrawn with effect from 1 December 2012. As an interim measure, the PetroSA Group will maintain the status quo until the decision on the future accounting framework is finalised. These annual financial statements are presented in South African Rands. The financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset, unless it is required or permitted by a standard. 1.2 Financial instruments Recognition Financial assets and financial liabilities are recognised on the company's Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the balance sheet include loans receivables. Measurement Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Financial assets The company's principal financial assets are loan receivables. Loans and receivables with no fixed maturity period are classified as fair value through profit and loss on initial recognition. Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted. Derecognition A financial asset or part thereof is derecognised when the company realises the contractual rights to the benefits specified in the contract, the rights expire, the company surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period.
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 14 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Accounting Policies 1.2 Financial instruments (continued) Fair value considerations The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items. 1.3 Share capital and equity Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. 1.4 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.5 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • • •
Could reasonable steps have been taken to avoid the expenditure? Were there policies and/or procedures governing the incurred expenditure? Is it material? (for disclosure purposes)
Any irregular or fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the company. 1.6 Key accounting judgements and key sources of estimation uncertainty Critical accounting estimates and judgments In preparing the annual financial statements in terms of SA GAAP, the company's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgments are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 15 of 446
PetroSA Gryphon Marin Permit SOC Ltd Financial Statements for the year ended 31 March 2014
Notes to the Financial Statements 2014 R 1.
Loan to shareholder The Petroleum Oil and Gas Corporation of South Africa SOC Ltd The loan is unsecured, interest free and has no fixed terms of repayment.
2.
60
60
1,000
1,000
60
60
Share capital Authorised 1000 Ordinary par value shares of R1 each Issued 60 Ordinary par value shares of R1 each
3.
2013 R
Financial instruments Introduction The company has access to the parent company's risk management and central treasury function that manages the financial risks relating to the company's operations. Approved group policies exist for managing this risk. Risk profile Due to the current dormant state of the company, no risk profile exists. Risk management objectives and policies The loan receivable is designated as fair value through profit and loss. It is management's view that the current carrying value is the fair value of the loan.
4.
Directors' emoluments The directors were not remunerated.
5.
Related parties Related party balances The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Amounts owed by related parties
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 16 of 446
60
60
PetroSA Iris SOC Ltd (Registration number 2004/010121/07) Audited annual financial statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) and Ms LE Bakoro CA(SA) (Group Chief Financial Officer) respectively. Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 17 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
The company holds the PetroSA Group's interest in the exploration, appraisal, development and production of hydrocarbon reserves.
Directors
Mr L E Moser MR A T Dippenaar
Registered office
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499 The Petroleum Oil and Gas Corporation of South Africa SOC Limited (PetroSA) incorporated in South Africa
Holding company
Ultimate shareholder
South African Government
Auditor
Auditor-General of South Africa Registered Auditor
Secretary
Mr J C Nell
Company registration number
2004/010121/07
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 18 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Report of the Auditor General
3-4
Directors' Responsibilities and Approval
5
Directors' Report
6-7
Statement from Company Secretary
8
Statement of Financial Position
9
Statement of Changes in Equity
10
Accounting Policies
11 - 12
Notes to the Audited Annual Financial Statements
13
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 19 of 446
Report of the auditor-general to Parliament on PetroSA Iris SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of PetroSA Iris SOC Limited set out on pages 9 to 13 which comprise the statement of financial position as at 31 March 2014 and statement of changes in equity for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of PetroSA Iris SOC Limited as at 31 March 2014 in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa.
Additional matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 20 of 446
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the directors’ report and the company secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following on predetermined objectives, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant for the year under review
Compliance with legislation 11. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
Internal control 12. I considered internal control relevant to my audit of the financial statements and compliance with legislation. I did not identify any deficiencies in internal control which was considered to be sufficiently significant for the inclusion in this report.
Pretoria 29 July 2014
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 21 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 22 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors present their annual report that forms part of the audited annual financial statements of the company for the year ended 31 March 2014. 1.
Directors The directors of the company during the year and at the date of this report are as follows: Name
Date of appointment
Mr L E Moser Mr E G September Mr G Griessel Mr A T Dippenaar
Non-executive Non-executive Non-executive Non-executive
26 July 2013 26 July 2013
Date of resignation 31 January 2014 16 May 2014
Board Audit and Risk Committee PetroSA Iris SOC Ltd does not have a Board Audit and Risk Committee currently and the PetroSA Board Audit and Risk Committee fulfills this role. 2.
Secretary Mr J C Nell was appointed as secretary of the company on 26 July 2013 and, his business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Nature of business The company holds the PetroSA Group's interest in the exploration, appraisal, development and production of hydrocarbon reserves.
4.
Review of financial position The company's business and operations and the results thereof are clearly reflected in the attached annual financial statements. The company is dormant and therefore did not trade during the year under review.
5.
Authorised and issued share capital Details of the share capital of the company are set out in note 3 to the annual financial statements.
6.
Dividends No dividends were declared or paid to the shareholder during the current year (2013: R nil).
7.
Shareholder compact The strategic objective of the company is in line with the PetroSA Group strategic objectives, and therefore reference should be made to the Shareholder Compact of PetroSA.
8.
Subsequent events The directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which signigicantly affect the financial position of the company or the results of the operations.
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 23 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report 9.
Shareholder The company is a wholly-owned subsidiary of PetroSA SOC Ltd.
10. Annual general meeting The annual general meeting will be held in terms of section 61 of the Companies Act of 2008.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 24 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 25 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R
2013 R
Assets Non-Current Assets Loan to shareholder
2
60
60
3
60
60
Equity and Liabilities Equity Share capital
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 26 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the year ended 31 March 2014 Share capital R Balance at 01 April 2012 Balance at 01 April 2013 Balance at 31 March 2014
60 60 60
Note(s)
3
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 27 of 446
Total equity R 60 60 60
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies used by the company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. With the promulgation of the new Companies Act of 2008, SA GAAP was with effect from 1 December 2012. As an interim measure, the PetroSA Group will maintain the status quo until the decision on the future accounting framework is finalised. These annual financial statements are presented in South African Rands. The financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset, unless it is required or permitted by a standard. 1.2 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Financial instruments Recognition Financial assets and financial liabilities are recognised on the company's Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the Statement of Financial Position include loans receivable. Measurement Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Financial assets The company's principal financial assets are loans receivable. Loans and receivables with no fixed maturity period are classified as fair value through profit and loss on initial recognition.Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted. Derecognition A financial asset or part thereof is derecognised when the company realises the contractual rights to the benefits specified in the contract, the rights expire, the company surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period.
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 28 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Financial instruments (continued) Fair value considerations The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items. Offsetting Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 1.4 Share capital and equity Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. 1.5 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.6 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • • •
Could reasonable steps have been taken to avoid the expenditure? Were there policies and/or procedures governing the incurred expenditure? Is it material? (for disclosure purposes
All irregular or fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the company. 1.7 Key accounting judgements and key sources of estimation uncertainty Critical accounting estimates and judgments In preparing the annual financial statements in terms of SA GAAP, the company's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgments are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 29 of 446
PetroSA Iris SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements 2014 R 2.
Loan to shareholder The Petroleum Oil and Gas Corporation of South Africa SOC Ltd The loan is unsecured, interest free and has no fixed terms of repayment
3.
60
60
Share capital Authorised 1000 Ordinary par value shares of R1 each
1,000
1,000
60
60
Issued 60 Ordinary par value shares of R1 each 4.
2013 R
Financial instruments Introduction The company has access to the parent company's risk management and central treasury function that manages the financial risks relating to the company's operations. Approved group policies exist for managing this risk. Risk profile Due to the current dormant state of the company, no risk profile exists. Classification of financial instrument The loan receivable is designated as fair value through profit and loss. It is managements view that the current carrying value is the fair value of the loan.
5.
Directors' emoluments The directors were not remunerated.
6.
Related parties Related party balances The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Amounts owed by related parties
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 30 of 446
60
60
PetroSA Rehabilitation (Non-Profit Company) Formerly Energy Africa Rehabilitation (NPC) (Registration number 2002/020879/08) Audited annual financial statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) and Ms LE Bakoro (CA)SA (Group Chief Financial Officer) respectively. Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 31 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
Hold and manage PetroSA Rehabilitation's contribution (non-profit company) for the decommissioning and rehabilitation of all Wells, and the Oribi site.
Directors
Mr J E P Falbe Mr W Z Fanadzo
Registered office
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Holding company
The Petroleum Oil and Gas Corporation SOC Limited (PetroSA) incorporated in South Africa
Ultimate shareholder
South African Government
Auditors
Auditor-General of South Africa Registered Auditor
Secretary
Ms K Kekana
Company registration number
2002/020879/08
Tax reference number
9102/407/84/9
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 32 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the directors: Page Report of the Auditor General
3-5
Directors' Responsibilities and Approval
6
Performance Against Objectives
7
Directors' Report
8
Statement from Company Secretary
9
Statement of Financial Position
10
Statement of Profit or Loss and Other Comprehensive Income
11
Statement of Cash Flows
12
Accounting Policies
13 - 15
Notes to the Annual Financial Statements
16 - 18
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 33 of 446
Report of the auditor-general to Parliament on the PetroSA Rehabilitation (Non-Profit Company) Report on the financial statements Introduction 1. I have audited the financial statements of the PetroSA Rehabilitation (Non-Profit Company) set out on pages 10 to 18 which comprise the financial position as at 31 March 2014, statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the PetroSA Rehabilitation (Non-Profit Company)as at 31 March 2014 and their financial performance and cash flows for the year then ended, in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa.
Additional matter paragraphs 7. I draw attention to the matter below. My opinion is not modified in respect of this matter. 3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 34 of 446
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the Directors’ Report and the Statement of the Secretary for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between these reports and the audited financial statements. However, I have not audited these reports and accordingly do not express an opinion on these reports.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I am unable to report on the usefulness and reliability of the performance information on page 4, as the annual performance report of the entity was not prepared as required by section 55(2)(a) of the PFMA.
Compliance with legislation 11. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows:
Internal control 12. I considered internal control relevant to my audit of the financial statements, reported performance information and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on the reported performance information and the findings on non-compliance with legislation included in this report.
Leadership 13. There was no shareholders compact, corporate plan or scorecard for the annual performance information of this entity. Management should identify and accept its oversight responsibilities in relation to established requirements and expectations in order to improve reporting requirements.
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 35 of 446
Financial and performance management 14. Non-compliance with laws and regulations should be continuously monitored and steps taken to prevent processes to allow such non-compliance instances to occur. Management should periodically review its control activities to determine their continued relevance, and refreshes them when necessary in order to establish well controlled environment which do not promote possible non-compliance with laws and regulation.
Pretoria 21 July 2014
5 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 36 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 37 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives A summary of PetroSA Rehabilitation's (Non-Profit Company) business performance against objectives is contained in the table below: Objective
Key performance indicator
Target
Actual
Performance results
Hold and manage PetroSA Rehabilitation's abandonment contribution.
Effective management of PetroSA Rehabilitation's contribution to the decommissioning and rehabilitation of all Wells and the Oribi site.
Ongoing
Ongoing
Achieved
Hold and manage PetroSA Rehabilitation's abandonment contribution Hold and manage a share of PetroSA's abandonment expenditure on the Oribi site.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 38 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors submit their report that forms part of the annual financial statements of the company for the year ended 31 March 2014. 1.
Directors The directors of the company during the year and at the date of this report are as follows: Name Mr J E P Falbe Mr W Z Fanadzo
Non-executive Non-executive
Board Audit and Risk Committee The performance of the Committee's functions in relation to the company is dealt with in the PetroSA Board Audit and Risk Committee report. 2.
Secretary The secretary of the company is Ms K Kekana and her business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Review of activities Main business and operations The company is engaged to hold and manage PetroSA Rehabilitation's contribution for the decommissioning and rehabilitation of all Wells, and the Oribi site, which operates principally in South Africa. Net loss of the company was R 1,656 000 (2013: R 1,572 000), after taxation of R Nil (2013: R Nil).
4.
Dividends No dividends were declared or paid during the current year (2013: R Nil).
5.
Subsequent events The directors are not aware of any matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which significantly affect the financial position of the company or the results of it's operations.
6.
Going concern The directors believe that the company will continue as a going concern in the year ahead.
8 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 39 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 40 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R '000
2013 R '000
Assets Current Assets Trade and other receivables Cash and cash equivalents
2 3
Total Assets
600 30,673
826 28,772
31,273
29,598
31,273
29,598
31,273
29,598
31,273
29,598
Liabilities Non-Current Liabilities Abandonment provision
4
Total Liabilities
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 41 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Profit or Loss and Other Comprehensive Income For the year ended 31 March 2014 Note(s) Operating expenses Operating loss Investment income
5
2014 R '000
2013 R '000
(1,656)
(1,572)
(1,656) 1,656
(1,572) 1,572
Profit for the year Other comprehensive income
-
-
Total comprehensive income
-
-
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 42 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Cash Flows For the year ended 31 March 2014 Note(s)
2014 R '000
2013 R '000
Cash flows from operating activities 7
Net cash from operating activities Interest income
245 1,656
19 1,572
Net cash from operating activities
1,901
1,591
Cash and cash equivalents movement for the year Cash and cash equivalents at the beginning of the year
1,901 28,772
1,591 27,181
30,673
28,772
3
Cash and cash equivalents at end of the year
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 43 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies used by the company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The annual financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. With the promulgation of the new Companies Act of 2008, SA GAAP was withdrawn with effect from 1 December 2012. As an interim measure, the PetroSA Group will maintain the status quo until the decision on the future accounting framework is finalised. These annual financial statements are presented in South African Rands. Rounding is to the nearest Rand in thousands. The annual financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset, unless it is required or permitted by a standard. 1.2 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Financial instruments Recognition Financial assets and financial liabilities are recognised on the company's Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the Statement of Financial Position include cash and cash equivalents and trade and other receivables. Measurement Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Financial assets The company's principal financial assets are cash and cash equivalents and trade and other receivables. All financial assets except for those at fair value through profit or loss are subject to review for impairment at each reporting date. Trade and other receivables Trade and other receivables are classified as loans and receivables and are subsequently measured at amortised cost, using the effective interest rate method, less an allowance for any uncollectable amounts. An estimate for impairment is made when objective evidence is available that indicates the collection of any amount outstanding is no longer probable and is charged to profit and loss. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. Bad debts are written off when identified.
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 44 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Financial instruments (continued) Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand and instruments which are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are stated at carrying amount which is deemed to be the fair value. Derecognition A financial asset or part thereof is derecognised when the company realises the contractual rights to the benefits specified in the contract, the rights expire, the company surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period. A financial liability or a part thereof is derecognised when the obligation specified in the contract is discharged, cancelled, or expires. On derecognition, the difference between the carrying amount of the financial liability, including related unamortised costs, and the amount paid for it is included in net profit or loss for the period. Fair value considerations The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items. Offsetting Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 1.4 Provisions Provisions represent liabilities of uncertain timing or amounts. Provisions are recognised when a present legal or constructive obligation exists, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks for which future cash flow estimates have not been adjusted. Provision for the cost of environmental and other remedial work such as reclamation costs, close down and restoration costs is made when such expenditure is probable and the cost can be estimated with a reasonable range of possible outcomes. 1.5 Taxation The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax is recognised for all temporary differences, unless specifically exempt, at the rates that have been enacted or substantially enacted at the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the company expects to recover or settle the carrying amount of its liabilities.
14 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 45 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.5 Taxation (continued) Deffered tax asset A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantially enacted at reporting date. Deferred tax liability A deferred tax liability is recognised for taxable temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the reporting date.. 1.6 Income from investments Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. 1.7 Finance costs Finance costs are recognised as an expense in the period in which they are incurred. 1.8 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.9 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • • •
Could reasonable steps have been taken to avoid the expenditure? Were there policies and/or procedures governing the incurred expenditure? Is it material? (for disclosure purposes)
Any irregular or fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the company. 1.10 Key accounting judgements and key sources of estimation uncertainty Critical accounting estimates and judgments In preparing the annual financial statements in terms of SA GAAP, the company's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgments are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances. For the year ended 31 March 2014, no significant judgements or estimates were made.
15 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 46 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements 2014 R '000 2.
Trade and other receivables Interest accrual
3.
2013 R '000
600
826
Cash and cash equivalents Cash and cash equivalents consist of deposit balances with the bank. There are restrictions over the bank account, in that the funds can only be utilised for expenditure incurred for the purpose of rehabilitating the Oribi site. Cash and cash equivalents comprise the following: Term deposits
4.
30,673
28,772
Abandonment provision Reconciliation of abandonment provision - 2014
Restructuring
Opening balance 29,598
Additions
Opening balance 28,027
Additions
1,675
Total 31,273
Reconciliation of abandonment provision - 2013
Restructuring 5.
1,571
Total 29,598
Operating loss Operating loss for the year is stated after accounting for the following: Abandonment provision expense
6.
1,655
1,571
Taxation PetroSA Rehabilitation is non-profit company and therefore no tax is payable in the current year as the company is in a zero tax liability position.
7.
Cash generated from operations Profit for the year Adjustments for: Interest received Movements in provisions Changes in working capital: Trade and other receivables
(1,656) 1,675
(1,572) 1,571
226
20
245
19
16 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 47 of 446
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 8.
Financial instruments Introduction The company has access to the parent company's risk management and central treasury function that manages the financial risks relating to the company's operations. The company's liquidity, credit and interest rate risks are monitored continually. Approved policies exist for managing these risks. Risk profile In the course of the company's business operations it is exposed to interest rate and credit risks. The risk management policy of the company relating to these risks are discussed below. Risk management objectives and policies The company's objective in using financial instruments is to reduce the uncertainty over future cash flows arising from movements in foreign exchange, interest rates. Throughout the year under review it has been, and remains, the company's policy that no speculative trading in derivative instruments be undertaken. Credit risk Trade receivables consist of interest receivable. The company does not have significant credit exposure to any single counterparty or any group counterparties having similar characteristics. Interest rate risk Exposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The financing of the company is structured on floating interest rates. The following table sets out the carrying amount, by maturity, of the company's financial instruments that are exposed to interest rate risk and the effective interest rates applicable: At 31 March 2014 Floating Rate Cash and cash equivalents Trade and other receivables Total
Less than 1 year 30,673 600
Between 1 and 5 years -
Over 5 years
Total
-
30,673 600
31,273
-
-
31,273
Less than 1 year 28,772 826
Between 1 and 5 years -
Over 5 years -
28,772 826
29,598
-
-
29,598
At 31 March 2013 Floating Rate Cash and cash equivalents Trade and other receivables Total
17 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 48 of 446
Total
PetroSA Rehabilitation (Non-Profit Company) Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 9.
Financial assets by category The accounting policies for financial instruments have been applied to the line items below: 2014 Loans and receivables 600 30,673
Trade and other receivables Cash and cash equivalents Total financial assets
31,273
Total 600 30,673 31,273
2013 Loans and receivables 826 28,772
Trade and other receivables Cash and cash equivalents Total financial assets
29,598
10. Director's emoluments The directors were not remunerated.
18 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 49 of 446
Total 826 28,772 29,598
PetroSA Sudan SOC Ltd (Registration number 2005/041168/07) Audited annual financial statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) and Ms LE Bakoro CA(SA) (Group Chief Financial Officer) respectively. Registered Auditor Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 50 of 446
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
The company holds the PetroSA Group's interest in the exploration, appraisal, development and production of hydrocarbon reserves.
Directors
Mr L E Moser
Registered office
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499 The Petroleum Oil and Gas Corporation of South Africa SOC Limited (PetroSA) incorporated in South Africa
Holding company
Ultimate shareholder
South African Government
Auditor
Auditor-General of South Africa Registered Auditor
Secretary
Mr J C Nell
Company registration number
2005/041168/07
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 51 of 446
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Report of the Auditor General
3-4
Directors' Responsibilities and Approval
5
Directors' Report
6-7
Statement from Company Secretary
8
Statement of Financial Position
9
Statement of Changes in Equity
10
Accounting Policies
11 - 12
Notes to the Audited Annual Financial Statements
13
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 52 of 446
Report of the auditor-general to Parliament on PetroSA Sudan SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of PetroSA Sudan SOC Limited set out on pages 9 to 13 which comprise the statement of financial position as at 31 March 2014 and statement of changes in equity for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of PetroSA Sudan SOC Limited as at 31 March 2014 in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa.
Additional matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 53 of 446
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the directors’ report and the company secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following on predetermined objectives, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant for the year under review
Compliance with legislation 11. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
Internal control 12. I considered internal control relevant to my audit of the financial statements and compliance with legislation. I did not identify any deficiencies in internal control which was considered to be sufficiently significant for the inclusion in this report.
Pretoria 29 July 2014
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 54 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 55 of 446
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors present their annual report that forms part of the audited annual financial statements of the company for the year ended 31 March 2014. 1.
Directors The directors of the company during the year and at the date of this report are as follows: Name Mr E G September Mr L E Moser Mr A Omar
Non-executive Non-executive Non-executive
Resigned 31 January 2014 16 May 2014
Board Audit and Risk Committee PetroSA Sudan SOC Ltd does not have a Board Audit and Risk Committee currently and the PetroSA Board Audit and Risk Committee fulfills this role. 2.
Secretary Mr J C Nell was appointed as secretary of the company on 26 July 2013 and, his business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Nature of business Main business and operations The company holds the PetroSA Group's interest in the exploration, appraisal, development and production of hydrocarbon reserves.
4.
Review of financial position The company's business and operations and the results thereof are clearly reflected in the attached annual financial statements. The company is dormant and therefore did not trade during the year under review.
5.
Authorised and issued share capital Details of the share capital of the company are set out in note 3 to the annual financial statements.
6.
Dividends No dividends were declared or paid to the shareholder during the current year (2013: R nil).
7.
Shareholder compact The strategic objective of the company is in line with the PetroSA Group strategic objectives, and therefore reference should be made to the Shareholder Compact of PetroSA.
8.
Subsequent events The directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which significantly affect the financial position of the company or the results of the operations.
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 56 of 446
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report 9.
Shareholder The company is a wholly-owned subsidiary of PetroSA SOC Ltd.
10. Annual general meeting The annual general meeting will be held in terms of section 61 of the Companies Act of 2008.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 57 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 58 of 446
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R
2013 R
Assets Non-Current Assets Loan to shareholder
2
120
120
3
120
120
Equity and Liabilities Equity Share capital
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 59 of 446
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the year ended 31 March 2014 Share capital R Balance at 01 April 2012 Balance at 01 April 2013 Balance at 31 March 2014
120 120 120
Note(s)
3
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 60 of 446
Total equity R 120 120 120
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies used by the company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. With the promulgation of the new Companies Act of 2008, SA GAAP was withdrawn with effect from 1 December 2012. As an interim measure, the PetroSA Group will maintain the status quo until the decision on the future accounting framework is finalised. These annual financial statements are presented in South African Rands. The financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset, unless it is required or permitted by a standard. 1.2 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Financial instruments Recognition Financial assets and financial liabilities are recognised on the company's Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the Statement of Financial Position include loans receivables. Measurement Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Financial assets The company's principal financial assets are loans receivable. Loans and receivables with no fixed maturity period are classified as fair value through profit and loss on initial recognition. Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted. Derecognition A financial asset or part thereof is derecognised when the company realises the contractual rights to the benefits specified in the contract, the rights expire, the company surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period.
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 61 of 446
PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Financial instruments (continued) Fair value considerations The fair values at which financial instruments are carried at the report date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items. Offsetting Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 1.4 Share capital and equity Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. 1.5 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.6 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • • •
Could reasonable steps have been taken to avoid the expenditure? Were there policies and/or procedures governing the incurred expenditure? Is it material? (for disclosure purposes)
All irregular or fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the company. 1.7 Key accounting judgements and key sources of estimation uncertainty Critical accounting estimates and judgments In preparing the annual financial statements in terms of SA GAAP, the company's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgments are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.
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PetroSA Sudan SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements 2014 R 2.
2013 R
Loan to shareholder Petroleum Oil and Gas Corporation of South Africa SOC Ltd The loan is unsecured, interest free and has no fixed terms of repayment.
3.
120
Share capital Authorised 1000 Ordinary par value shares of R1 each Issued 120 Ordinary par value shares of R1 each
4.
120
1,000
1,000
120
120
Financial Instruments Introduction The company has access to the parent company's risk management and central treasury function that manages the financial risks relating to the company's operations. Approved group policies exist for managing this risk. Risk profile Due to the current dormant state of the company, no risk profile exists. Classification of financial instrument The loan receivable is designated as fair value through profit and loss. It is managements view that the current carrying value is the fair value of the loan.
5.
Related parties Related party balances The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Amounts owed by related parties
6.
120
Directors' emoluments The directors were not remunerated.
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 63 of 446
120
PetroSA Synfuels International SOC Limited (Registration number 1990/000846/07) Audited annual financial statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) and Ms LE Bakoro CA(SA) (Group Chief Financial Officer) respectively. Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 64 of 446
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
It is intended that the company will hold the PetroSA Group's interest in a gas to liquid (GTL) project and technology development.
Directors
Mr J E P Falbe Mr H de Wet
Registered office
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Holding company
The Petroleum Oil and Gas Corporation of South Africa SOC Limited (PetroSA) incorporated in South Africa
Ultimate shareholder
South African Government
Auditor
Auditor-General of South Africa Registered Auditors
Secretary
Ms K Kekana
Company registration number
1990/000846/07
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 65 of 446
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Report of the Auditor General
3-4
Directors' Responsibilities and Approval
5
Directors' Report
6-7
Company Secretary's Certfication
8
Statement of Financial Position
9
Statement of Changes in Equity
10
Accounting Policies
11 - 12
Notes to the Audited Annual Financial Statements
13
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 66 of 446
Report of the auditor-general to Parliament on PetroSA Sudan SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of PetroSA Sudan SOC Limited set out on pages 9 to 13 which comprise the statement of financial position as at 31 March 2014 and statement of changes in equity for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of PetroSA Sudan SOC Limited as at 31 March 2014 in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa.
Additional matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 67 of 446
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the directors’ report and the company secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following on predetermined objectives, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant for the year under review
Compliance with legislation 11. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
Internal control 12. I considered internal control relevant to my audit of the financial statements and compliance with legislation. I did not identify any deficiencies in internal control which was considered to be sufficiently significant for the inclusion in this report.
Pretoria 29 July 2014
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 68 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 69 of 446
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors present their annual report that forms part of the audited annual financial statements of the company for the year ended 31 March 2014. 1.
Directors The directors of the company during the year and at the date of this report are as follows: Name Mr J E P Falbe Mr H de Wet
Non-executive Non-executive
Board Audit and Risk Committee PetroSA Synfuels International SOC Ltd does not have a Board Audit and Risk Committee currently and the PetroSA Board Audit and Risk Committee fulfills this role. 2.
Secretary Ms K Kekana was appointed as secretary of the company on 24 March 2014 and, her business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Nature of business Main business and operations It is intended that the company will hold the PetroSA Group's interest in a gas to liquid (GTL) project and technology development.
4.
Review of financial position The company's business and operations and the results thereof are clearly reflected in the attached annual financial statements. The company is dormant and therefore did not trade during the year under review.
5.
Authorised and issued share capital Details of the share capital of the company are set out in note 2 to the annual financial statements.
6.
Dividends No dividends were declared or paid to the shareholder during the current year (2013: R nil).
7.
Shareholder compact The strategic objective of the company is in line with the PetroSA Group strategic objectives, and therefore reference should be made to the Shareholder compact of PetroSA.
8.
Subsequent events The directors are not aware of any matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which significantly affect the financial position of the company or the results of the operations.
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 70 of 446
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report 9.
Shareholder The company is a wholly-owned subsidiary of PetroSA SOC Ltd.
10. Annual general meeting The annual general meeting will be held in terms of section 61 of the Companies Act of 2008.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 71 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 72 of 446
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R
2013 R
Equity and Liabilities Equity Share capital Accumulated loss
2
2,000 (2,000) -
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 73 of 446
2,000 (2,000) -
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the year ended 31 March 2014 Share capital R Balance at 01 April 2012 Balance at 01 April 2013 Balance at 31 March 2014
2,000 2,000 2,000
Note(s)
2
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 74 of 446
Accumulated loss R (2,000) (2,000) (2,000)
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies used by the company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The annual financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. With the promulgation of the new Companies Act of 2008, SA GAAP was withdrawn with effect from 1 December 2012. As an interim measure, the PetroSA Group will maintain the status quo until the decision on the future accounting framework is finalised. These annual financial statements are presented in South African Rands. The financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset unless it is required or permitted by a standard. 1.2 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Share capital and equity Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. 1.4 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.5 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • • •
Could reasonable steps have been taken to avoid the expenditure? Were there policies and/or procedures governing the incurred expenditure? Is it material? (for disclosure purposes)
All irregular or fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the company.
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 75 of 446
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.6 Key accounting judgements and key sources of estimation uncertainty Critical accounting estimates and judgments In preparing the annual financial statements in terms of SA GAAP, the company's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgments are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 76 of 446
PetroSA Synfuels International SOC Limited Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements 2014 R 2.
3.
2013 R
Share capital Authorised 2000 Ordinary par value shares of R1 each
2,000
2,000
Issued 2000 Ordinary par value shares of R1 each
2,000
2,000
Directors' emoluments The directors were not remunerated.
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 77 of 446
PetroSA Themis SOC Ltd (Registration number 2004/027241/07) Audited Annual Financial Statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) and Ms LE Bakoro CA(SA) (Group Chief Financial Officer) respectively. Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 78 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
The company will hold the PetroSA Group's interest in the exploration, appraisal, development and production of hydrocarbon reserves
Directors
Mr A T Dippenaar Mr L E Moser
Registered office
151 Frans Conradie drive Parow 7500
Postal address
Private Bag X5 Parow 7499 The Petroleum Oil and Gas Corporation of South Africa SOC Limited (PetroSA) incorporated in South Africa
Holding company
Ultimate shareholder
South African Government
Auditors
Auditor-General of South Africa Registered Auditors
Secretary
Mr J C Nell
Company registration number
2004/027241/07
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 79 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Report of the Auditor General
3-4
Directors' Responsibilities and Approval
5
Directors' Report
6-7
Statement from Company Secretary
8
Statement of Financial Position
9
Statement of Changes in Equity
10
Accounting Policies
11 - 12
Notes to the Audited Annual Financial Statements
13
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 80 of 446
Report of the auditor-general to Parliament on PetroSA Themis SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of PetroSA Themis SOC Limited set out on pages 9 to 13 which comprise the statement of financial position as at 31 March 2014 and statement of changes in equity for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of PetroSA Themis SOC Limited as at 31 March 2014 in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa.
Additional matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 81 of 446
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the directors’ report and the company secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following on predetermined objectives, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant for the year under review
Compliance with legislation 11. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
Internal control 12. I considered internal control relevant to my audit of the financial statements and compliance with legislation. I did not identify any deficiencies in internal control which was considered to be sufficiently significant for the inclusion in this report.
Pretoria 29 July 2014
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 82 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 83 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors present their annual report that forms part of the audited annual financial statements of the company for the year ended 31 March 2014. 1.
Directors The directors of the company during the year and at the date of this report are as follows: Name Mr E G September Mr L E Moser Mr G Griessel Mr A T Dippenaar
Non-executive Non-executive Non-executive Non-executive
Date of appointment
Date of resignation 31 January 2014
26 July 2013 26 July 2013
16 May 2014
Board Audit and Risk Committee PetroSA Themis SOC Ltd does not have a Board Audit and Risk Committee currently and the PetroSA Board Audit and Risk Committee fulfills this role. 2.
Secretary Mr J C Nell was appointed as secretary of the company on 26 July 2013 and, his business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Nature of business Main business and operations The company will hold the PetroSA Group's interest in the exploration, appraisal, development and production of hydrocarbon reserves.
4.
Review of financial position The company's business and operations and the results thereof are clearly reflected in the attached annual financial statements. The company is dormant and therefore did not trade during the year under review.
5.
Authorised and issued share capital Details of the share capital of the company are set out in note 3 to the annual financial statements.
6.
Dividends No dividends were declared or paid to the shareholders during the current year (2013: R nil).
7.
Shareholder compact The strategic objective of the company is in line with the PetroSA Group strategic objectives, and therefore reference should be made to the Shareholders Compact of PetroSA.
8.
Subsequent events The directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which significantly affect the financial position of the company or the results of the operations. 6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 84 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report 9.
Shareholder The company is a wholly-owned subsidiary of PetroSA SOC Ltd.
10. Annual general meeting The annual general meeting will be held in terms of section 61 of the Companies Act of 2008.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 85 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 86 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R
2013 R
Assets Non-Current Assets Loan to shareholder
2
120
120
3
120
120
Equity and Liabilities Equity Share capital
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 87 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the year ended 31 March 2014 Share capital R Balance at 01 April 2012 Balance at 01 April 2013 Balance at 31 March 2014
120 120 120
Note(s)
3
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 88 of 446
Total equity R 120 120 120
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies used by the company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. With the promulgation of the new Companies Act of 2008, the South African Statements of GAAP were withdrawn with effect from 1 December 2012. As an interim measure, the PetroSA Group will maintain the status quo until the decision on the future accounting framework is finalised. These annual financial statements are presented in South African Rands. The financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset, unless it is required or permitted by a standard. 1.2 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Financial instruments Recognition Financial assets and financial liabilities are recognised on the company's Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the Statement of Financial Position include loans receivable. Measurement Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Financial assets The company's principal financial assets are loans receivable. Loans and receivables with no fixed maturity period are classified as fair value through profit and loss on initial recognition. Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted. Derecognition A financial asset or part thereof is derecognised when the company realises the contractual rights to the benefits specified in the contract, the rights expire, the company surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period.
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 89 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Financial instruments (continued) Fair value considerations The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items. Offsetting Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 1.4 Share capital and equity Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. 1.5 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.6 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • • •
Could reasonable steps have been taken to avoid the expenditure? Were there policies and/or procedures governing the incurred expenditure? Is it material? (for disclosure purposes)
All irregular or fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the company. 1.7 Key accounting judgements and key sources of estimation uncertainty Critical accounting estimates and judgments
In preparing the annual financial statements in terms of SA GAAP, the company's management is required to make certain estim estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 90 of 446
PetroSA Themis SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements 2014 R 1.
2013 R
Directors' emoluments
The directors were not remunerated. 2.
Loan to shareholder
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd The loan is unsecured and interest free and has no fixed terms of repayment. 3.
120
1,000
1,000
120
120
Share capital
Authorised 1000 Ordinary par value shares of R1 each Issued 120 Ordinary par value shares of R1 each 4.
120
Financial instruments
Introduction The company has access to the parent company's risk management and central treasury function that manages the financial risks relating to the company's operations. Approved group policies exist for managing these risks. Risk profile Due to the current dormant state of the company no risk profile exists. Classification of financial instruments The loan receivable is designated as fair value through profit and loss. It is management's view that the current carrying value is the fair value of the loan. 5.
Related parties
Related party balances The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Amounts owed by related parties
120
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 91 of 446
120
SFF Association NPC (Registration number 1964/010277/08) Annual Financial Statements for the year ended 31 March 2014
These Annual Financial Statements were prepared under the supervision of Mr SK Mthethwa CA(SA) Group Chief Financial Officer - CEF SOC Ltd
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 92 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
Management of strategic stocks of crude oil in accordance with Ministerial Directives.
Directors
Dr S Mthembi-Mahanyele Amb B Gila Mr L Mulaudzi Ms R van Wyk Mr E Cloete
Registered office
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Business address
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Postal address
P O Box 786141 Sandton 2146
Holding company
CEF SOC Limited incorporated in South Africa
Bankers
ABSA Bank Ltd Sandton Branch
Auditors
Auditor-General of South Africa
Company Secretary
CEF SOC Limited
Company registration number
1964/010277/08
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 93 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual financial statements presented to the shareholder: Page Report of the Independent Auditors
3-6
Directors' Responsibilities and Approval
7
Statement on Corporate Governance
8 - 10
Performance Against Objectives
11 - 19
Report of the board audit and risk management committees
20 - 22
Directors' Report
23 - 28
Materiality and Significance Framework
29
Statement of Financial Position
30
Statement of Comprehensive Income
31
Statement of Changes in Equity
32
Statement of Cash Flows
33
Accounting Policies
34 - 45
Notes to the Annual Financial Statements
46 - 66
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 94 of 446
Report of the auditor-general to Parliament on SFF Association (NPC) Report on the financial statements Introduction 1. I have audited the financial statements of SFF Association (NPC) set out on pages 30 to 66, which comprise the statement of financial position as at 31 March 2014, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa,1999 (Act No.1 of 1999) (PFMA) and the Companies Act of South Africa, 2008 (Act No. 71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the SFF Association (NPC) as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with South African Statements of Generally Accepted Accounting 3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 95 of 446
Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act as amended by Act no.1 of 1999 (PFMA) and the Companies Act of South Africa, 2008 (Act No.71 of 2008).
Emphasis of matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Restatement of corresponding figures 8. As disclosed in note 26 to the financial statements, the corresponding figures for 2013 have been restated as a result of an error discovered during 2014 in the financial statements of the SFF Association (NPC) at, and for the year ended, 31 March 2014.
Additional matter 9. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Other reports required by the Companies Act 10. As part of our audit of the financial statements for the year ended 31 March 2014, I have read the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 11. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 12. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected objectives presented in the annual performance report of the public entity for the year ended 31 March 2014: Objective: Security of Supply & Infrastructure on pages 11 to 12 Objective: Risk & Sheq Management on pages 13 to 15 Objective: Sustainability on pages 15 to 16 Objective: Stakeholder and Shareholder Engagement on pages 16 to 19 13. I evaluated the reported performance information against the overall criteria of usefulness and reliability. 4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 96 of 446
14. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance was consistent with the planned objectives. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury’s Framework for managing programme performance information (FMPPI). 15. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. 16. I did not raise any material findings on the usefulness and reliability of the reported performance information for the selected objectives.
Additional matter 17. Although I raised no material findings on the usefulness and reliability of the reported performance information for the selected objectives , I draw attention to the following matter :
Achievement of planned targets 18. Refer to the annual performance report on pages 11 to 19 for information on the achievement of planned targets for the year.
Compliance with legislation 19. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows:
Procurement and contract management 20. Goods and services were not procured through a procurement process which is fair, equitable, transparent and competitive as required by the PFMA section 51(1)(a)(iii) as less than 3 quotations were obtained for procurements which were not as per the procurement policy. 21. Goods and services were not procured through a procurement process which is fair, equitable, transparent and competitive as required by the PFMA section 51(1)(a)(iii) as procurement in excess of R500 000 was not done through a tender process as required by the procurement policies and procedures of the entity. 22. Construction contracts were awarded but it could not be confirmed if proper processes in terms of CIDB regulations were followed as the minimum requirements required to apply were not stipulated, proof that the suppliers were registered with Construction Industry Development Board and the contractors grading certificates could not be obtained. 23. Goods and services were not procured through a procurement process which is fair, equitable, transparent and competitive as required by the PFMA section 51(1)(a)(iii) as the requirements of the Preferential Procurement Policy Framework Act (PPPFA) on procurements with a value of R30 000 and above were not complied with.
5 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 97 of 446
Expenditure Management 24. The accounting authority did not take reasonable steps to prevent irregular expenditure as well as fruitless and wasteful expenditure as required by sections 55(1) (b) (ii) of the PFMA.
Internal control 25. I considered internal control relevant to my audit of the financial statements, annual performance report and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on non-compliance with legislation included in this report.
Leadership 26. Management has not exercised adequate oversight responsibility regarding compliance and related internal controls.
Other reports Investigations 27. An investigation was undertaken by Central Energy Fund (CEF) Internal Audit Services to investigate procurement process irregularities that took place within SFF Association (NPC) during the financial year 2013/14. The focus of the investigation was on procurement awards of above R10 000 000 and above. This investigation is as a result of a follow-up on the whistle blower investigations with a view to obtaining affidavits from potential witnesses for disciplinary purposes. The objective of the investigation is to use the investigation report as a foundation for the implementation of corrective measures that will create a productive and positive working environment for all employees. To date the process with regards to corrective measures is still in progress.
Pretoria 31 July 2014
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 98 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Responsibilities and Approval The Public Finance Management Act requires the directors to ensure that SFF Association NPC and its subsidiaries keep full and proper records of their financial affairs. The financial statements should fairly present the state of affairs of SFF, its financial results, its performance against predetermined objectives for the year and its financial position at the end of the year in terms of SA GAAP. To enable the directors to meet the above mentioned responsibilities, the SFF board of directors sets standards and management implements systems of internal control. The controls are designed to provide cost-effective assurance that assets are safeguarded, and that liabilities and working capital are efficiently managed. Policies, procedures, structures and approval frameworks provide direction, accountability and division of responsibilities and contain self-monitoring mechanisms. The controls throughout SFF focus on those critical risk areas identified by operational risk management and confirmed by executive management. Both management and the internal audit department closely monitor the controls, and actions are taken to correct deficiencies as they are identified. The preparation and fair presentation of the financial statements are the responsibility of the directors. The external auditors are responsible for independently auditing the financial statements in accordance with International Standards of Auditing and the Public Audit Act, 25 of 2004. The directors have made an assessment of the ability of SFF to continue as a going concern in the foreseeable future and are satisfied that SFF and the group have access to adequate resources and facilities to be able to continue operations for the foreseeable future. Accordingly the board have continued to adopt the going-concern basis in preparing the financial statements. The financial statements of SFF have been prepared in terms of SA GAAP, the Companies Act of South Africa, 71 of 2008, as amended, and the Public Finance Management Act, 1 of 1999, as amended. These financial statements are based on appropriate accounting policies, supported by reasonable and prudent judgements and estimates and are prepared on the going-concern basis. Based on the information and explanations given by management, the internal audit function and discussions held with the independent external auditors, the directors are of the opinion that the internal accounting controls are adequate to ensure that the financial records may be relied upon for preparing the financial statements, and that accountability for assets and liabilities is maintained. The audit and risk committee has reviewed the effectiveness of SFF's internal controls and considers the systems appropriate for the effective operation of SFF and the group. The committee has evaluated SFF's annual financial statements and has recommended their approval to the board. The audit and risk committee's approval is set out in their report.
Dr S Mthembi-Mahanyele (Chairperson)
Amb B Gila (Executive Director)
Sandton 22 July 2014
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 99 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Statement on Corporate Governance 1.
Introduction The company's Board of Directors (the Board) strives to promote the highest standard of corporate governance, by subscribing to the principles of good corporate governance as outlined in the King III Report on Corporate Governance, Public Finance Management Act of 1999 (PFMA), Companies Act of 2008 and Protocol on Corporate Governance in the Public Sector. Good corporate governance includes the structures, processes and practices that the Board uses to direct and manage operations of SFF. This is to ensure proper accountability by the Board to the shareholders and other stakeholders. It is the Board’s understanding and belief that adherence to good corporate governance will improve the confidence of the shareholder, stakeholders and employees in the leadership of the company. This in turn will allow space for wealth creation and economic well being to the wider community of stakeholders and society. To ensure that the company is managed in an efficient, accountable, responsible, moral and ethical manner in compliance with these principles, an on going monitoring of the developments in the field of corporate governance is maintained and improvements are made to the extent determined as appropriate.
2.
Board of Directors In terms of section 49 of the PFMA, the Board is the accounting authority of the group. The group has a unitary Board structure made up of a majority of non executive directors, appointed by the shareholder. The size of the Board is dictated by Section 1 (4) of the Central Energy Fund Act, No. 38 of 1977 ('CEF Act'), as amended, which permits a maximum of 8 directors appointed by the Shareholder. In line with the recommendations of KING III the positions of Chairman and Chief Executive Officer are separately held to ensure a clear division of duties. The Board retains overall accountability for the running of the company and reserves, for itself, decisions on matters that could have a material impact on the business. To that end, Executive Management is charged with the day-to-day running of the business, with the Board addressing a range of key issues to ensure that it retains the strategic direction of, and proper control over the company, ensuring that policies and procedures are in place, monitoring the performance of the group against agreed objectives, identifying key performance and risk areas, providing effective leadership on an ethical foundation, ensuring that there is an effective risk based internal audit function, defining levels of materiality, reserving specific powers to itself and delegating other matters, with the necessary written authority, to the CEO, ensuring that timelines for submission of reports in compliance with the PFMA and other applicable laws affecting the business are adhered to, including submission of financial statements and ensuring that annually a Shareholder's Compact is concluded with the shareholder in respect of agreed performance indicators for the Company in the next year. The non executive directors are appointed in terms of the CEF Act and re-appointment is not automatic. The Board met six times during the period under review due to efforts to synchronise the meetings with the reporting requirements of the PFMA. 2.1 Board committee The Board established the audit and risk committee in order to assist it in the discharge of its duties. The committee operates under Board approved terms of reference, which may be updated from time to time to align with the latest developments in corporate governance. The committee operates within these defined terms of reference and is chaired by a non-executive director or independent member. 2.2 Audit and risk committee The audit and risk committee comprises at least three independent non-executive directors appointed by the shareholder at each annual general meeting. The committee meets at least four times per annum. The committee is chaired by an independent non-executive director who is not the chairperson of the Board. The committee consists of three members with financial, internal and external audit, corporate law and other relevant experience. The committee's charter is reviewed annually by the Board. The committee is responsible for overseeing the internal audit function, company compliance function, risk management and control processes of the company. The Chief Executive Officer and Chief Financial Officer are permanent invitees to these meetings. Other executive managers are invited to the committee meetings when appropriate. 8 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 100 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Statement on Corporate Governance 2.3 Group compliance risk management function The Board is accountable for ensuring that there is compliance with law, regulations, policies and procedures and any adopted standards applicable to the company. The function of compliance has been delegated throughout the company based on specialist areas. As a principle the company does not tolerate non-compliance with laws, regulations, and any of its own standards. The company is working on providing combined assurance on compliance to the Board going forward. Business continuity management as a discipline, within the compliance function, maintains a collection of plans readily accessible and available for use in the event of a disaster or major disruptions to business activities. These plans are empowered by an approved Business Continuity Management policy. This policy requires that all business continuity plans across the organisation be kept in ready mode for execution and be updated at a minimum every three years, or as and when material changes to business processes occur. The company philosophy on enterprise wide risk management is that of pro-active management of risks whilst exploiting any related opportunities that could present themselves as risks. The current governance policies in place include: - Business Continuity Management Plan; - Fraud Prevention Policy; and - Code of Ethics Policy. Some of these governing policies and structures have been supplemented with work procedures, practise frameworks and terms of references. Risks are continuously identified throughout the organisation, including mitigation strategies and where appropriate management action plans. This process is rolled into development of a corporate strategic risk register that is dynamic in nature and reviewed quarterly by EXCO and the Board. In line with integrating and embedding a culture of enterprise wide risk management, risk management plays a pivotal role and informs key decisions taken by management and the Board. The company is committed to the eradication of fraud, corruption, misconduct and any irregularities. Prevention Policy addresses fraud risk management from both proactive and reactive perspective.
The Fraud
The company has outsourced its whistleblower hotline, which is available to staff, various stakeholders and members of the public. All reported cases are treated with utmost confidentiality to protect the rights of both the whistleblower and the alleged party. 3.
Materiality and significance framework A materiality and significance framework has been developed for reporting losses through criminal conduct and irregular, fruitless and wasteful expenditure, as well as for significant transactions envisaged per section 54(2) of the PFMA that requires ministerial approval. The framework was finalised after consultation with the external auditors and has been formally approved by the Board.
4.
Internal audit SFF uses the services of the Group Internal Audit function that has the support and cooperation of both the board and management. The Internal Audit Function has written terms of reference for the group, provided by the board of directors, setting out its purpose, authority and responsibilities. The internal audit department, headed by the Chief Audit Executive, is accountable to the board audit and risk committee. The internal audit function carries out its work in terms of an approved internal work plan based on the risk framework of the company. The annual work plan is approved by the audit committee. The Chief Audit Executive has full access to the chairpersons of the audit committee and the board of directors.
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 101 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Statement on Corporate Governance The key responsibilities are to the board, and its committees, in discharging its governance responsibilities and to perform the following functions:
Evaluating the company's governance processes including ethics; Performing an objective assessment of the effectiveness of risk management and internal control framework; Systematically analysing and evaluating business processes and associated controls; and; Providing a source of information, as appropriate, regarding instance of fraud, corruption, unethical behaviour and irregularities.
The Internal Audit Function adheres to the International Standards for Professional Practice of Internal Auditing and Code of Ethics.The chief audit executive developed and maintained a quality assurance and improvement program.The internal audit function is subjected to an external quality review at least every 5 years, the last review was conducted in March 2013 and the evaluation result was “general conformance", which is the highest level of conformance. The next review is due in 2018. 5.
Company Secretary The Company Secretary is responsible for ensuring that the company's affairs, as well as the Board proceedings are properly carried out in accordance with the relevant laws and standards. The Company Secretary provides the board of directors with guidance and advice on matters of business ethics and good governance, as well as on the nature and extent of their duties and responsibilities and how such duties and responsibilities should be properly discharged. Each of the directors has unrestricted access to the advice and services of the Company Secretarial team and company information, and are entitled to seek independent professional advice, at the company's expense in pursuance of their duties as director. The Company Secretary is responsible to the Board.
6.
Management reporting Comprehensive management reporting disciplines are in place, which include the preparation of an annual corporate plan and budget approved by the board of directors. Monthly and quarterly results are reported against the approved budget to the executive committees and the boards of directors respectively for review. There are comprehensive management reporting disciplines in place, which include the preparation of annual budgets by all divisions and reporting thereon on a quarterly basis. The budget and capital expenditure are reviewed and approved by the board. Quarterly performance results and the financial status of the company and group are reported against approved targets. Profit projections and forecasted cash flows are updated monthly, while working capital and borrowing levels are monitored on an ongoing basis. Executive management meets on a regular basis to consider day to day issues pertaining to the business of company.
7.
the
Code of Ethics Entities within the group have codes of ethics which require employees to observe the highest ethical standards thereby ensuring that business practices are conducted in a manner which is beyond reproach. Directors and employees are required to maintain the highest ethical standards, ensuring that business practices are conducted in a manner which, in all reasonable circumstances, are beyond reproach. The Code of ethics also serves as a guide to assist the Board, Executive Management, Staff and Contractors of the company in making ethical decisions and engaging in appropriate lawful conduct. The company has contracted the services of an independent hotline service providing for the confidential reporting of fraud and other inappropriate behaviour. Employee breaches are dealt with in accordance with the disciplinary policy. In addition, directors are required to annually declare their interests in contracts as well as directorships in other companies in accordance with the Companies Act.
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 102 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives A summary of the SFF Associations' performance against objectives is contained in the table below: Activity
Indicators
Target
Scoring
Weight Achieved
Comments
1= 9.93, 2= 10.25 - 9.94, 3= 10.30 - 10.26, 4 =10.40
3.3
3
The current strategic stock level is on 10.269million bbls and it is within 0.35% loss.
Measure Major parameters ranges for strategic: API & Sulphur measured quarterly.
1 = ± 20% Deviation, 2 = ±15%, 3 = ± 10%, 4= ± 5%
3.3
3
No contamination. Quality is within 10% of major parameters.
Submit proposal to board on stocks release mechanisms.
1 =September 2013, 2 = August 2013, 3 = July 2013, 4 = May 2013
3.3
4
The Crisis Management Proposal was submitted on 28 May 2013 in satisfaction of EXCO, BARC and Board processes.
1. Maintenance of strategic quantity and to ensure SFF meets its mandate and obligations 10.3mbbls ± 0.35% loss pa.
2. Ensure that the correct strategic quality is maintained
3. Crisis Management Submit proposal to board on stocks release mechanism
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 103 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
Submit Proposal to board on possible supply countries , stocks types by 30 September 2013.
1 = November 2013, 2 = October 2013, 3 = September 2013, 4 = August 2013
3.3
4
The Proposal on possible supply countries was submitted on 28 May 2013 in satisfaction of EXCO, BARC and Board processes.
2 = > 0.35%, 3 =0.35%, 4 = < 0.35%.
3.3
4
Actual losses recorded on Commercial stocks is 0.047%, less than the 0.35% as per the agreement with clients.
1 = ± 20% Deviation, 2 = ±15%, 3 = ± 10%, 4 = ± 5%
3.3
4
No contamination recorded and clients have acccepted the quality as measured by surveyors.
4. Diversification of strategic stocks Submit Proposal to board on possible supply countries, stocks type
5. Maintenance of the quantity on Commercial Stocks Loss no more than 0.35% per annum.
6. Maintenance of the quality on the Commercial Stocks are maintained Measure Major parameters ranges for Commercial: API & Sulphur measured quarterly.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 104 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
2.1
3
The entity complied with all the licensing requirements and regularly reported to EXCO monthly and BARC and Board quarterly.
2.1
3
Legal Register highlighting compliance with all statutory and regulatory requirements submitted to EXCO monthly and to BARC and Board quarterly
7. Compliance with all licensing and statutory. Respective managers to report monthly to EXCO and quarterly 1= 80% licences to BAC and Board. obtained & statutory Compliance with all licensing. requirements, 2= 90% licences obtained & statutory requirements, 3 = All licences obtained and statutory requirements 8. Compliance with all statutory and regulatory compliance Manage, update and report on legal and statutory issues of entity. Submit legal register quarterly to BOARD, monthly to EXCO.
1=Not reported, 2=Partially reported, 3=Fully managed, updated and submitted, 4=Reduction of statutory issues and final resolution
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 105 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
Creation of a risk matrix and mitigation thereof by 30 September 2013.
1= November 2013, 2= 30 October 2013, 3= 30 September 2013, 4= 30 August 2013
2.1
4
The risk matrix and mitigation register were created by end August 2013.
Adopt & implement international SHEQ Standards such as ISO 14001, ISO 9001,OSHAS 18001 by 31 August 2013.
1= 30 September, 2= 30 August, 3= 30 July 2013, 4= 31 May 2013
2.1
3
The entity adopted and implemented by June 2013.
Creation of security responsive plan.
1= August 2013, 2= July 2013, 3= June 2013, 4= May 2013 and testing Plans by 30 June 2013
2.1
4
Saldanha has Security Response and Business continuity plan. The last security exercise was performed on 27 June 2013.
Creation of security responsive plan.
1= August 2013, 2= July 2013, 3= June 2013, 4= May 2013 and testing Plans by 30 June 2013
2.1
4
Milnerton has a Security Response Plan as well as a Business Continuity Plan by May 2013.
9. Risk Assessments & Mitigation plans
10. Management systems
11. Saldanha: NKP & ISPS security responsive plan
12. Milnerton
14 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 106 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
A NEMA compliant incident reporting system is established by 31 August 2013.
1 =No system, 2.1 2 =Incomplete system, 3 = Reporting system in place, 4= System in place before August 2013
4
SFF implemented an Electronic system (INX System) and it also caters for reporting NEMA related incidents through the Section 30 reporting systems to Government. The system was installed by end of August 2013.
Test and establish funding models where appropriate, in the development phase and post transition by 30 September 2013.
1= November 2013, 2= October 2013, 3= September 2013, 4= August 2013
7
4
Submitted to DoE by the end of August 2013. In addition was submitted to Treasury in November 2013. Awaiting approval from Treasury.
1= January 2014, 2= December 2013, 3= November 2013, 4= October 2013
7
4
Benchmarking exercise undertaken and infrastructure suitability identified by June 2013. Awaiting Ministry’s decision on Stocks Policy.
13. Establish an Incident Reporting System
14. Establish Funding Options for entity
15. Asset Development and implementation of best practice to strengthen entity systems and assets Submit Proposal to Build , Maintain and develop infrastructure to meet entity and Ministerial directive by 30 November 2013.
15 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 107 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
1= September 2013, 2= August 2013, 3= July 2013, 4= May 2013
7
4
The Business Development Plan was submitted on 28 May 2013.
Perform Skills Audit of the entity, identify critical skills and devise retention strategy by 31 March 2014.
1= May 2014, 2= April 2014, 3= March 2014, 4= February 2014
2.5
3
The skills audit was performed and a retention strategy developed by 31 March 2014.
Succession plan has been developed and is in place by 31 March 2014.
1= May 2014, 2= April 2014, 3= March 2014, 4= February 2014
2.5
3
The succession plan strategy was developed as part of the retention skills strategy by 31 March 2014.
Cultural Alignment Survey to check understanding of employee in relation to business on a bi-annual basis.
1= Not done, 2= Once a year, 3= Bi-annually, 4= Quarterly
2.5
3
Surveys were conducted twice in the financial year to check employees' understanding of SFF business.
16. Commercialisation of entity assets and market development Submit business development plans for entity assets and market research to the CEF Board by 31 July 2013.
17. Identify what competencies are needed by the entity and what plans are needed to close the gaps
18. Provide for a leadership pipeline
19. Internalize a shared vision, aligned with strategy
16 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 108 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
1= January 2014, 2= December 2013, 3= November 2013, 4= October 2013
2.5
2
The cross departmental skills sharing plan was developed by December 2013.
1= Not done, 2= Bi-annually, 3= Quarterly, 4= 1 month prior to quarter end
3
3
Individual Performance reviews were conducted and submitted to HR CEF quarterly.
1= 31 October 2013, 2= 30 September, 3= 30 August 2013, 4= 30 July 2013
3
4
The Projects Procedure was approved by EXCO in July and submitted to BARC for noting.
1= 31 October 2013, 2= 30 September, 3= 30 August 2013, 4= 30 July 2013.
3
4
The risks were evaluated and the appropriate policies and procedures were adopted and implemented by end July 2013.
20. Sharing of knowledge & experience needed to achieve strategic objectives Cross departmental skill sharing plan to be implemented by 30 November 2013.
21. Monitoring Performance and achievement against set objectives Quarterly report on company and individual performance signed off and submitted to CEF by the calendar deadlines.
22. Monitoring Projects against Robust and relevant project management and governance processes. Project plan/processes need to be established within the existing business practices of the organisation by 31 August 2013.
23. Understanding risks to the organisation and ensuring actions are taken and plans in place Implement the following by 31 August 2013: •SFF policies & procedures for oversight and management of business risks. •Implement risk management and internal control systems.
17 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 109 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
24. Set governance and compliance frameworks that will be aligned with applicable regulations and local and international best practice Quarterly Reporting to BAC and Board basis the analysis of the information received during ongoing benchmarking and advising on the direction that SFF should proactively take to respond to market trends.
1= Not done, 3 2= Bi-annually, 3= Quarterly, 4 = 1 month prior to quarter end
3
Management reported to BARC and Board quarterly on benchmarking exercises undertaken.
3
4
Training provided to staff and reported to HR CEF regularly. CEO held quarterly briefing sessions with staff to give update on developments in the company and industry in general.
10
3
Governance structures were reviewed accordingly by end March 2014. Implementation is underway.
25. Internalise a culture of governance, ethics and compliance across the group through on-going training and development Quarterly training and CEO Presentation to employees on performance and compliance.
1= Not done, 2= Bi-annually, 3= Quarterly, 4= 1 month prior to quarter end
26. Improving Business standards through the creation of a framework for developing, promoting and spreading best practice Review existing Business systems to ensure they support / enable SFF business operations by 31 March 2014.
1= 31 May 2014, 2= 30 April 2014, 3= 30 March 2014, 4= 28 Feb 2014
18 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 110 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target
Scoring
Weight Achieved
Comments
1= no meeting held, 2 = meeting held week after end of quarter, 3= meeting held quarterly, 4 = meeting heldmonthly
3.3
4
A SFF representative participated in DoE monthly engagements on strategic stocks and related legislation.
1= Month after 3rd quarter, 2= submitted week after end 3rd Quarter, 3= Survey conducted by end 3rd quarter, 4= Survey by quarter 2
3.3
4
Customer satisfaction surveys were conducted by September 2013.
3.3
4
SFF continuously engaged with stakeholders. CEO also participates in the CEF CEO's Forum meetings held quarterly. SFF also signed an MOU in September 2013.
27. Advisory role to help shape regulation and entities future plans and priorities. Engagement with DoE on a pragmatic plan for strategic stocks and related legislation.
28. Maintenance of relationships to ensure SFF meets its mandate and obligations Customer / stakeholder survey conducted during 3rd quarter by Management. Ratings from storage clients & service providers.
29. Partner with or convene a network of stakeholders meeting to develop mutually agreed solutions and a joint plan of action Two-way or multiway: Learning, negotiation and decisionmaking on both sides. Stakeholders work together to take action, sign MOU by 31 October 2013.
Total
1= December 2013, 2 = November 2013, 3 = October 2013, 4 = September 2013
3
3.6
19 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 111 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Report of the board audit and risk management committees We are pleased to present our report for the financial year ended 31 March 2014. 1.
Charter The roles and responsibilities for the Audit Committee and Risk Committee are split to improve and focus attention on risk management activities separately. The members of the two Committees are the same members and the Committee meetings happened on the same dates. The audit committee is guided by a detailed charter that is reviewed and approved by the board on an annual basis. The audit committee has regulated its affairs in compliance with this charter and has discharged all its responsibilities as contained therein.
2.
Purpose The Committee’s purpose and responsibilities arising from the Public Finance Management Act of 1999; Section 76 (4)(d) and Treasury Regulations 27.1. In performing its responsibilities the Committee has reviewed the following:
3.
the effectiveness of the internal control systems; the effectiveness of the internal audit function; the risk areas of operations to be covered in the scope of the internal and external audits; the adequacy, reliability and accuracy of financial information provided to management and other users of such information; the accounting and auditing concerns identified as a result of the internal or external audits; compliance with applicable legal and regulatory provisions; the activities of the internal audit function, including its annual work program, coordination with the external auditors, the reports of significant investigations and the responses of management to specific recommendations; and the independence and objectivity of the external auditors.
Membership The audit committee and risk committee members were appointed by the board of directors and comprise of at least three non-executive members. The committee consists of the members listed hereunder and should meet at least twice per annum as per its approved Charter. During the financial year 8 meetings were held. Name of members
Number of meetings attended
Ms R Van Wyk (Chairperson) Mr K Vilakazi Mr L Mulaudzi 4.
8 8 2
External audit The audit committee, in consultation with executive management, agreed to the engagement letter, terms, nature and scope of the external audit plan as presented by the Auditor-General South Africa (AGSA). We have reviewed the AGSA Strategic Audit Plan for the 2014 financial year and have recommended approval of their budget to the board of directors. The audit committee has satisfied itself that the AGSA exercised their duties in an independent and objective manner.
20 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 112 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Report of the board audit and risk management committees 5.
Internal Audit The audit committee considered and recommended the internal audit charter for approval to the board and approved the annual work plan for the internal audit function. The internal audit function is responsible for reviewing and providing assurance on the adequacy of the internal control environment across operations. The Chief Audit Executive is responsible for reporting the findings of the internal audit work against the agreed audit plan to the committee on a quarterly basis. The Acting Chief Audit Executive has direct access to the committee, primarily through its Chairperson. The audit committee is also responsible for the assessment of the performance of the internal audit function. In 2013, an external effectiveness review was performed by the Institute of Internal Auditors (IIA), reporting positive results and rating the internal audit function as “generally conformance” with the IIA Standards. The internal audit function is independent and had the necessary resources, budget, standing and authority within the organisation to enable it to discharge its functions. The Acting Chief Audit Executive reports functionally to the committee. The Chief Audit Executive position remains vacant, and the Acting Chief Audit Executive currently assumes this responsibility. The staff shortage in the internal audit function is complemented by contract employees, and there is also provision for the appointment of an outsourced service provider. We are satisfied that the internal audit function is operating effectively and that it has addressed the risks pertinent to the company in its audits.
21 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 113 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Report of the board audit and risk management committees 6.
Internal control effectiveness The Committee is satisfied that a system of internal controls has been put in place. The Committee considers the system of internal controls appropriate in all material respects to:
reduce risks to an acceptable level; meet the business objectives; ensure assets are adequately safeguarded; and ensure that transactions undertaken are recorded in the accounting records.
Internal Audit and the AGSA provide the Committee with assurance that internal controls are appropriate and effective. This is achieved by means of the risk management process, as well as the identification of corrective actions and suggested enhancements to the controls and processes The system of internal control was not entirely effective during the year under review. A number of cases of noncompliance with the PFMA and prescribed policies and procedures were identified during the year-end audit. The Audit Committee is concerned that some of these findings by the AGSA have been repeated from the previous years. The Audit Committee will continue to monitor management's implementation of corrective actions taken in response to the findings raised by the AGSA as well as by Internal Audit. 7.
Corporate governance We are of the opinion that the company continues to strive towards complying with sound principles of corporate governance. Management has confirmed that the content and quality of monthly and quarterly reports prepared and issued by the Chief Executive Officer during the year under review were properly formulated and have complied with the PFMA in this regard. The Committee is satisfied with the content and quality of the quarterly reports prepared by the Company and presented to the Committee. The Committee is in the process of reviewing its corporate governance practices with a view to complying with the requirements of the Companies Act, No.71 of 2008 and King III recommendations.
8.
Risk management The Board assigned the oversight of the risk management function to the risk committee. The company implemented a risk management strategy which includes the fraud prevention plan. The risk committee monitored the significant risks faced by the company through reviewing risk reporting and participation in the risk assessment workshop. We are satisfied that significant risks were managed to an acceptable level.
9.
Annual Financial Statements We have:
Reviewed and discussed with management the audited annual financial statements; Reviewed and discussed with management the audited performance information Reviewed the Auditor-General of South Africa management letter and management’s response thereto;
The Committee concurs and accepts the AGSA's conclusions on the annual financial statements, and is of the opinion that the audited financial statements be accepted and read together with the report of the AGSA. 10. Appreciation The Committee expresses its sincere appreciation to the Chief Executive Officer, Management, Internal Audit and the AGSA
Ms R Van Wyk Chairperson 22 July 2014 22 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 114 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors submit their report for the year ended 31 March 2014. 1.
Nature of business and Incorporation The SFF Association NPC is the strategic oil reserve agency of the Republic. It derives its mandate from the National Energy Act 34 of 2008 that states in s17(1) that the Minister may, in a prescribed manner, for the purposes of ensuring security of supply direct any state-owned entity to acquire, maintain, monitor and manage national strategic energy feedstocks and carriers. The shares of SFF are non-transferable and are held by the holding company CEF SOC Ltd, which in turn is wholly owned by the State (section 1 D of the Central Energy Fund Act 38 of 1977). The SFF’s Board of Directors act as the accounting authority in terms of the Public Finance Management Act 1 of 1999. SFF’s registered head office is in Johannesburg with main operations in Saldanha and Milnerton in the Western Cape as well as in Ogies in the Mpumalanga province of South Africa. The Saldanha and Milnerton operations provide crude oil storage facilities and have an installed storage capacity of 45 million and 7.5 million barrels respectively, of which 10.3 million barrels is used for storing the national strategic crude oil reserves. The Ogies facility comprises a number of worked out coalmines that were converted into storage facilities for strategic crude oil stocks. Although these storage facilities have now been emptied, the current operations manage the environmental risk that would materialise should the residual crude oil still present in these storage facilities seep out and pollute the underground aquifers. The SFF Association NPC operates not for gain but solely in the communal interests of the Republic of South Africa. In order to finance the operational cost of managing the terminal where Government’s crude oil is stored, SFF leases on commercial basis and mainly to international customers the tanks that are not currently used for storing strategic crude oil stock. Tariffs levied are influenced by the international markets and are in US dollars. In addition to income generated from tank leasing commercial activities, SFF earns Rand based interest income from cash invested in highly liquid money market instruments. The Saldanha crude oil terminal is currently the only site that contributes to the operating income of SFF from tank rentals to crude oil traders. It also has a direct pipeline to the Chevron refinery and a tank dedicated to this refinery thereby assisting in providing the security of petroleum products supply to the eastern and western Cape markets. The Milnerton crude oil terminal is under care and maintenance because of its limited commercial use that emanates from its access pipelines configuration.
2.
Directors The Directors of the entity during the year and to the date of this report are as follows: Name
Appointed
Amb B Gila Ms R van Wyk
01 January 2013 14 December 2012
Executive Independent, NonExecutive Mr E Cloete Independent, Nonexecutive Dr S Mthembi-Mahanyele Independent, NonExecutive Mr T Maqubela Non-Executive Mr L Mulaudzi Non-Executive
Resigned/Term expired
21 August 2013 01 February 2012 01 June 2010 01 September 2012
20 August 2013
23 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 115 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
2013/05/08
2013/09/26
2014/01/15
2014/01/24
2014/02/18
Amb B Gila Ms R van Wyk Mr E Cloete Dr S Mthembi-Mahanyele Mr T Maqubela Mr L Mulaudzi
2013/04/08
Directors' Report
Y Y N/A Y Y N
Y Y N/A Y A N
N Y Y Y N/A N
Y Y Y Y N/A Y
Y Y Y Y N/A N
Y Y N Y N/A N
Y =
Attended meeting
A =
Apology received
N/A =
Not a member at date of meeting
N=
Did not attend
Audit and Risk Committee Name Mr L Mulaudzi Ms R van Wyk (Chairperson) Mr K Vilakazi
Appointed 01 September 2012 01 March 2011 01 March 2011
Resigned
Y
=
Attended meeting
A
=
Apology received
2013/05/07
2013/05/21
2013/07/19
2013/08/28
2013/11/21
2014/01/22
2014/02/12
Mr L Mulaudzi Ms R van Wyk Mr K Vilakazi
2013/04/08
Attendance at meetings:
A Y Y
A Y Y
A Y Y
A Y Y
A Y Y
Y Y Y
A Y Y
Y Y Y
This Committee meets on a minimum of four occasions per annum. The Chief Audit Executive, the external auditors, internal audit and such members of management as are deemed necessary also attend these meetings.The Audit and Risk Committee is responsible for the internal controls and risk management of the entity delegated to it by the board of directors. In order to meet its requirements it reviews the findings of both internal and external auditors. In addition it reviews important accounting issues, material pending litigation if applicable, company insurance, risk management and disclosure requirements in the annual financial statements. The responsibilities of this Sub-Committee of the Board of Directors are set out in the report of the Audit and Risk Committee which forms part of these annual financial statements.
24 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 116 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report 3.
Company Secretary The secretary of the company is CEF SOC Limited and the business and postal addresses are as follows: Business address Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199 Postal address P O Box 786141 Sandton 2146
4.
Performance in terms of the shareholder compact The South African government, represented by CEF SOC Limited, which is a subsidiary under the control of the Minister of Energy, is SFF Association NPC's shareholder. Each year, in consultation with the shareholder, SFF agrees on its performance objectives, measures and indicators, as well as its annual targets, in line with the Public Finance Management Act of South Africa, 1 of 1999, as amended. Annual targets are annexed to a list of principles agreed to by SFF and its shareholder (the shareholder compact) and regular reports are provided. The table on pages 11 to 19 sets out SFF Association NPC's performance in terms of the key performance indicators (KPI's) in the shareholder compact.
5.
Internal control An effective internal control framework is the responsibility of the board. The audit and risk committee reviews the effectiveness of the system and process of risk management including the following specific risks: - financial reporting - internal financial controls - fraud risks relating to financial reporting - information technology risks relating to financial reporting For more information refer to the report of the audit and risk committee.
6.
Dividends declared As the company is a non-profit company, no dividends are paid. No dividend was declared during the current and prior year, and none is proposed, after taking into account the resource impact of the capital expansion programme, and the current capital structure.
7.
Share capital and shareholder The entity's holding company is CEF SOC Limited. The Government of the Republic of South Africa is the sole shareholder of SFF Association NPC. SFF Association NPC currently has 1 000 ordinary shares of R1 each issued.
25 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 117 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report 8.
Subsidiaries The SFF group comprises the following companies; Klippoortje Koolmyne SOC Limited, and Mahne's Areas SOC Limited Group annual financial statements have not been prepared as SFF Association NPC is a wholly-owned subsidiary of CEF SOC Limited. CEF SOC Limited prepares Group Annual Financial Statements which are available to the public. The investment of SFF Association NPC in subsidiaries is disclosed in note 13 of the annual financial statements.
9.
Going concern The entity's assets exceeded its liabilities, fairly valued, and the annual financial statements have been prepared on a going concern basis.
10. Review of activities The overall world economy continued to recover during the year under review. In the developed world, what had started as an uneven and patchy recovery began to strengthen and risk aversion in the capital markets improved overall. In the emerging markets, these economies continued on their prior year growth expansion although at a slower pace year-onyear thereby slightly curbing aggregate demand of input goods and services. The South African economy recorded erratic quarter-to-quarter growth in 2013, with the overall pace of expansion in real output for the year as a whole registering a disappointing 1.9 per cent. The local currency depreciated significantly against major traded currencies during the period under review prompting the SA Reserve Bank Monetary Policy Committee (MPC) at its January 2014 meeting to increase the repurchase rate from 5.0 per cent to 5.5 per cent per annum in an effort to manage the risk of inflation rising above the target range and staying there for a protracted period of time. This 0.50 per cent increase in repurchase rate led to a corresponding increase in the money markets interest rates. In the crude oil markets, dated Brent spot prices were range bound for most part of the financial year, varying between the US$100/bbl and US$110/bbl levels. Geopolitically, there was relative stability in the core supplying regions with OPEC countries maintaining a combined daily production rate of 30 million barrels a day and a reserve margin of approximately 4 million barrels a day available to meet short-term increases in demand. On the demand side, the steady recovery in the global economy resulted in minor year-on-year demand growth for crude oil. Overall, the crude oil markets were relatively quiet. The global market for short-term rental of crude oil tanks continued to be under sustained competitive pressure during the period under review as additional capacity was brought on stream, increasing supply in a suppressed demand environment. The term structure of future prices of crude oil in tradable oil markets also remained unsupportive for crude oil storage business. The demand for tankage to store crude oil for periods up to 18 months and the subsequent storage tariffs that SFF can achieve in the competitive market is a function of i) the location of SFF’s crude oil storage terminals in relation to major crude oil flow routes, ii) the availability of alternative storage facilities to oil traders iii) availability of short term credit in the global financial markets iv) crude oil price volatility and v) the prevailing market structure in the oil futures market. The demand for oil storage in Saldanha Bay was very weak during the period under review. The combination of a disadvantageous location of Saldanha in relation to major markets (crude oil routes, supply and demand centres) and the persisting oil futures market backwardation significantly reduced the appetite of oil traders to contract for periods exceeding six months at any one time. Although the 3-month US dollar LIBOR interests rates were at a two-year low, a positive for oil trading, the market volatility as measured using the VIX index was relatively low limiting the possibility of profiting from wild oil market price swings. In addition and mirroring the previous reporting period, the year saw crude oil in floating storage at relatively high levels. Fixed storage facilities do not have the competitive advantage in the short of a floating storage because traders can position a vessel close to where they speculate demand will spike in the short term and thereby profit from a resulting trade.
26 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 118 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report Results of operations The entity's net profit for the period has dropped to R19 million (2013: R154 million). The reduction in profits is due to the market being in backwardation since 2011 putting pressure on storage rates that SFF could charge in the market. Also, the reduced crude oil market volatility has reduced the opportunity to profit from market movements. This has resulted in lower trading activity at the Saldanha terminal impacting both the demand for storage and income from other ancillary services like oil pollution control. The gross revenue for the year ended 31 March 2014 was R97 034 (2013: R227 173). Revenue % Change
2014
Property rentals Tank rentals Nitrogen sales Pollution services
4% (64)% 40 % 142 %
R'000 5 490 76 879 4 891 9 774
2013 Restated R'000 5 267 214 371 3 494 4 041
Gross Revenue
(57)%
97 034
227 173
2012 Restated R'000 5 398 376 583 5 106 387 087
The greater exposure of the business to the storage rentals is hurting the financial performance as the 64% drop in that revenue category translated into 57% drop in the total revenue collected. Profit before taxation % Change Net income before taxation Taxation
2014
(88)% -%
R'000 19 012 -
2013 Restated R'000 154 086 -
(88)%
19 012
154 086
2012 Restated R'000 358 646 40 975 399 621
Along with the slide in revenues the profit margins have also declined as a result of costs increases and a stable finance income generated year on year. 11. Outlook The operating environment will continue to be unpredictable but SFF need to financially secure its future and to develop and implement plans to sustain its operations. The Board of Directors has approved certain interventions aimed at stabilising business operations and improving business profitability. Human capital In order to position SFF for the i) much needed growth, ii) diversification of income stream, and iii) enhance the overall governance and risk management framework, the Board approved the expansion of management human capacity in finance, legal, information systems, risk, SHEQ, and procurement departments. The immediate expectation from the Board is the reduction in non-compliance to internal business processes and the improvement in business support services provided to both the operations and commercial units. The medium term objective is to translate these improvements in business support processes into lower cost of doing business. The improved business support will also enable the commercial unit to offer an improved service oriented market proposition. The standard of commercial contracting is also expected to benefit from the expanded legal team. Projects and funding strategies The Milnerton tank farm has the potential to provide infrastructure for crude movements in and out of the Cape Town harbour provided that the pipeline network to the terminal is reconfigured. The current pipeline configuration limits the Milnerton terminal to only receiving crude from Saldanha and distributing to the Chevron refinery only. The tank farm has no capability to transfer back to Saldanha or to discharge back to Cape Town Harbour. Therefore, the commercial suitability of the terminal is dependent on resolving these technical limitations. The Board of Directors, as a first step, has approved the project to assess the technical integrity of the terminal tanks and to subsequently refurbish the terminal into 27 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 119 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report a world-class facility. The scope of the refurbishment project will be extended to include costing of a pipeline network that will make the terminal independent of 3rd party pipelines. Business profitability SFF’s current business model for leasing tankage is that of contracting for medium term (maximum of 1.5-years) instead of long term (i.e. 5 – 10 years) and its targeted market is the oil trading community (oil traders) instead of primary oil producers or end-users. Under this business model, SFF’s performance is positively correlated to the level of crude oil trading activity. This exposure to crude oil trading activity however is limited to fifty per cent of the SFF’s revenue stream since the balance of the revenue stream is derived from the less volatile money markets. SFF will be reviewing this tank-leasing model and will now be considering long-term contracts with end-users and producing countries as the targeted client base. In addition, the Board of Directors has requested the executive management to develop and implement a business case for the oil pollution control division. The goal is to create a third income stream that is significant and not linked to the activity levels of the Saldanha crude oil terminal. 12. Subsequent events The Directors are not aware of any matters or circumstances arising since the end of the financial year, not otherwise dealt with in the annual financial statements which significantly affect the financial position of the company or the results of the operations. 13. Litigation 13.1 SFF/ Morgan Stanley Morgan Stanley instituted a High Court Action against SFF Association NPC for a damages claim resulting from SFF’s failure to deliver 50 596 barrels of crude oil. The claim for the damages is USD 5 865 240.10 plus interest. SFF is defending the claim and has filed a counter claim against Morgan Stanley (as assignee to Masefield SA by virtue of the fact that Morgan Stanley has taken cession and assignment of the rights and obligations of Masefield under the Storage Agreements concluded between SFF and Masefield) for the recovery of the amount of R45 967 791,69, being cargo dues, due and payable to SFF in respect of the handling and storage of crude oil under the Storage Agreements for Tanks at the Saldanha and Milnerton Storage Terminals. This matter is at the request for further particulars stage and will be heard in court in February 2015. 13.2 Visigro NERSA is defending an action brought by Visigro as result of NERSA having awarded SFF Association NPC a licence to operate Milnerton Tank Farm having undertaken improvements to the tanks at an SABS standard. The impact of this action by Visgro on SFF would be for SFF to adhere to a different standard of refurbishment. 13.3 Coppercast Coppercast concluded an agreement with SFF for the storage of a guaranteed maximum volume of 7, 500,000 barrels of dispatch crude oil against payment to SFF the storage fee in the amount of (0.14 USD). It is common cause that Coppercast acted in breach of the agreement in that it never effected payment of the amount due in terms of the agreement. SFF legal representatives have advised that they obtained an order of court to proceed against Coppercast. 14. Conclusion The annual financial statements set out on pages 23 to 66, which have been prepared on the going concern basis, was approved by the Board of Directors on 22 July 2014 and signed on its behalf by:
Dr S Mthembi-Mahanyele (Chairperson)
Amb B Gila (Executive Director)
Sandton 22 July 2014 28 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 120 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Materiality and Significance Framework For purposes of materiality (as per PFMA sections 50(1) and 55 (2)) and significance (as per PFMA sections 54(2)) framework the following acceptable levels were agreed with the Executive Authority in consultation with the Auditor General:
Section 50(1) - Material facts to be disclosed to the Minister of Energy are considered to be facts that may influence the decisions or actions of the Stakeholders of the Public Entity or the Group of companies.
Section 55(2) - Disclosure of material losses in the annual financial statements will be for all losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the year.
Section 54(2) - The criteria to determine the level of significance was based upon the guiding principles as set out in the "Practice Note on applications under Section 54 of the PFMA no.1 of 1999 (as amended) by Public Entities" as published by National Treasury during 2006 subject to adjustments for any Section 54(4) exemptions.
The significant Rand level was determined as being 2% of Total Assets as follows: APPROVAL LEVELS IN TERMS OF SECTION 54 Public Entity's board approval levels
< R102 million
Approval level of the CEF Board in terms of subsidiary companies
> R102 million and < R877 million
Obtain DoE approval and inform National Treasury via the top-most holding company
> R877 million
29 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 121 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 2014
2013
2012
Restated
Restated
77 896 154 3 125 150
86 974 243 3 126 074
61 052 561 3 101 842
3 203 200
3 213 291
3 163 455
2 515 103 477 10 945 1 822 518
2 773 103 591 9 543 1 805 056
2 476 486 335 5 887 2 685 473
1 939 455
1 920 963
3 180 171
5 142 655
5 134 254
6 343 626
1 (5 031) 4 685 000
1 (5 255) 4 665 988
1 (5 033) 4 511 902
4 679 970
4 660 734
4 506 870
4 29 822 300 981
4 29 570 299 651
4 28 893 280 673
330 807
329 225
309 570
29 087 102 791
61 027 83 268
1 465 602 61 584
131 878
144 295
1 527 186
462 685
473 520
1 836 756
5 142 655
5 134 254
6 343 626
Note(s) Figures in Rand thousand Assets Non-Current Assets Property, plant and equipment Intangible assets Strategic inventory
2 3 5
Current Assets Inventories Trade and other receivables Prepayments Cash and cash equivalents
6 7 8
Total Assets Equity and Liabilities Equity Share capital Reserves Retained income
9
Liabilities Non-Current Liabilities Loans from group companies Retirement benefit obligation Provisions
4 12 10
Current Liabilities Trade and other payables Provisions
11 10
Total Liabilities Total Equity and Liabilities
30 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 122 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Comprehensive Income For the year ended 31 March 2014 2014
2013
Note(s) Restated Revenue Other income Operating expenses
14 15
97 034 6 369 (165 411)
227 173 1 034 (146 184)
16 17
(62 008) 99 336 (18 316)
82 023 99 460 (27 397)
Surplus before taxation Taxation
19 012 -
154 086 -
Surplus for the year
19 012
154 086
Operating (deficit) surplus Finance income Finance expense
Other comprehensive income: Actuarial gains or losses
224
Total comprehensive income
19 236
31 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 123 of 446
(222) 153 864
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the year ended 31 March 2014 Share capital
Actuarial gains/losses
Retained income
Total equity
Opening balance as previously reported Prior period error Change in accounting policy Total comprehensive income for the period
1 -
(5 033) -
4 512 302 (402) -
4 507 270 (402) -
Balance at 01 April 2012 (restated) Total comprehensive income for the period Prior period error
1 -
(5 033) (222) -
4 511 902 154 178 (92)
4 506 870 153 956 (92)
Total changes
-
(222)
154 086
153 864
Balance at 01 April 2013 Total comprehensive income for the year
1 -
(5 255) 224
4 665 988 19 012
4 660 734 19 236
Total changes
-
19 012
19 236
Balance at 31 March 2014
1
4 685 000
4 679 970
Note(s)
224 (5 031)
9
32 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 124 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Cash Flows For the year ended 31 March 2014 2014
2013
Note(s) Restated Cash flows from operating activities 19
Cash generated / (utilised) by operations Finance income Dividends received Finance expense Tax refunded Net cash from operating activities
(62 870) 99 035 301 (18 316) -
(918 992) 99 460 (27 397) -
18 150
(846 929)
Cash flows from investing activities 2 2
Purchase of property, plant and equipment Sale of property, plant and equipment Net cash from investing activities Cash and cash equivalents movement for the year Cash and cash equivalents at the beginning of the year
8
Cash and cash equivalents at end of the year
(716) 28
(33 500) 12
(688)
(33 488)
17 462 1 805 056
(880 417) 2 685 473
1 822 518
1 805 056
33 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 125 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies of the company which are, in all material respects, consistent with those of the previous year, except as otherwise indicated:
1.1 Basis of preparation The Annual Financial Statements are prepared under the historical cost basis. The Annual Financial Statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. Although SA GAAP was withdrawn in December 2012, the company is presenting its financial statements for 2014 on SA GAAP in accordance with Accounting Standards Board Directive 5, which allows schedule 2 entities to continue to apply SA GAAP. These Annual Financial Statements are presented in South African Rands, being the functional currency of the company. Rounding is to the nearest Rand in thousands. The financial statements are prepared on the going concern basis. The financial statements provide comparative information in respect of previous period. 1.2 Translation of foreign currencies Transactions Foreign currency transactions are recognised, initially in Rand by applying the foreign currency amount to the exchange rate between the Rand and the foreign currency at the date of the transaction, and is restated at each reporting date by using the ruling exchange rate at that date. Statement of Financial Position At each reporting date: foreign currency monetary items are measured using the closing rate; non-monetary items, which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction, and non-monetary items which are carried at fair value denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. Exchange differences Exchange differences arising from re-measurement of monetary items on settlement or on reporting the company’s monetary items at rates different from those at which they were initially recognised during the period, or reported in previous Annual Financial Statements , are recognised in profit or loss in the period in which they arise. Exchange differences are capitalised where they relate to the purchase or construction of property, plant and equipment. 1.3 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.4 Property, plant and equipment Property, plant and equipment represent tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period. Carrying amounts All property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost Cost includes all costs directly attributable to bringing the assets to the working condition for their intended use the initial estimate of restoration costs and, for qualifying assets, borrowing costs. Improvements are capitalised. Maintenance, repairs and renewals which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. 34 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 126 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.4 Property, plant and equipment (continued) Finance costs directly associated with the construction or acquisition of major assets are capitalised at interest rates relating to loans specifically raised for that purpose, or at the average borrowing rate where the general pool of borrowings is utilised. Major maintenance, inspection and repairs Expenditure on major maintenance refits, inspections or repairs comprises the cost of replacement assets or parts of assets, inspection costs and overhaul costs. Where an asset or part of an asset, that was separately depreciated and is now written off, is replaced and it is probable that future economic benefits associated with the item will flow to the group, the expenditure is capitalised. Where part of the asset replaced was not separately considered as a component and therefore not depreciated separately, the replacement value is used to estimate the carrying amount of the replaced asset(s) which is immediately written off. Inspection costs associated with major maintenance programmes are capitalised and amortised over the period to the next inspection. Derecognition The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount. The gain or losses arising from derecognition of an item of property, plant and equipment is included in profit or loss. Gains on disposal will not be classified as revenue. Depreciation Depreciation is charged so as to write off the depreciable amount of the assets, other than land, over their estimated useful lives to estimated residual values, using the straight line method to write off the cost of each asset that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated useful lives. The useful lives of the assets are reviewed annually. The following methods and rates are used during the year to depreciate property, plant and equipment to estimated residual values: Item Buildings and tank farms Plant and equipment Furniture, fittings and communication equipment Motor vehicles Office equipment Computer equipment Fire fighting, security and operating equipment
Average useful life 5 - 65 years 3 - 35 years 3 - 15 years 4 - 15 years 6 - 10 years 2 - 10 years 5 - 25 years
Improvements to leased premises are capitalised and written off over the period of the lease. The methods of depreciation, useful lives and residual values are reviewed annually and adjusted prospectively if necessary. Any impairment identified is charged to the Statement of Comprehensive Income as additional depreciation. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the Statement of Comprehensive Income, net of any depreciation that would have been charged since the impairment.
35 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 127 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.5 Intangible assets An intangible asset is an identifiable non-monetary asset without physical substance. Intangible assets are initially recognised at cost if acquired separately or internally generated or at fair value if acquired as part of a business combination. Following initial recognition, intangible assets are carried at cost less accumulated amortisation and accumulated impairment, if any. If assessed as having an indefinite useful life, the intangible asset is not amortised but tested for impairment annually and impaired if necessary. If assessed as having a finite useful life, it is amortised over its useful life using a straight line basis and tested for impairment if there is an indication that it may be impaired. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the intangible assets are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates Research expenditure relating to new technical knowledge and understanding is recognised in profit or loss when incurred. Development costs are capitalised only if they result in an asset that can be identified, it is probable that the asset will generate future economic benefits and the development cost can be reliably measured. Otherwise it is recognised in profit or loss. Purchased software and the direct costs associated with the customization and installation thereof are capitalised.
Computer software 1.6 Leases
aft
Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss and other comprehensive income when the asset is derecognised. 2 years
dr
Where the company enters into a service agreement as a supplier or a customer that depends on the use of a specific asset, and conveys the right to control the use of the specific asset, the determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the date of inception. The arrangement is assessed to determine whether fulfilment is dependent on the use of a specific asset (or assets) and the arrangement conveys a right to use the asset (or assets), even if that right is not explicitly specified in an arrangement Finance leases - lessor Operating lease revenue is recognised in profit or loss on a straight-line basis over the lease term. Assets held under a finance lease are recognised as a finance lease receivable at an amount equal to the net investment in the lease. The recognition of finance income is based on a pattern reflecting a constant periodic rate of return on the net investment in the finance lease. Contingent rentals are recognised in profit or loss as they accrue. Leases Finance leases, which transfer substantially all of the risks and benefits incidental to ownership of the lease item to the group, are capitalised at the commencement of the lease at the lower of the fair value of the assets and the present value of the minimum lease payments at the date of the acquisition and depreciated over the lesser of the useful life of the asset or the lease term. The capital element of future obligations under the leases is included as a liability in the statement of financial position. Finance costs represent the difference between the total leasing commitments and the fair value of the assets acquired. Finance costs are charged to the profit and loss over the term of the lease at the interest rates applicable to the lease on the remaining balance of the obligations. Rentals payable under operating leases are recognised in profit or loss on a straight line basis over the term of the relevant lease where significant or another basis if more representative of the time pattern of the user’s benefit. When an operating lease is terminated before the lease period has expired, the unavoidable costs under a contract reflect the least net cost of exiting from the contract, which is the lower of the cost of fulfilling it and any compensation or penalties arising from failure to fulfil it.
36 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 128 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.7 Inventories Inventories are measured at the lower of cost and net realisable value. Strategic inventory Strategic crude oil is measured at the lower of cost and net realisable value. Cost is determined on a weighted average basis and includes purchase cost, transport, handling costs as well as allocated operating overheads. In arriving at the net realisable value account is taken of unpumpable crude oil and the crude oil sludge formed at the bottom of the tanks which cannot be removed if the tanks are used for storage and not trading. The carrying amount of the strategic crude oil is expected to be realised past 12 months after the reporting date, thus it is included in non-current assets and the net realisable value is calculated on a discounted cash flow basis. 1.8 Financial instruments Recognition Financial assets and financial liabilities are recognised in the Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial instruments recognised on the Statement of Financial Position include cash and cash equivalents, trade receivables, investments, trade payables, and borrowings. Inital measurement and recognition Financial assets are initially measured at fair value, plus transaction costs. However transaction costs of financial assets classified as fair value through profit or loss are expensed. Regular way purchases or sales of financial assets area recognised on trade date, i.e. when the company commits to purchase or sell the asset. Subsequent measurement Subsequent measurement will depend on the classification of the financial asset as detailed below. The company has the following catgories of the financial assets as detailed below (a) Loans and receivables (b) Held-to-maturity investments; (c) Available-for-sale investment (d) Financial assets at fair value through profit or loss Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. Loans and receivables are carried at amortised cost using the effective interest rate method, less an allowance of uncollectable amounts. An estimate for impairment is made when objective evidence is available that indicates the collection of any amount outstanding is no longer probable. The amount of the impairment loss is charged to profit or loss. Bad debts are written off when identified Held-to-maturity The company classifies non-derivative financial assets with fixed or determinable payments and fixed maturity dates as held-to-maturity when the company has the positive intention and ability to hold the instrument to maturity. These assets are subsequently measured at amortised cost. Amortised cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest rate method. This calculation includes all fees paid or received between parties to the contract. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are sold or impaired as well as through the amortisation process. 37 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 129 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.8 Financial instruments (continued) Available-for-sale An investment that does not have a quoted market price in an active market and whose fair value cannot be measured reliably using an appropriate valuation model. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised or the investment is determined to be impaired, at which time the cumulative gain or loss is recognised in other operating income, when the cumulative loss is reclassified from the available-for sale reserve to profit or loss. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are classified as held for trade. Financial assets at fair value through profit or loss that are actively traded in financial markets is determined by reference to quoted market prices at the close of business on the reporting date. Where there is no active market, fair value is determined using valuation techniques such as discounted cash flow analysis that maximise the use of relevant observable inputs and minimises the use of unobservable inputs. The net changes in fair value are recognised as finance costs (negative changes in fair value) or investment income (positive net changes in fair value). The company recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the event or change in circumstances that caused the transfer has occurred. Derecognition A financial instrument or a portion of a financial instrument is derecognised and a gain or loss recognised when the group’s contractual rights expire, financial assets are transferred or financial liabilities are extinguished. On derecognition of a financial asset or liability, the difference between the consideration and the carrying amount on the settlement date is included in finance charges and fair value movements for the year. Impairment of financial assets Non-derivative financial assets A financial asset not classified as at fair value through profit or loss, including an interest in an equity-accounted investee, is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the group on terms that the group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. Financial assets measured at amortised cost The company considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. 38 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 130 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.8 Financial instruments (continued) In assessing collective impairment, the company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss in an allowance account against loans and receivables or held-tomaturity investment securities. Interest on the impaired asset continues to be recognised in investment income. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Available-for-sale financial assets The company assesses at each reporting date whether there is objective evidence that an investment is impaired. Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss on a debt instrument that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Financial liabilities The company’s principal financial liabilities are accounts payable. Initial measurement and recognition Financial liabilities are recognised initially on the transaction date at fair value net of transaction costs. Subsequent measurement Subsequent measurement will depend on the classification of the financial liability as detailed below.
Trade and other payables All financial liabilities are measured at amortised cost, comprising original debt less principal payments and amortisation.
Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement for financial position when, and only when, the company has a legal right to offset the amounts and intends to either settle them on a net basis or to realise the asset and settle the liability simultaneously. Fair value considerations The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items
39 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 131 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.8 Financial instruments (continued) Cash and cash equivalents Cash and cash equivalents comprise cash at banks and on hand and short-term investments and deposits which are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. They have maturity period of three months or less. For the purpose of the statements of cash flows, cash and cash equivalents consist of cash and short-term deposits. Share capital Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the asset of an entity after deducting all its liabilities. 1.9 Post-employment benefit costs Defined contribution costs The company operates a defined contribution plan, the assets of which are held in a separate trustee administered fund. The plan is funded by payments from the company, and takes into account of the recommendations of independent qualified actuaries. Contributions to a defined contribution plan in respect of service in a particular period are recognised as an expense in that period. Other post-employment obligations Post-employment health care benefits are provided to certain retirees. The entitlement to post retirement health care benefits is based on the employees remaining in service up to retirement age. The expected costs of these benefits are accrued over the period of employment, using an accounting methodology similar to that for defined benefit pension plans. Valuations of these obligations are carried out annually by independent qualified actuaries. 1.10 Provisions Provisions represent liabilities of uncertain timing or amounts. Provisions are recognised when a present legal or constructive obligation exists, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks for which future cash flow estimates have not been adjusted. Where discounting is used, the increase in the provision due to the passage of time is recognised as finance costs. Provision for the cost of environmental and other remedial work such as reclamation costs, close down and restoration costs is made when such expenditure is probable and the cost can be estimated with a reasonable range of possible outcomes. Restoration costs Cost of property, plant and equipment also includes the estimated costs of dismantling and removing the assets and site rehabilitation costs. Estimated decommissioning and restoration costs are based on current requirements, technology and price levels. Provision is initially recognised all net estimated decommissioning costs as soon as an obligation to rehabilitate the area exists, based on the present value of the future estimated costs. These costs are capitalised by increasing the carrying amount of the related production asset and depreciated over the useful life of the assets to which they relate using the unit of production method based on the same reserve quantities as are used for the calculation of depletion of oil and gas production assets. The amount recognised is the estimated cost of restoration, discounted to its net present value, and is reassessed 40 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 132 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.10 Provisions (continued) each year in accordance with local conditions and requirements. Changes in the estimated timing of restoration or restoration cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. Any reduction in the restoration liability and, therefore, any deduction from the asset to which it relates, may not exceed the carrying amount of that asset. If it does, any excess over the carrying value is taken immediately to profit or loss. The unwinding of the discount on the restoration provision is included as a finance cost. Liabilities for environmental costs are recognised when a clean-up is probable and the associated costs can be reliably estimated. Generally, the timing of recognition of these provisions coincides with the commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. Environmental expenditures and liabilities Environmental expenditures that relate to current revenues are expensed and/or future revenues are capitalised as appropriate. Expenditures that relate to an existing condition caused by past operations and do not contribute to current or future earnings are expensed. The amount recognised is the best estimate of the expenditure required. Where the liability will not be settled for a number of years, the amount recognised is the present value of the estimated future expenditure. 1.11 Revenue recognition Revenue is recognised when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. The measurement is at the fair value received or receivable net of VAT, cash discounts, rebates and settlement discounts. Revenue from the rendering of services is measured using the stage of completion method based on the services performed to date as a percentage of the total services to be performed. Revenue from the rendering of services is recognised when the amount of the revenue, the related costs and the stage of completion can be measured reliably and when it is probable that the debtor will pay for the services. Revenue from the sale of oil, petrol and mining products recognised when the significant risks and rewards of ownership of the goods are transferred, when delivery has been made and title has passed, when the amount of the revenue and the related costs can be reliably measured and when it is probable that the debtor will pay for the goods. 1.12 Income from investments Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognised when the shareholder's right to receive payment has been established. 1.13 Events after reporting date Recognised amounts in the Annual Financial Statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.14 Irregular and fruitless and wasteful expenditure Irregular Expenditure Irregular expenditure means expenditure incurred in contravention of, or that is not in accordance with, a requirement of any applicable legislation, including: • the PFMA, or • Any provisional legislation providing for procurement procedures in that provincial government Irregular expenditure that was incurred and identified during the current financial year and which was not condoned by the National Treasury or the relevant authority is recorded appropriately in the irregular expenditure register. If liability for the irregular expenditure can be attributed to a person, a debt account is created if such a person is liable 41 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 133 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.14 Irregular and fruitless and wasteful expenditure (continued) in law. Immediate steps must thereafter be taken to recover the amount from the person concerned. If recovery is not possible, the accounting authority may write off the amount as a bad debt and disclose such in the relevant note to the financial statements. If the irregular expenditure has not been condoned and no person is liable in law, the expenditure related thereto must remain against the relevant programme/expenditure item, be disclosed as such in the note to the financial statements and updated accordingly in the irregular expenditure register.All irregular expenditure is charged against profit and loss in the period in which it is incurred and disclosed as a note to the Annual Financial Statements of the company and group. Fruitless and wasteful expenditure Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. All fruitless and wasteful expenditure is charged against profit and loss in the period in which it is incurred and disclosed as a note to the Annual Financial Statements of the company and group. 1.15 Key assumptions made by management in applying accounting policies Impairments and impairment reversals Impairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets which include the estimation of cash flows and discount rates used. In estimating the cash flows, management base cash flow projections on reasonable and supportable assumptions that represent managements’ best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. Some of the assumptions are subject to risk and uncertainty. Therefore, there is a possibility that changes in circumstances will impact these projections, which may impact the recoverable amount of assets and/or CGUs. Defined benefit plans (pension benefits) The cost of the defined benefit pension plan and other post-employment medical benefits and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. Contingent liabilities Management considers the existence of possible obligations which may arise from legal action as well as the possible non-compliance of the requirements of completion guarantees and other guarantees provided. The estimation of the amount disclosed is based on the expected possible outflow of economic benefits should there be a present obligation. Evaluation of the useful life of assets On an annual basis, management evaluate the useful life of all assets. In carrying out this exercise, experience of asset’s historical performance and the medium-term business plan are taken into consideration. Critical accounting judgements
Fair value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques 42 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 134 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.15 Key assumptions made by management in applying accounting policies (continued) including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgement is required in establishing fair values. Judgements include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions about these factors could affect the reported fair value of financial instruments. Contingent consideration, resulting from business combinations, is valued at fair value at the acquisition date as part of the business combination. When the contingent consideration meets the definition of a financial liability, it is subsequently re-measured to fair value at each reporting date. The determination of the fair value is based on discounted cash flows. The key assumptions take into consideration the probability of meeting each performance target and the discount factor 1.16 Related parties The services received or rendered from or to related parties arise mainly from service transactions, including management fees for services performed on behalf of the company. The receivables from related parties arise mainly from services transactions and are due on month after the date of the services. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties. The payables to related parties arise mainly from service transactions, including management fees and are due one month after the date of purchase. The payables bear no interest. The loans to or from related parties arise from loan agreements entered into for the year under review. These loans may be subordinated SFF Association 1.17 Adoption of South African Accounting Standards The company has adopted the following amended AC’s as of 1 January 2013: The company has applied, for the first time, standards and certain amendments that require restatement of previous financial statements. These are IAS 19 (AC 116) Employee Benefits (Revised 2011) and amendments to IAS 1(AC 101). Although SA GAAP was withdrawn in December 2012, the company obtained an extension for presenting its financial statements for 2014 on SA GAAP rather than International Financial Reporting Standards ‘IFRS’, thus IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangement, IFRS 12 Disclosures of Interests in Other Entities, IFRS 13 Fair Value Measurements and IFRIC 20 Stripping costs, were not adopted by the group as these standards were not applicable under SA GAAP. The company has adopted the following amended AC’s as of 1 January 2013: IAS 1(AC 101) Presentation of Items of Other Comprehensive Income – Amendments to IAS 1 The amendments to IAS 1 introduce a grouping of items presented in OCI. Items that will be reclassified (‘recycled’) to profit or loss at a future point in time (e.g., fair value changes on Available-For-Sale financial assets) have to be presented separately from items that will not be reclassified (e.g., revaluation of land and buildings). The amendments affect presentation only and have no impact on the group’s financial position or performance. IAS 1(AC 101) Clarification of the requirement for comparative information (Amendment) These amendments clarify the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The amendments clarify that the opening statement of financial position (as at 1 April 2012 in the case of the group), presented as a result of retrospective restatement or reclassification of items in financial statements does not have to be accompanied by comparative information in the related notes. As a result, the company has not included comparative information in respect of the opening statement of financial position as at 1 April 2012.The amendments affect presentation only and have no impact on the company’s financial position or performance.
43 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 135 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies IAS 19 (AC 116) Employee Benefits (Revised 2011) The company applied IAS 19 (Revised 2011) retrospectively in the current period in accordance with the transitional provisions set out in the revised standard. The opening statement of financial position of the earliest comparative period presented (1 April 2012) and the comparative figures have been accordingly restated. IAS 19 (Revised 2011) changes, amongst other things, the accounting for defined benefit plans. Some of the key changes that impacted the group include the following:
All past service costs are recognised at the earlier of when the amendment/curtailment occurs or when the related restructuring or termination costs are recognised. As a result, unvested past service costs can no longer be deferred and recognised over the future vesting period.
The interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net-interest amount under IAS 19 (Revised 2011), which is calculated by applying the discount rate to the net defined benefit liability or asset at the start of each annual reporting period. In view of this change, Rxxx was charged to the group’s profit and loss for year ended 31 March 2013 with a consequential OCI gain.
IAS 19 (Revised 2011),) also requires more extensive disclosures. IAS 19 (Revised 2011), has been applied retrospectively, with following permitted exceptions:
The carrying amounts of other assets have not been adjusted for changes in employee benefit costs that were included before 1 April 2012
Sensitivity disclosures for the defined benefit obligation for comparative period (year ended 31 March 2013) have not been provided
Standards that are not yet effective and the group has not adopted them earlier IFRS 9(AC 146) Financial Instruments IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB is addressing hedge accounting and impairment of financial assets and the 1 January 2015 effective date of IFRS 9 was removed. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the group’s financial assets. The company will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued.
IAS 19(AC 116) Employee Benefits (Amendment) With Defined Benefit Plans: Employee Contributions (Amendments to IAS 19 Employee Benefits) the IASB has amended the requirements in IAS 19 for contributions from employees or third parties that are linked to service:
If the amount of the contributions is independent of the number of years of service, contributions may be recognised as a reduction in the service cost in the period in which the related service is rendered (note: this is an allowed but not required method).
If the amount of the contributions depends on the number of years of service, those contributions must be attributed to periods of service using the same attribution method as used for the gross benefit in accordance with paragraph 70 of IAS 19.
The amendments are intended to provide relief in that entities are allowed to deduct contributions from service cost in the period in which the service is rendered. This was common practice prior to the 2011 amendments to IAS 19. In those cases the impact of retrospective application would be minimal. Standards that are not yet effective and the company has not adopted them earlier (continued) The amendments are to be applied retrospectively. This amendment is effective for annual periods beginning on or after 1 January 2014.
44 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 136 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies IAS 32(AC 125) Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32 These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for nonsimultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after 1 January 2014. The group will assess the impact of this amendment. IAS 36(AC 128) Impairment of Asset – Amendment to IAS 36 The amendments relate to the disclosure in respect of fair value less costs of disposal. The amendments are intended to clarify the IASB’s original intentions when amendments were made to IAS 36 as a result of the issuance of IFRS 13 Fair Value Measurement. The amendments also require additional information about the fair value measurement of impaired assets when the recoverable amount is based on fair value less costs of disposal and the discount rates that have been used when the recoverable amount. The company will assess the impact of this amendment. IAS 39(AC 133) Novation of Derivatives and Continuation of Hedge Accounting – Amendments to IAS 39 These amendments provide relief from discontinuing hedge accounting when novation of a derivative designated as a hedging instrument meets certain criteria. These amendments are effective for annual periods beginning on or after 1 January 2014. The company has not novated its derivatives during the current period. However, these amendments would be considered for future novation. IFRIC Interpretation 21 Levies (IFRIC 21) IFRIC 21 clarifies that an entity recognises a liability for a levy when the activity that triggers payment, as identified by the relevant legislation, occurs. For a levy that is triggered upon reaching a minimum threshold, the interpretation clarifies that no liability should be anticipated before the specified minimum threshold is reached. IFRIC 21 is effective for annual periods beginning on or after 1 January 2014. The company will assess the impact of this IFRIC. Improvements to IFRS (2010-2012 cycle) and (2011-2013 cycle) are effective for annual periods beginning on or after 1 July 2014.
45 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 137 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment 2014 Cost
2013
Accumulated Carrying value depreciation
Cost
2012
Accumulated Carrying value depreciation
Cost
Accumulated Carrying value depreciation
Buildings Plant and machinery Furniture and fixtures Motor vehicles Office equipment Computer equipment Production equipment
1 446 263 864 1 379 5 644 14 1 456 32 517
(735) (202 146) (876) (4 962) (854) (18 851)
711 61 718 503 682 14 602 13 666
1 186 263 865 1 398 5 644 4 1 269 32 279
(580) (195 428) (779) (4 435) (611) (16 838)
606 68 437 619 1 209 4 658 15 441
1 186 230 594 1 381 5 644 1 234 32 115
(445) (190 923) (673) (3 833) (384) (14 844)
741 39 671 708 1 811 850 17 271
Total
306 320
(228 424)
77 896
305 645
(218 671)
86 974
272 154
(211 102)
61 052
Property, plant and equipment - 2014 Opening Balance 606 68 437 619 1 209 4 658 15 441
Buildings Plant and machinery Furniture and fixtures Motor vehicles Office equipment Computer equipment Production equipment
Additions
86 974
46 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 138 of 446
Disposals
Depreciation
Total
260 3 10 192 251
(11) (2) (12)
(155) (6 719) (108) (527) (246) (2 014)
711 61 718 503 682 14 602 13 666
716
(25)
(9 769)
77 896
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment (continued) Property, plant and equipment - 2013 Opening Balance 741 39 671 708 1 811 850 17 271
Buildings Plant and machinery Furniture and fixtures Motor vehicles Office equipment Computer equipment Production equipment
61 052
Additions
Disposals
Depreciation
Total
33 271 24 4 35 166
(4) -
(135) (4 505) (109) (602) (227) (1 996)
606 68 437 619 1 209 4 658 15 441
33 500
(4)
(7 574)
86 974
Property, plant and equipment - 2012 Opening balance Buildings Plant and machinery Furniture and fixtures Motor vehicles Computer equipment Production equipment
Additions
Disposals
Depreciation
Total
33 22 606 618 1 260 539 10 005
422 1 009 599 507 7 016
(18) -
286 16 056 108 (48) (196) 250
741 39 671 708 1 811 850 17 271
35 061
9 553
(18)
16 456
61 052
47 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 139 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 3.
Intangible assets 2014 Cost Computer software
2013
Accumulated Carrying value amortisation 934
(780)
154
Cost
2012
Accumulated Carrying value amortisation 934
(691)
243
Cost
Accumulated Carrying value amortisation 934
(373)
561
Reconciliation of intangible assets - 2014
Computer software
Opening Balance 243
Amortisation
Opening Balance 561
Amortisation
Additions
Amortisation
Total
(89)
154
Reconciliation of intangible assets - 2013
Computer software
Total
(318)
243
Reconciliation of intangible assets - 2012 Opening balance 531
Computer software
48 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 140 of 446
367
(337)
Total 561
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 4.
2014
2013
2012
Loans to (from) group companies Subsidiaries Klippoortje Koolmyne SOC Ltd
(4)
(4)
(4)
African Exploration Mining and Finance Corporation SOC Limited, which was a subsidiary company of Klippoortje Koolmyne SOC Limited was sold to CEF SOC Limited. Klippoortje Koolmyne SOC Limited is dormant and does not have a bank account. Cash received is kept in SFF, and this is the amount owed to Klippoortje Koolmyne SOC Limited. 5.
Strategic inventory Crude oil at cost Provision for unpumpable inventory Previous year stock adjustment Current year stock adjustment White products
2 078 004 (15 134) (10 600) (924) 1 073 804
2 078 004 (15 134) (10 238) (362) 1 073 804
2 078 004 (15 134) (3 972) (6 259) 1 049 203
3 125 150
3 126 074
3 101 842
The total volume of diesel white products on hand as at 31 March 2014, is 155 million litres, valued at R1.325 billion. 10.27 million barrels of crude oil were held at year-end. 6.
Inventories Production supplies
7.
2 515
2 773
2 476
Trade and other receivables Trade receivables Deposits Provision for doubtful debts Employee loans
140 614 47 (37 711) 527
140 709 47 (37 711) 546
523 049 7 (37 711) 990
103 477
103 591
486 335
Provision for doubtful debts The provision for doubtful debts amounting to R37,7 million relates to wharfage expenses due from a customer. SFF continues to seek legal restitution for this amount, as the customer has been unable to adequately compensate the company. 8.
Cash and cash equivalents Cash on hand Bank balances Investments
33 637 1 821 848
42 555 1 804 459
15 346 2 685 112
1 822 518
1 805 056
2 685 473
49 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 141 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 9.
2014
2013
2012
Share capital Authorised 1 000 Ordinary par value shares of R1 each
1
1
1
Issued 1 000 Ordinary par value shares of R1 each
1
1
1
10. Provisions Reconciliation of provisions - 2014 Opening Balance Abandonment/Environmental Rehabilitation provision Litigation provision Bonus Provision
Additions
298 024 1 627 71 524 11 744
7 900 11 408
382 919
19 308
Utilised Reversed during the year (5 608) (1 627) (107) (9 427) (9 534)
Interest
(7 235)
Total
8 565 9 749 -
300 981 89 066 13 725
18 314
403 772
Reconciliation of provisions - 2013 Opening Balance Abandonment/Environmental De-sludging provision Rehabilitation provision Litigation provision Bonus provision
Additions
279 046 460 1 627 54 589 6 535
7 382 8 418 5 584
Utilised during the year (460) (701) (375)
342 257
21 384
(1 536)
Interest
Total
11 596 9 218 -
298 024 1 627 71 524 11 744
20 814
382 919
Reconciliation of provisions - 2012 Opening balance Abandonment/Environment De-sludging provision Rehabilitation provision
305 055 5 248 1 627
Litigation provision Bonus provision
Additions
Utilised Change in during the estimate year (26 009) (4 788) -
24 500 1 020
54 589 10 552
(24 500) (5 037)
337 450
65 141
(34 325)
(26 009)
Total 279 046 460 1 627 54 589 6 535 342 257
2
Non-current liabilities Current liabilities
300 981 102 791
299 651 83 268
280 673 61 584
403 772
382 919
342 257
50 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 142 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
2012
10. Provisions (continued) Abandonment/Environmental The provision relates to the abandonment of Milnerton and Saldanha tanks and environmental rehabilitation at Ogies and is based on the cost report provided by Kantey & Templer Consulting Engineers on 20 May 2011, updated with valuation calculations performed by management. Refer to below for assumptions used in the valuation. The total cost of future restoration costs is estimated at R318 million. This cost includes the net expenditure to abandon and rehabilitate both the onshore and offshore facilities as well as other related closure costs. De-sludge provision This is in respect of the de-sludging of the tanks at the Milnerton terminal. Rehabilitation provision This was in respect of funds held for the rehabilitation of the Klippoortjie dump on behalf of High Carbon Products (Pty) Limited. The fund was held in an attorneys trust account. Contractually these funds could only be released to High Carbon Products (Pty) Limited after the issuing of a closure certificate by DME. The closure certificate was signed by the Chief Director of Mineral Regulation on 21 November 2013 and the funds were released to High Carbon Products (Pty) Limited. Assumptions for abandonment costs Saldanha Terminal The six in-ground tanks in Saldahna will be decommissioned and withdrawn from service but will not be demolished. On withdrawal from service they will be cleaned, decommissioned, and mothballed. Only equipment within the perimeter fence would be mothballed while equipment outside the fence will be removed from site.. The value of any recovered material including steel from tanks, electrical transformers, electrical cabling, etc will not be used to offset the cost of demolition of the various facilities. The cost of removing the various equipment from terminal to the dumping site however is assumed to be offset by the value realised from recovered material. The costs relating to decommissioning equipment belonging to Chevron are excluded from liability calculations. m3 to barrels conversion factor 1m to ft conversion factor Suspended sludge
bbl/m3 6.289 3.28 % 5
Light Crude Oil price (Bonny Light) base year (2011) valuation year Exchange rate - ZAR/USD base year (2011) valuation year
$/bbl $/bbl
120 110 6.8000 9.2070
Light (high API) crude oil required Light crude oil required Light crude oil with suspended sludge
m3 bbl bbl
178,000 1,119,442 1,295,894
Headline CPIbase (June 2011) Headline CPIn (March 2013) CPI Escalation factor
92.4 102.5 1.1093
Services CPIbase (June 2011) - 2008 base year Services CPInew (March 2013) - 2012 base year Services CPI Escalation factor
120.2 103.2
Electricity PPIbase (June 2011) - 2000 base year Electricity PPInew (March 2013) - 2012 base year Electricity PPI Escalation factor
380.4 89.6 51
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 143 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements 10. Provisions (continued) Milnerton Terminal The allowance with respect to earthworks within the tankfarm boundary is to be as follows: a. Earth bund walls are to be demolished and the material spread over the bund floors and compacted. b. No further allowance will be made to return the area to its original ground level i.e. the existing terracing will remain. The following items will be assumed to remain: a. The tankfarm perimeter demarcation fence. b. The main valve feed from the City of Cape Town. The cost of removal of all of the following from the servitude between the Chevron tie-in and the Milnerton facility is to be included: a. Removal of crude oil pipelines including valves up to the Chevron boundary. b. Backfill and compact excavated trenches. c. Reinstatement of servitude and road crossings. d. Within the Chevron boundary, allowance has been made to leave this section of the pipeline in place and cap the ends of the pipeline. The value of any recovered material including steel from tanks, steel piping, transformers and electrical cabling will not be used to offset the cost of demolition of the various facilities. Allowance will be made for potentially recoverable material to be placed in waste skips after demolition. The cost of removal from the tankfarm to a scrap yard will be deemed to be offset by the value of the recovered materials. Professional fees Travelling Costs Cape Town - Saldahna distance
R/hr R/km km
415 3.75 140
It should be noted that this exercise was merely done to determine the cost of abandonment should the tanks no longer be required. SFF has no intention of abandoning the Saldanha or Milnerton terminals. Litigation provision SFF/ Morgan Stanley Morgan Stanley instituted a High Court Action against SFF Association NPC for a damages claim resulting from SFF’s failure to deliver 50 596 barrels of crude oil. The claim for the damages is USD 5 865 240.10 plus interest. SFF is defending the claim and has filed a counter claim against Morgan Stanley (as assignee to Masefield SA by virtue of the fact that Morgan Stanley has taken cession and assignment of the rights and obligations of Masefield under the Storage Agreements concluded between SFF and Masefield) for the recovery of the amount of R45 967 791,69, being cargo dues, due and payable to SFF in respect of the handling and storage of crude oil under the Storage Agreements for Tanks at the Saldanha and Milnerton Storage Terminals. This matter is at the request for further particulars stage and will be heard in court in February 2015. Visigro NERSA is defending an action brought by Visigro as result of NERSA having awarded SFF Association NPC a licence to operate Milnerton Tank Farm having undertaken improvements to the tanks at an SABS standard. The impact of this action by Visgro on SFF would be for SFF to adhere to a different standard of refurbishment. Bonus The provision is for incentives for employees who qualify in terms of their performance during the financial year.
52 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 144 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
2012
11. Trade and other payables Trade payables Sundry payables
11 267 17 820
54 845 6 182
1 463 335 2 267
29 087
61 027
1 465 602
12. Employee benefits
Post-employment medical benefits The company contributes to a medical aid scheme for retired employees. The liability in respect of future contributions to the scheme in respect of retirees is actuarially valued annually, using the projected unit credit method. The plan is unfunded. The last actuarial valuation was carried out on 31 March 2014. The principal assumptions adopted are disclosed below. Valuation interest rate: Medical aid contribution increase rate:
9.01 % 8.46 %
8.26 % 8.13 %
9% 8%
Projected benefit obligation Projected benefit obligation as at the beginning of the year Interest Costs Benefits paid (estimate) Actuarial loss due to assumption changes Actuarial (gain) / loss
29 570 2 364 (1 888) (1 125) 901
28 893 2 212 (1 757) (4 972) 5 194
23 295 2 097 (1 532) 1 498 3 535
Projected Benefit Obligation
29 822
29 570
28 893
1 300 (1 300)
1 300 (1 300)
1 300 (1 300)
13. Investments
Shares in Klippoortjie Koolmyne SOC Limited Balance at the beginning of the year Provision for impairment Balance at the end of the year
-
-
-
All entities were wholly owned and incorporated in South Africa. All holdings were in the ordinary share capital of the undertaking concerned. South African National Energy Research Institute (Proprietary) Limited received grants from the Department of Science and Technology to fund future related costs. Petroleum Agency and CEF (Proprietary) Limited received some monies from foreign donors for future related costs.
53 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 145 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
14. Revenue Major classes of revenue comprise: Nitrogen sales Property rentals Tank rentals Pollution services
4 891 5 490 76 879 9 774
3 494 5 267 214 371 4 041
97 034
227 173
6 013 514
5 822 411
6 527
6 233
3 433 89 9 768 79 933 5 682 13 220 571 1 845 582 6 171 174 325 6 592 340 7 167 19 916 2 155 3 299 1 140 1 263 924 6 078 1 045 159
4 142 319 7 574 72 521 11 509 24 9 382 1 388 457 6 514 142 2 135 7 909 484 3 125 11 899 1 132 3 200 2 000 103 366 2 068 1 331 228 961 27
158 884
139 951
15. Operating expenses Operating profit for the year is stated after accounting for the following: Operating lease charges Contractual amounts Contractual amounts
Loss on exchange differences Amortisation on intangible assets Depreciation on property, plant and equipment Employee costs Management fees paid Operational costs Advertising Directors cost Office and general costs Staff wellfare and refreshments Repairs and maintenance Consumables Capital purchases expensed Security fees Chemicals Sampling and testing Travel Insurance Audit fees Utilities Consulting fees Legal fees Stock loss Desludging and abandonment Surveying cost Feasability fees Training and development Safety awareness
54 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 146 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
16. Finance income Dividend revenue Listed financial assets - Local Interest revenue Money market investments Current account Other interest
301
-
95 005 22 4 008
99 403 57 -
99 035
99 460
99 336
99 460
18 316
27 397
17. Finance expense Unwinding of provisions 18. Operating lease income SFF Association NPC has various lease rental contracts with customers for the rental of premises. These contracts' terms range from three to four years. NOV Oil and Gas Services SA (Pty) Ltd Not later than one year Later than one year and not later than five years
Capetel SA (Pty) Ltd Not later than one year Later than one year and not later than five years
1 185 -
4 642 1 185
1 185
5 827
115 -
168 115
115
283
-
24 4
-
28
-
400 -
-
400
447 -
410 447
447
857
Hydrotek Specialised Cleaning Systems Not later than one year Later than one year and not later than five years
Independent Oil Tools South Africa (Pty) Ltd Not later than one year Later than one year and not later than five years
Petroleum Agency of South Africa (SOC) Ltd Not later than one year Later than one year and not later than five years
55 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 147 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
19. Cash generated/ (utilised) by operations Profit before taxation Adjustments for: Depreciation Profit on sale of assets Dividends received Investment Income Finance expense Movements in retirement benefit assets and liabilities Movements in provisions Actuarial gains/losses Changes in working capital: Inventories Trade and other receivables Trade and other payables
19 012
154 086
9 857 (3) (301) (99 035) 18 316 252 20 853 224
7 893 (8) (99 460) 27 397 677 40 662 (222)
1 182 (1 287) (31 940)
(24 529) 379 090 (1 404 578)
(62 870)
(918 992)
20. Commitments Operating lease commitments Rental of property - within one year - in second to fifth year inclusive - later than five years
4 237 27 638 50 543
6 007 30 037 60 074
82 418
96 118
The company has entered into a rental contract for the investment properties. The agreement commenced on 01 January 2010 and the rent payable shall annually, on the anniversary date, escalate by 9%. Operating lease commitments Service contracts - within one year - in second to fifth year inclusive
3 346 668
-
4 014
-
Provision of independent Quality and Quantity surveying contract entered into, which will commence on 01 June 2014, for a period of 12 months, monthly payments of R42 903. Provision of Marine and adivisory services and related activities contract which will commence on 01 June 2014, for a period of 12 months, monthly payments of R291 720. Operating lease commitments Rental of office space - within one year
65
57
The agreement commenced on 1 April 2009 and the rent payable shall annually, on the anniversary date, escalate by 10% or alternatively, shall escalate in accordance with the CPI, whichever is greater. Either party shall be entitled to terminate this lease on six months written notice to the other party
56 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 148 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements 21. Financial instruments Financial risk management The company’s corporate treasury function performed by CEF SOC Limited, provides financial risk management services to the business, co-ordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the company through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including interest rate risk), credit risk and liquidity risk. The company’s objectives, policies and processes for measuring and managing these risks are detailed below. Compliance with policies and exposure limits is reviewed by the audit and risk management committee annually, with the results being reported to this committee. Fair values The company's financial instruments consist mainly of cash and cash equivalents, trade receivables and trade payables. As at 31 March 2014 no financial asset was carried at an amount in excess of its fair value. Cash and cash equivalents The carrying amounts of cash and cash equivalents approximates fair value due to the relatively short-term maturity of these financial assets. Trade receivables The carrying amounts of trade receivables net of provision for bad debt, approximates fair value due to the relatively short-term maturity of this financial asset. Trade payables The carrying amounts of trade payables approximates fair value due to the relatively short-term maturity of these liabilities. Foreign currency management The entity is exposed to foreign currency fluctuations as it raises funding on the offshore financial markets, imports raw material and spares and furthermore exports finished product and crude oil. All local sales of finished products are sold on a foreign currency denominated basis. The entity takes cover on foreign exchange transactions where there is a future currency exposure. The entity also makes use of a natural hedge situation to manage foreign currency exposure. Currency risk The entity undertakes certain transactions denominated in foreign currencies, hence exposures to exchange rate fluctuations arise. The entity manages this risk by entering into forward foreign exchange contracts. Credit risk Financial assets, which potentially subject the entity to the risk of non-performance by counterparties and thereby subject the entity to concentrations of credit risk, consist primarily of trade receivables. The entity's exposure and the credit ratings of its treasury counter-parties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counter-parties. This covers the risk of significant exposure to any individual customer or counterparty. The company does not expect to incur any losses as a result of nonperformance by these counterparties. Maturity profile The maturity profiles of financial assets and liabilities are as follows: Interest on financial instruments classified as floating rate is repriced at intervals of less than one year. Interest on financial instruments classified as fixed rate is fixed until maturity of the instrument. The other financial instruments of the entity that are not included in the above tables are non-interest bearing and are therefore not subject to interest rate risk. 57 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 149 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 21. Financial instruments (continued) At 31 March 2014 Assets Less than 1 year 1 822 518 103 430
Between 1 and 5 years -
Over 5 years -
Non-interest bearing -
1 822 518 103 430
1 925 948
-
-
-
1 925 948
Liabilities Trade and other payables Shareholder's loan
27 488 -
-
-
4
27 488 4
Total financial liabilities
27 488
-
-
4
27 492
Less than 1 year 1 805 056 103 544
Between 1 and 5 years -
Over 5 years -
Non-interest bearing -
1 805 056 103 544
1 908 600
-
-
-
1 908 600
Less than 1 year 61 027 -
Between 1 and 5 years -
Over 5 years -
Non-interest bearing 4
61 027
-
-
4
Less than 1 year 2 685 473 486 328
Between 1 and 5 years -
Over 5 years -
Non-interest bearing -
2 685 473 486 328
Total financial assets
3 171 801
-
-
-
3 171 801
Liabilities Trade and other payables Shareholder's loan
1 465 602 -
-
-
4
1 465 602 4
Total financial liabilities
1 465 602
-
-
4
1 465 606
Cash and cash equivalents Trade and other receivables Total financial assets
Total
At 31 March 2013 Assets Cash and cash equivalents Trade and other receivables Total financial assets
Liabilities At 31 March 2013 Trade and other payables Shareholder's loan Total financial liabilities
Total
Total 61 027 4 61 031
At 31 March 2012 Assets Cash and cash equivalents Trade and other receivables
58 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 150 of 446
Total
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 21. Financial instruments (continued) Interest sensitivity analysis Interest rate risk Exposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The financing of the company is structured on a combination of floating and fixed interest rates. The following table sets out the carrying amount, by maturity, of the entity's financial instruments that are exposed to interest rate risk and the effective interest rates applicable: At 31 March 2014 Floating rate Bank account balance (0.03%) Term investments (99.97%)
Less than 1 year 670 1 821 848
Between 1 and 5 years -
At 31 March 2013
Less than 1 year
Between 1 and 5 years
Over 5 years
597 1 804 459
-
-
Less than 1 year
Between 1 and 5 years
Over 5 years
361 2 685 112
-
-
Floating Rate Bank account balance (4%) Term Investments (5.489%)
At 31 March 2012 Floating Rate Bank account balance (0.01%) Term Investments (99.99%)
Over 5 years -
Total 670 1 821 848
Total 597 1 804 459
Total 361 2 685 112
Liquidity risk The entity manages liquidity risk through proper management of working capital, capital expenditure and actual vs. forecasted cash flows. Market risk The company's exposure to market risk is limited as contracts exist for customers. Also, there are not many competitors in the industry in which the company operates.
59 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 151 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 22. Financial assets by category The accounting policies for financial instruments have been applied to the line items below: 2014 Cash and receivables
Fair value Fair value through profit through profit or loss - held or loss for trading designated 103 430 1 822 518 -
Trade and other receivables Cash and cash equivalents
1 925 948
-
Held to maturity investments
-
Available for sale
Total
-
-
103 430 1 822 518
-
-
1 925 948
2013 Cash and receivables
Fair value Fair value through profit through profit or loss - held or loss for trading designated 103 544 1 805 056 -
Trade and other receivables Cash and cash equivalents
1 908 600
-
Held to maturity investments
-
Available for sale
Total
-
-
103 544 1 805 056
-
-
1 908 600
2012 Cash and receivables Trade and other receivables Cash and cash equivalents
Fair value Fair value through profit through profit or loss - held or loss for trading designated 486 328 2 685 473 3 171 801
-
Held to maturity investments
-
Available-forsale
Total
-
-
486 328 2 685 473
-
-
3 171 801
23. Financial liabilities by category The accounting policies for financial instruments have been applied to the line items below: 2014 Financial liabilities at amortised cost Shareholders loans Trade and other payables
4 27 488
Fair value through profit or loss - held for trading -
Fair value through profit or loss designated -
27 492
-
-
Financial liabilities at amortised cost 4 61 027
Fair value through profit or loss - held for trading -
Fair value through profit or loss designated -
61 031
-
-
Total
4 27 488 27 492
2013
Shareholders loans Trade and other payables
60 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 152 of 446
Total
4 61 027 61 031
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 23. Financial liabilities by category (continued) 2012 Financial liabilities at amortised cost Shareholders Loans Trade and other payables
4 1 465 602
Fair value through profit or loss - held for trading -
Fair value through profit or loss designated -
Total
4 1 465 602
1 465 606
-
-
1 465 606
24. Directors' emoluments 31 March 2014 Non-Executive Directors
Fee
Bonuses and performance payments
Expense Allowances
Engagemen ts
Total
Dr S Mthembi-Mahanyele
140
-
-
-
140
Ms R van Wyk
113
-
-
-
113
Mr L Mulaudzi *
-
-
-
-
-
Mr E Cloete *
-
-
-
-
-
253
-
-
-
253
Total
*Directors are not remunerated in their personal capacity Board audit and risk management committee
Ms R Van Wyk
Fee
Bonuses and performance payments
Expenses allowances
Engagemen ts
Total
161
-
-
18
179
85
-
-
24
109
Mr L Mulaudzi *
-
-
-
-
-
Dr S Mthembi-Mahanyele **
-
-
-
30
30
246
-
-
72
318
Mr K Vilakazi
Total
*: Mr L Mulaudzi is not remunerated in his personal capacity. **: Dr S Mthembi-Mahanyele is an Ex Officio member.
61 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 153 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 24. Directors' emoluments (continued) Executive Members
Remunera tion
Bonuses and performance payments
Expense allowance
Other
Total
Amb B Gila
1 868
192
119
-
2 179
Mr M Nkutha
1 078
-
27
-
1 105
Mr MN Ndlela
1 410
-
36
-
1 446
Ms N Mkhumane *
323
-
-
-
323
Ms SH Chaba **
791
-
8
-
799
5 470
192
190
-
5 852
Total
*Employed for 2 months **Employed for 6 months 31 March 2013 Non-Executive Directors
Fee
Bonuses and performance payments
Expense allowances
Other
Total
Dr S Mthembi-Mahanyele
79
-
-
6
85
Ms R van Wyk
13
-
-
-
13
-
-
-
-
-
92
-
-
6
98
Mr L Mulaudzi *
Total
*: Mr Mulaudzi is not remunerated in his personal capacity.
62 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 154 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 24. Directors' emoluments (continued) Board audit and risk management committee
Fee
Bonuses and performance payments
Expense allowances
Other
Total
Adv L Makatini
20
-
20
-
40
Ms R van Wyk
77
-
-
52
129
Mr K Vilakazi
60
-
-
24
84
-
-
-
-
-
157
-
20
76
253
Mr L Mulaudzi *
Total
Executive Members
Remunera tion
Bonuses and performance payments
Expense allowance
Other
Total
Amb B Gila *
446
-
8
-
-
Adv L Makatini **
962
-
28
-
-
1 341
428
24
-
-
387
-
8
-
-
3 136
428
68
-
-
Mr MN Ndlela Ms L Thlako ***
Total
* Employed for three months ** Employed for five months *** Employed for four months
63 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 155 of 446
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
25. Related parties `
Relationships Holding company
CEF SOC Limited
Subsidiaries
Klippoortje Koolmyne SOC Limited Mahnes Areas SOC Limited The Petroleum Oil and Gas Corporation of South Africa SOC Limited (PetroSA)
Fellow Subsidiaries
South African Agency for Promotion of Petroleum Exploration and Exploitation SOC Limited (Petroleum Agency SA) Oil Pollution Control South Africa NPC (OPC) South African Gas Development Company SOC Ltd (iGas) Related party balances Loan accounts - Owing (to) by related parties Klippoortje Koolmyne SOC Limited
4
Amounts included in Trade receivable (Trade Payable) regarding related parties CEF SOC Limited CEF SOC Limited PetroSA SOC Limited OPC NPC PetroSA SOC Limited iGas iGas
(1 392) 29 (39) (3 638) 62 (1)
4
(1 681) 45 981 (18 630) (24 602) -
Related party transactions CEF SOC Limited Management fees Rent paid Rent received Services rendered/(received) Sanlam medical aid pensioners
(5 715) (59) 24 5 (26)
(5 880) (54) 45 (3 745) (99)
PetroSA SOC Ltd Rental services Products purchased Training services received
5 908 (3 638) (3)
27 069 116
OPC NPC Services received
-
Petroleum Agency SA SOC Ltd Sales
412
iGas Services received/ rendered Rent received
(1) 62
The above transactions were carried out on commercial terms and conditions. 64 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 156 of 446
(20 870) 362 -
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
26. Prior period errors 2013 Interest had been accrued for on the trust funds invested at Werksmans Attorneys with regards to the rehabilitation of the Klippoortjie dump. These funds were due to High Carbon Products CC, and should not have been accrued for as interest by SFF. The amount of interest recognised for the 2013 financial year, amounted to R91 628. Revenue from storage rentals amounting to R15 479 668, were incorrectly classified as revenue from property rentals. This error had no effect on the profit or loss for the 2013 financial year, but the disclosure in the note to the financial statements, was incorrect. An amount of R369 776 323 was disclosed as a related party transaction with PetroSA in the 2013 financial statements. This transaction has been removed from the related party transactions note in the comparative figures for the 2013 financial year, as the transaction was not a true business transaction. 2012 The accrual of interest on the attorneys trust funds, for 2012 and all periods before that, amounted to R401 765. The correction of the errors results in adjustments as follows: Statement of Financial Position Decrease in Trade and other receivables Decrease in Retained income
Statement of Comprehensive Income Decrease in Finance income
65 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 157 of 446
-
(494) 402
-
(92)
-
92
SFF Association NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
27. Fruitless, wasteful and irregular expenditure Irregular expenditure Opening balance Irregular expenditure relating to current year Less: amounts condoned
52 142 8 556 -
48 015 4 127 -
60 698
52 142
Preferential Procurement Regulations not followed as suppliers were selected based on price only and no B-BBEE considerations were made in awarding the quote: R 8 555 944. Analysis of awaiting condonation per age classification Current Non-current
8 556 52 142
4 127 48 015
60 698
52 142
Fruitless and Wasteful Expenditure 2014 Interest expenditure was charged by suppliers as a result of SFF's failure to settle the invoices within 30 days of receipt of invoices: R6 555. Penalties and interest incurred in September 2011 on late payment of employee related taxes: R285 206. Reconciliation of fruitless and wasteful expenditure Opening balance Fruitless and wasteful expenditure – relating to prior year Fruitless and wasteful expenditure – relating to current year Less: Amounts to be recovered Less: Amounts condoned by the Board
14 285 7 -
8 6 -
Fruitless and wasteful expenditure awaiting condonation
306
14
Current Capital
292 14
6 8
Total
306
14
Analysis of awaiting condonation per economic classification
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Report of the auditor-general to parliament on the South African Agency for Promotion Exploration and Exploitation SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of the South African Agency for Promotion of Petroleum Exploration and Exploitation SOC Limited set out on pages 36 to 60 which comprise, the statement of financial position as at 31 March 2014, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
22
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Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the South African Agency for Promotion of Petroleum Exploration and Exploitation SOC Limited as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with SA Statements of GAAP and the requirements of the PFMA and the Companies Act of South Africa.
Additional matters 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the Directors’ Report, the Board Audit and Risk Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on these reports.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected objectives presented in the annual performance report of the public entity for the year ended 31 March 2014. a) To regulate the upstream petroleum industry to ensure equitable and sustainable development of upstream resources on page 15. b) Contribute to South Africa’s security of energy supply through the evaluation of petroleum resources and the preparation of an inventory to attract upstream investment on pages 16 to 18. c) Ensure accessible and well managed geotechnical petroleum information for South Africa on page 19. 11. I evaluated the reported performance information against the overall criteria of usefulness and reliability.
23
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12. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance was consistent with the planned objectives. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury’s Framework for managing programme performance information (FMPPI). 13. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete.
Usefulness and reliability of reported performance information 14. I did not raise any material findings on the usefulness and reliability of the reported performance information for the selected objectives.
Compliance with legislation 15. I performed procedures to obtain evidence that the South African Agency for Promotion of Petroleum Exploration and Exploitation SOC Limited had complied with applicable legislation regarding financial matters, financial management and other related matters. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
Internal control 16. I considered internal control relevant to my audit of the financial statements, performance against objectives report and compliance with legislation. I did not identify any significant deficiencies in internal control.
Pretoria 29 July 2014
24
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South African Gas Development Company SOC Limited (Registration number 2000/024548/30) Annual report for the year ended 31 March 2014
These Annual Financial Statements were prepared under the supervision of Mr S Mthethwa CA (SA) Group Chief Financial Officer - CEF SOC Ltd Issued 13 May 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 226 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
General Information Country of incorporation and domicile Nature of business and principal activities
South Africa To promote the diversification of energy usage into hydrocarbon gas and enter into ventures which will facilitate the use of hydrocarbon gas in Southern Africa.
Directors Mr M Zwane Mr L Themba (Alternate) Mr R Maake Mr F Gagiano Registered office
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Business address
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Postal address
P O Box 786141 Sandton 2146
Holding company
CEF SOC Limited incorporated in South Africa
Auditors
Auditor-General of South Africa
Company Secretary
CEF SOC Limited
Company registration number
2000/024548/30
Registered short name
iGas
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 227 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Chief Operating Officer's Report
3
Statement of Responsibility
4
Statement on Corporate Governance
5-7
Report of the Independent Auditors
8 - 11
Performance Against Objectives
12 - 13
Statement from Company Secretary
14
Report of the Board Audit Committee and Risk Management Committee
15 - 17
Directors' Report
18 - 20
Materiality and Significance Framework
21
Statement of Financial Position
22
Statement of Comprehensive Income
23
Statement of Changes in Equity
24
Statement of Cash Flows
25
Accounting Policies
26 - 32
Notes to the Annual Financial Statements
32 - 45
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South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Chief Operating Officer's Report Overview The South African Gas Development Company SOC Limited (iGas) continues to fulfil its mandate as provided by the Ministerial Directive. The company has performed well during the financial year under review and is in a financial position to repay its commercial loans. The shareholder loan repayments will commence in the next financial year. The focus for the year has been the ongoing construction of the Rompco loop line, with iGas involvement at all levels of decision making, a intensive review of infrastructure development to supply the Gauteng Hospitals with natural gas and together with PetroSA reviewing the technical aspects of an import liquefied natural gas (LNG) import terminal. iGas is now in a mature phase of project activity and in a strategically important phase of being able to plan and finance significant infrastructure natural gas projects. Current Activities A 25% shareholding in the Republic of Mozambique Pipeline Investment Company (Proprietary) Limited continues to be the largest asset of the company. Rompco owns and operates the 865 km Mozambique to South Africa natural gas transmission pipeline which with the new compressor can now annually transport up to 180 million Giga Joules (up from the annual 147 million Giga Joules) of gas into South Africa. In the last year about 147 Giga Joules of natural gas was transported to South Africa and Mozambique. The use of natural gas in Mozambique has been for customer in the industrial area of Matola and for power generation at Ressano Garcia. iGas has reviewed the commercial opportunities for LNG import and has compared the cost of this infrastructure with that of a very extensive natural gas transmission pipeline. Future Activities As in the last financial year the development of an LNG import facility in South Africa has been under consideration for many years and with the future needs for electricity generation it can be expected that one of the possible projects will move forward in the next financial year subject to the Department of Energy's Gas Utlilisation Master Plan which will be open for public comment in May 2014. The moratorium on shale gas exploration has been lifted and the related regulations have been published for comment. Once another source of gas is introduced into South Africa the commercial markets will show a slow but steady growth of the gas industry into the future. This growth will be fuelled by some of the Pande/Temane Mozambican gas, some gas from the Mozambican Revuma Basin, west coast gas and in the longer term from the expected shale gas developments. The introduction of renewable power generation in the country will require a very flexible power back-up system for which gas fired turbines or combustion engines are well suited. All of these opportunities will require the construction of the associated infrastructure, localised at first but over time interconnected by gas transmission pipelines. Together with the CEF Group, all gas activities will be rationalised in the coming financial year. Conclusion The South African Gas Development Company SOC Limited will expand all forms of hydrocarbon gas opportunities, in a financially competitive manner and with the strategy of diversifying the South African energy portfolio and continue with specific concentration on electricity power generation within the gazetted IRP2 plan and, where gas fuelled power generation can act as a mitigation, if necessary, for insufficient power generation in the future. I would also like to express my appreciation to the Board and iGas staff as well as all business partners for their ongoing support.
Dr M De Pontes (Chief Operating Officer) 14 July 2014
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South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement of Responsibility The directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements and related information. The external auditors are responsible for reporting on the fair presentation of the annual financial statements. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and the Companies Act of South Africa of 2008. These annual financial statements are based upon appropriate accounting policies consistently applied and supported by reasonable and prudent judgments and estimates. The directors are also responsible for the company's system of internal controls. These controls are designed to provide reasonable, but not absolute, assurance as to the reliability of the company's annual financial statements and to adequately safeguard, verify and maintain accountability of assets and to prevent and detect misstatements and losses. The directors acknowledge their responsibilities as stated above and have established internal financial controls and risk management systems that maintain a strong control environment. These systems are designed to provide reasonable, but not absolute, assurance against material misstatements and losses. Based on information and explanations received from management, and the internal auditors on the maintenance of the internal financial controls, the directors are of the opinion that proper accounting records have been maintained and that reliance can be placed on the financial information used for these annual financial statements. 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 under review. The going concern basis has been adopted in preparing the annual financial statements. The directors have no reason to believe that the company will not be a going concern in the foreseeable future, based on forecasts and available cash resources. The viability of the company is supported by the annual financial statements. The annual financial statements have been audited by the Auditor-General of South Africa, who was given unrestricted access to all financial records and related data, including minutes of all meetings of shareholders, the board of directors, committees of the board, and management. The directors believe that all representations made to the independent auditors during their audit were valid and appropriate. The Auditor-General of South Africa's audit report is attached. In the opinion of the directors based on information available to date, the annual financial statements fairly present the financial position of the South Africa Gas Development Company SOC Limited at 31 March 2014 and the results of its operations and cash flow information for the year under review. The annual financial statements set out on pages 18 to 45, for the year ended 31 March 2014, which have been prepared on the going concern basis, were approved by the board of directors in terms of Section 51(1) (f) of the Public Finance Management Act on 14 July 2014 and were signed on its behalf by:
Mr M Zwane (Chairperson)
Mr L Themba (Non-executive director)
Sandton 14 July 2014
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 230 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement on Corporate Governance 1.
Introduction
South African Gas Development Company SOC Limited ensures that its processes and practices are reviewed on an ongoing basis in order to ensure adherence to good corporate governance practices, which are continually benchmarked against best market practices. Corporate governance is concerned with the organisational arrangements that have been put in place to provide an appropriate set of checks and balances within which the stewards of the entity operate. The objective is to ensure that those to whom the stakeholders entrusted the direction and success of the entity act in the best interest of these stakeholders. The board of directors believe that the company endorses the principles as set out in the Protocol on Corporate Governance, and where applicable, the King Report on Corporate Governance for South Africa (King III) and have endeavoured to comply with the principles incorporated in the Code of Corporate Practices and Conduct and the Public Finance and Management Act (PFMA). The company has a formalised system of corporate governance as set out below. 2.
Governing bodies
Board of directors The board of directors of the South African Gas Development Company SOC Limited consists three non-executive directors. At least four board meetings were held during the year. A framework for the payment of directors' remuneration was approved by the Minister of Energy. The company has an unitary board structure made up of non-executive directors, appointed by the shareholder. The board of directors (the board) meets at least once every quarter, and executive managers attend by invitation. The board charges executive management with regard to the day-to-day running of business, with the board addressing a range of key issues to ensure that it retains the strategic direction of, and proper control over, the entity. The non-executive directors are appointed on a three year cycle and reappointment is not automatic. The offices of Chairperson and Chief Operating Officer are separated. In accordance with the Public Finance Management Act (Act No 1 of 1999) the board is the accounting authority of iGas. In keeping with the recommendations of the King Report, the board adopted a board charter which sets out the role of the board as follows. The board's primary responsibilities include the appointment of the Chief Operating Officer, determining the company’s objectives and values and giving strategic direction to the company, taking effective and appropriate steps to ensure that key risk areas and key performance indicators of the company’s business are identified, monitoring the performance of the company against agreed objectives, advising on significant financial matters and reviewing the performance of executive management against defined objectives and applicable industry standards, as well as:
Approving key policies, investments, risk management and relevant transactions that exceed managements' levels of authority; Reviewing and approving the entity’s strategy, objectives, and plans; Considering and approving annual financial statements and submissions to the shareholder; Ensuring adherence to good corporate governance and ethics; Monitoring and directing triple bottom line performance; and Reviewing effectiveness of internal controls.
Company Secretary The Company Secretary provides the board of directors with guidance and advice on matters of business ethics and good governance, as well as on the nature and extent of their duties and responsibilities and how such duties and responsibilities should be properly discharged. Each of the directors has unrestricted access to the advice and services of the Company Secretary, entity information, and is entitled to seek independent professional advice, at the entity’s expense in pursuance of their duties as director.
5 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 231 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement on Corporate Governance Audit Committee and Risk Committee The roles and responsibilities for the audit committee and risk committee (collectively the Committee) were split to improve and focus attention on the audit committee and risk management activities separately. The members of the Committee are the same and the Committees' meetings occurred on the same dates. The Committee consists of independent non-executive members appointed by the board of directors. The Committee has agreed terms of reference as approved by the board of directors. The reports of the Committee is included in the annual report. The Committee meets at least twice per year and is chaired by an external independent non-executive member who is not the chairperson of the board. The Auditor-General of South Africa and Acting Chief Audit Executive have unrestricted access to the Committee and attend Committee meetings. Appropriate executive managers, including those responsible for finance and internal audit attend these meetings by invitation. The Committee reviews the adequacy and effectiveness of internal controls of the entity with special reference to the findings of both internal and external auditors. Other areas covered include the review of important accounting and control issues, material pending litigation, specific disclosures in the annual financial statements, and a review of the performance of the internal audit function. The Committee is responsible for overseeing the company compliance function and risk management processes within the company. The Board is accountable for ensuring that there is compliance with laws, regulations, policies and procedures and any adopted standards applicable to the company. The function of compliance has been delegated throughout the company based on specialist areas. As a principle the company does not tolerate non compliance with laws, regulations and any of its own standards. 3.
Materiality and significance framework
A materiality and significance framework is in place. Its purpose is to regulate disclosure of material facts to the Minister of Energy, disclosure in the entity's annual financial statements and approval required from the Minister of Energy for participation in certain transactions. 4.
Directors' responsibility for the annual financial statements
The directors of the entity are responsible for the entity's annual financial statements. The Auditor General of South Africa is responsible for performing an independent audit of the annual financial statements. The annual financial statements and notes thereto are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP). Accounting policies are consistently applied except where otherwise stated, in which case full disclosure of changes is made. The directors believe that the entity will continue as a going concern in the year ahead.
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 232 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement on Corporate Governance 5.
Internal audit
South African Gas Development Company SOC Limited uses the services of the CEF Group internal audit department which has the support and cooperation of both the board and management. The internal audit function has a written terms of reference, provided by the board of directors, setting out its purpose, authority and responsibilities. The internal audit function is under the control and direction of the board audit committee and reports at the highest level of authority and at all audit committee meetings. The internal audit function carries out its work in terms of an approved internal work plan based on the risk framework of the company. The annual work plan is approved by the audit committee. The Chief Audit Executive has full access to the chairpersons of the audit committee and the board of directors. The key responsibilities of internal audit function are to the board, the board audit committee, or both, in discharging its governance responsibilities and to perform the following functions: • Evaluating the company’s governance processes including ethics; • Performing an objective assessment of the effectiveness of risk management and internal control framework; • Systematically analysing and evaluating business processes and associated controls; and • Providing a source of information, as appropriate, regarding instance of fraud, corruption, unethical behaviour and irregularities. The Board Audit committee adheres to the International Standards for Professional Practice of Internal Auditing and Code of Ethics. The chief audit executive developed and maintained a quality assurance and improvement program. The internal audit function is subjected to an external quality review at least every 5 years, the last review was conducted was conducted in March 2013 and the evaluation result was “general conformance", which is the highest level of conformance. The next review will be done during 2018 financial year.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 233 of 446
Report of the Auditor-General to Parliament on South African Gas Development Company SOC Limited. Report on the financial statements Introduction 1. I have audited the financial statements of the South African gas development company set out on pages 22 to 45, which comprise the statement of financial position as at 31 March 2014, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA) and the Companies Act of South Africa, 2008 (Act No. 71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
8
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 234 of 446
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the South African Gas Development Company SOC Limited as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance SA Statements of GAAP, the requirements of the PFMA and the Companies Act.
Emphasis of matters 7. I draw attention to the matters below. My opinion is not modified in respect of these matters. Restatement of corresponding figures 8. As disclosed in note 24 to the financial statements, the corresponding figures for 31 March 2013 have been restated as a result of an error discovered during 31 March 2014 in the financial statements of the South African Gas Development Company SOC Limited at, and for the year ended 31 March 2013 and 31 March 2012.
Additional matter 9. I draw attention to the matters below. My opinion is not modified in respect of these matters. Other reports required by the Companies Act 10. As part of our audit of the financial statements for the year ended 31 March 2014, I have read the Directors’ Report, the Board Audit and Risk Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 11. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 12. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected objectives presented in the annual performance report of the public entity for the year ended 31 March 2014:
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 235 of 446
•
Objective 1: Expanding Gas Infrastructure on page 12.
•
Objective 2: Maintaining gas infrastructure on page 12.
•
Objective 3: Developing of options for new gas infrastructure on page 12.
•
Objective 4: Meeting climate change requirements on page 12.
•
Objective 5: Manage iGas investment in ROMPCO on page 13.
13. I evaluated the reported performance information against the overall criteria of usefulness and reliability. 14. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance was consistent with the planned objectives. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury’s Framework for managing programme performance information (FMPPI). 15. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. 16. I did not raise any material findings on the usefulness and reliability of the reported performance information for the selected objectives
Additional matters 17. Although we raised no material findings on the usefulness and reliability of the reported performance information for the selected objectives, we draw attention to the following matters: Achievement of planned targets 18. Refer to the annual performance report on pages 12 to 13 for information on the achievement of planned targets for the year. Adjustment of material misstatements 19. I identified material misstatements in the annual performance report submitted for auditing on the reported performance information. As management subsequently corrected the misstatements I did not raise any material findings on the usefulness and reliability of the reported performance information.
Compliance with legislation 20. I performed procedures to obtain evidence that the public entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows:
10
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 236 of 446
Annual financial statements and annual report 21. The financial statements submitted for auditing were not prepared in accordance with the prescribed financial reporting framework and as required by section 55(1)(b) of the Public Finance Management Act. Material misstatements of accounts receivables and intangible assets identified by the auditors in the submitted financial statement were subsequently corrected and, resulting in the financial statements receiving an unqualified audit opinion. Audit committee 22. Members of the audit committee were not appointed as directors of the entity as required by section 94 (4) of the Companies Act 71 of 2008.
Internal control 23. I considered internal control relevant to my audit of the financial statements, performance against objectives report and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on non-compliance with legislation included in this report. Governance 24. Non-compliance with laws and regulations could have been avoided had the accounting authority implemented effective controls over monitoring of compliance with laws and regulations.
Pretoria 31 July 2014
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 237 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Performance Against Objectives A summary of the South African Gas Development Company SOC Limited's business performance against objectives is contained in the table below: Activity
Indicators
Target Description
Target
Score
Comments
Loop Line 1 construction one month from start of commissioning. Construction started and 60% of the line pipe coated and delivered to site.
Loop Line 1 in construction. iGas personnel actively involved in all aspects of Engineering of the pipeline and in Steering Committee meetings.
3
3
Activities completed. Loop Line 2 Basic Engineering Study completed and iGas personnel involved.
Approved operating budget by May 2013. Positive comments made in the last four operating committees.
Operating budget approved by May 2013. All comments made by iGas implemented by the operator.
3
3
Activities completed.
Identify LNG import projects. Business case for the supply of gas and related infrastructure to Gauteng Provincial Hospitals. Feasibility study for at least one new gas transmission pipeline in Mozambique.
Identify LNG import projects. Business case tabled at the iGas Board.
3
3
Activities complete. Feasibility study for gas transmission pipeline in Mozambique complete.
Pre-feasibility for small scale re-gasification terminals and shipping.
Pre-feasibility study completed.
0
0
Activity not started.
1. Expanding gas infrastructure. Partake in ROMPCO Loop line 1 construction and Line 2 Basic Engineering Study.
2. Maintaining gas infrastructure. Oversight of Sasol Gas, the pipeline operator.
3. Develop options for new infrastructure. Identify LNG import projects; new gas markets and transmission routes in RSA; feasibility study on at least one new gas transmission pipeline in Mozambique.
4. Complete pre-feasibility on small- scale re-gasification terminals and shipping.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 238 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Performance Against Objectives Activity
Indicators
Target Description
Target
Score
Comment
A report recommending one project using gas to generate electricity by the end of March 2014.
Report tabled.
3
3
Activity completed.
Total
3
3
Performance Against Objectives (continued) 5. Identify gas to power opportunities and complete one prefeasibility for the gas supply option.
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 239 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement from the Company Secretary In my capacity as Company Secretary, I hereby confirm, except where otherwise mentioned in the annual financial statements, for the year ended 31 March 2014, that the company has lodged with the Companies and Intellectual Property Commission all such returns as are required of a company in terms of this act and that all such returns are to the best of my knowledge and belief, correct and up to date.
Mr A Haffejee 14 July 2014
14 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 240 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Report of the Board Audit Committee and Risk Management Committee We are pleased to present our report for the financial year ended 31 March 2014. 1.
Charter
The roles and responsibilities for the audit committee and risk committee (collectively - the Committee) were split during the financial year to improve and focus attention on risk management activities separately. The members of the two Committees are the same members and the Committee meetings happened on the same dates. The audit committee and risk committee are each guided by a detailed charter that is reviewed and approved by the board on an annual basis. The Committees have regulated their affairs in compliance with the individual charters and have discharged all their responsibilities as contained therein. 2.
Purpose
The purpose and responsibilities of the Committee arise from the Public Finance Management Act of 1999; Section 76 (4)(d) and Treasury Regulations 27.1. In performing its responsibilities the Committee has reviewed the following: 3.
the effectiveness of the internal control systems; the effectiveness of the internal audit function; the risk areas of operations to be covered in the scope of the internal and external audits; the adequacy, reliability and accuracy of financial information provided to management and other users of such information; the accounting and auditing concerns identified as a result of the internal or external audits; compliance with applicable legal and regulatory provisions; the activities of the internal audit function, including its annual work program, coordination with the external auditors, the reports of significant investigations and the responses of management to specific recommendations; and the independence and objectivity of the external auditors. risks and mitigants of the business.
Membership
The Committee members were appointed by the board of directors and comprises of at least three independent nonexecutive members. The Committee is chaired by an independent member. The Committee consists of the members listed hereunder and meet at least twice per annum as per the approved Charter. During the current financial year four meetings were held. Name of members
Number of meetings attended
Ms N Khan (Chairperson) Mr J Roelofse Mr RN Boqo Mr L Langalebalele Ms H Jaxa 4.
4 3 0 4 2
External audit
The audit committee, in consultation with executive management, agreed to the engagement letter terms, nature and scope of the external audit plan as presented by the Auditor-General of South Africa. We have reviewed the AuditorGeneral of South Africa Strategic Audit Plan for the 2014 financial year and have recommended approval of their budget to the board of directors. The audit committee has satisfied itself that the Auditor-General of South Africa exercised their duties in an independent and objective manner. 5.
Internal Audit
The audit committee considered and recommended the internal audit charter for approval to the board and approved the annual work plan for the internal audit function. The internal audit function is responsible for reviewing and providing assurance on the adequacy of the internal control environment across operations. The Chief Audit Executive is responsible for reporting the findings of the internal audit work against the agreed audit plan to the audit committee on a quarterly basis.
15 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 241 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Report of the Board Audit Committee and Risk Management Committee The Chief Audit Executive has direct access to the audit committee, primarily through its Chairperson. The audit committee is also responsible for the assessment of the performance of the internal audit function. In 2013, an external effectiveness review was performed by the Institute of Internal Auditors (IIA), reporting positive results and rating the internal audit function as “generally conformance” with the IIA Standards. The internal audit function is independent and has the necessary resources, budget, standing and authority within the organisation to enable it to discharge its functions. The Chief Audit Executive reports functionally to the chairperson and the chairperson must concur with the appointment and dismissal of the Chief Audit Executive. The Chief Audit Executive position is currently filled by an acting Chief Audit Executive. We are satisfied that the internal audit function is operating effectively and that it has addressed the risks pertinent to the company in its audits. We believe Internal Audit has contributed to the improvement of internal controls within the company. 6.
Internal control effectiveness
The audit committee is satisfied that a system of internal controls has been put in place and that these controls have functioned effectively during the period under review through the Service Level Agreement between iGas and CEF. The audit committee considers the system of internal controls appropriate in all material respects to: reduce risks to an acceptable level; meet the business objectives; ensure assets are adequately safeguarded; and ensure that transactions undertaken are recorded in the accounting records. Internal audit work for iGas will continue to be performed despite the pending merger with PetroSA. It was noted that no significant or material non compliance with prescribed policies and procedures has been reported. Accordingly, we can report that the system of internal controls for the period under review was efficient and effective. 7.
Corporate governance
We are of the opinion that the company continues to strive towards complying with sound principles of corporate governance. As per our discussions with management, management confirms that the content and quality of monthly and quarterly reports prepared and issued by the Chief Operating Officer during the year under review were properly formulated and have complied with the PFMA in this regard. The risk committee is in the process of reviewing its corporate governance practices with a view to complying with the requirements of the 2008 Companies Act and King III recommendations. 8.
Risk management
The risk committee has adopted the oversight of the risk management function. The company implemented a risk management strategy which includes the fraud prevention plan and combined assurance plan. A formal risk assessment was undertaken for the year ending 31 March 2014 with quarterly reviews, updates and reports. The committee monitored the significant risks faced by the company through reviewing risk reporting and participation in the risk assessment workshop. We are satisfied that significant risks were managed to an acceptable level. 9.
Annual Financial Statements
We have:
Reviewed and discussed with management the audited annual financial statements; Reviewed and discussed with management the audited performance information; Reviewed the Auditor-General of South Africa's management report and management’s response thereto; and Reviewed significant adjustments resulting from the Auditor-General of South Africa audit.
The audit committee concurs and accepts on the annual financial statements, and is of the opinion that the audited financial statements be accepted and read together with the report of the Auditor-General of South Africa.
16 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 242 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Report of the Board Audit Committee and Risk Management Committee 10. Appreciation
The Committees express their sincere appreciation to the Board, Chief Operating Officer, Management, Internal Audit and the Auditor-General of South Africa.
Ms N Khan Chairperson of the Board Audit Committee and Risk Committee 14 July 2014
17 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 243 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Directors' Report The directors present the directors' report that forms part of the annual financial statement for the year ended 31 March 2014. South African Gas Development Company SOC Limited is incorporated as a private entity in South Africa in terms of the Companies Act of 2008 and is listed as a national public entity in schedule 2 of the Public Finance Management Act, 1999, as amended. The board of directors acts as the accounting authority in terms of the PFMA. Directors
The directors of the company during the year and to the date of this report are as follows: Name Mr M Zwane Mr F Gagiano Mr R Maake Mr L Themba
Independent, non-executive, Chairperson Non-independent, non-executive Non-independent, non-executive Non-independent, non-executive (Alternate)
Appointed 01 May 2012 01 February 2012 01 March 2012 01 August 2010
20/08/2013
21/10/2013
29/10/2013
17/02/2014
Mr M Zwane Mr F Gagiano Mr R Maake Mr L Themba
23/05/2013
Attendance at meetings:
Y Y Y Y
Y N N Y
Y Y N N
Y Y Y N
Y Y N Y
Audit Committee and Risk Committee The Committees consist of the following members: Name Ms N Khan Mr R Boqo Mr L Langalebalele Ms H Jaxa Mr J Roelofse
Independent, Chairperson Independent Independent Independent Independent
Appointed 01 March 2011 01 May 2011 01 March 2011 01 March 2011 12 August 2006
Re-appointed 01 March 2012 01 March 2012 01 March 2012 01 March 2012 01 March 2012
06/08/2013
13/08/2013
Ms N Khan Mr R Boqo Mr L Langalebalele Ms H Jaxa Mr J Roelofse
19/06/2013
Attendance at meetings:
23/05/2013
1.
Y N Y N N
Y N Y Y Y
Y N Y Y Y
Y N Y N Y
Y
=
Attended meeting
N
=
Apology received
18 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 244 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Directors' Report The Committee meets at least twice a year. The Chief Audit Executive of the internal audit department, the external auditors and such members of management as are deemed necessary to also attend these meetings. The Committee is responsible for the internal controls and risk management of the entity delegated to it by the board of directors. In order to meet the audit committee's requirements it reviews the findings of both internal and external auditors. In addition the Committee reviews important accounting issues, material pending litigation if applicable, company insurance, risk management and disclosure requirements in the annual financial statements. 2.
Company Secretary
The secretary of the company is CEF SOC Limited and its business and postal addresses are as follows:
3.
Business address
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Postal address
P O Box 786141 Sandton 2146
Nature of business Main business and operations
The company is engaged to promote the diversification of energy usage into hydrocarbon gas and enter into joint ventures which will facilitate the use of hydrocarbon gas in Southern Africa, and operates presently in Southern Africa. The operating results and state of affairs of the company are fully set out in the attached annual financial statements and do not in our opinion require any further comment. Principal activities of the company The South African Gas Development Company SOC Limited continues to fulfill its mandate as provided via the Ministerial Directive to act as the official State Agency for the development of the hydrocarbon gas industry in Southern Africa. 4.
Authorised and issued share capital
There were no changes in the authorised or issued share capital of the company during the year under review. Refer to note 7 of the Annual Financial Statements. 5.
Significant changes in assets/investments
There was no significant increase in property, plant and equipment and investments during the financial year ended 31 March 2014 other than those relating to fair value adjustments. 6.
Dividends
No dividends were declared or paid to the shareholder during the year. 7.
Going concern
The directors believe that the company will continue as a going concern in the foreseeable future. 8.
Review of operations
The entity's business and operations and the results thereof are clearly reflected in the attached annual financial statements. No material fact or circumstance has occurred between the accounting date and the date of this report.
19 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 245 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Directors' Report 9.
Subsequent events
The directors note that CEF has been requested by the Minister of Energy to merge iGas with PetroSA. This merger will be completed in the next financial year. The directors are not aware of any other matters or circumstances arising since the end of the financial year, not otherwise dealt with in the annual financial statements which may significantly affect the financial position of the company or the results of the operations. 10. Shareholder
The company's holding company is CEF SOC Limited incorporated in South Africa. The annual financial statements is set out on page 15 to 42 which have been prepared on the going concern basis, were approved by the board of directors on 14 July 2014 and were signed on its behalf by:
Mr M Zwane (Chairperson)
Mr L Themba (Non-executive director)
Sandton 14 July 2014
20 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 246 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Materiality and Significance Framework For purposes of materiality (as per PFMA sections 50(1) and 55 (2)) and significance (as per PFMA sections 54(2)) framework the following acceptable levels were agreed with the Executive Authority in consultation with the Auditor General of South Africa:
Section 50(1) - Material facts to be disclosed to the Minister of Energy are considered to be facts that may influence the decisions or actions of the Stakeholders of the Public Entity or the Group of companies.
Section 55(2) - Disclosure of material losses in the annual financial statements will be for all losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the year.
Section 54(2) - The criteria to determine the level of significance was based upon the guiding principles as set out in the "Practice Note on applications under Section 54 of the PFMA no.1 of 1999 (as amended) by Public Entities" as published by National Treasury during 2006 subject to adjustments for any Section 54(4) exemptions.
The significant Rand level was determined as being 2% of Total Assets as follows:
APPROVAL LEVELS IN TERMS OF SECTION 54
Public Entity's board approval levels
>R43 million and
Approval level of the CEF Board in terms of subsidiary companies
>R877 million
Obtain DoE approval and inform National Treasury via the top-most holding company
21 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 247 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement of Financial Position At 31 March Figures in Rand thousand
2014
2013
2012
Restated
Restated
34 2,001,274
47 2 2,001,274
100 10 1,923,618
2,001,308
2,001,323
1,923,728
124 197,156
350 155,445
1,112 136,507
197,280
155,795
137,619
2,198,588
2,157,118
2,061,347
1,400,770 339,521
1,400,770 239,827
1,323,114 160,615
1,740,291
1,640,597
1,483,729
Note(s)
Assets Non-Current Assets Property, plant and equipment Intangible assets Investments
2 3 4
Current Assets Trade and other receivables Cash and cash equivalents
5 6
Total Assets Equity and Liabilities Equity Share capital Fair value reserve Retained earnings
7 8
Liabilities Non-Current Liabilities Shareholder's loan
9
395,797
454,866
514,172
Current Liabilities Shareholder's loan Trade and other payables Provisions
9 10 11
58,500 1,436 2,564
58,500 1,190 1,965
58,500 3,472 1,474
62,500
61,655
63,446
458,297
516,521
577,618
2,198,588
2,157,118
2,061,347
Total Liabilities Total Equity and Liabilities
22 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 248 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement of Comprehensive Income For the year ended 31 March 2014 Figures in Rand thousand
2014
2013
12
115,000 5 (14,576)
100,000 (15,069)
13 14
100,429 7,427 (8,162)
84,931 6,303 (12,022)
99,694
79,212
Note(s) Dividends received Other income Operating expenses Operating surplus Finance income Finance costs Profit for the year
23 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 249 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement of Changes in Equity Share capital R '000
Fair Value reserve R '000
Retained earnings R '000
R '000
Opening balance as previously reported Adjustments Prior period adjustments
-
1,323,114
-
-
Balance at 01 April 2012 Changes in equity Fair value adjustment of investment Profit for the year
-
1,323,114
160,615
1,483,729
-
77,656 -
79,212
77,656 79,212
Total changes
-
77,656
79,212
156,868
Balance at 01 April 2013 Changes in equity Profit for the year
-
1,400,770
239,827
1,640,597
-
-
99,694
99,694
Total changes
-
-
99,694
99,694
Balance at 31 March 2014
-
1,400,770
339,521
1,740,291
Note(s)
7
173,610
Total equity
(12,995)
8
24 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 250 of 446
1,496,724 (12,995)
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Statement of Cash Flows Figures in Rand thousand
2014
2013
Note(s)
Cash flows from operating activities 16
Cash used in operations Interest income Dividends received Finance costs Net cash from operating activities
(13,467) 7,427 115,000 (8,162)
(16,037) 6,303 100,000 (12,022)
100,798
78,244
Cash flows from investing activities 2 2
Purchase of property, plant and equipment Sale of property, plant and equipment Net cash from investing activities
(20) 2
-
(18)
-
(Repayment of)/Proceeds from shareholders loan
(59,069)
(59,306)
Total cash movement for the year Cash at the beginning of the year
41,711 155,445
18,938 136,507
197,156
155,445
6
Total cash at end of the year
25 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 251 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Accounting Policies 1.
Presentation of Annual Report
The following are the principal accounting policies of the company which are, in all material respects, consistent with those of the previous year, except as otherwise indicated. 1.1 Basis of preparation
The annual financial statements are prepared under the historical cost basis, except where otherwise specified. The principal accounting policies of the company and the disclosures make in the annual financial statements conform with South African Statements of Generally Accepted Accounting Practice and comply with International Financial Reporting Standards and the Companies Act of South Africa of 2008. The annual financial statements are prepared on the going concern basis. These annual financial statements are presented in South African Rand since that is the currency in which majority of the entity's transactions are denominated. Rounding is to the nearest Rand in Thousands. 1.2 Comparative figures
Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Property, plant and equipment
Property, plant and equipment represents tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period. Carrying amounts All property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost Cost includes all costs directly attributable to bringing the assets to working condition for their intended use. Improvements are capitalised. Minor items of machinery, plant and equipment are expensed directly against income. Maintenance, repairs and renewals which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. Impairment The carrying amounts of property, plant and equipment are reviewed annually for impairment. If such indication exists and where the carrying amount exceeds the estimated recoverable amount, the assets are written down to their recoverable amount. Impairment losses are recognised in the profit and loss. The recoverable amount of property, plant and equipment is the greater of fair value less costs to sell or value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash flows, the recoverable amount is determined for the cash generating unit to which the asset belongs. Where an impairment loss subsequently reverses, the carrying amount of the asset (cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset (cash-generating unit) in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount under another standard, in which case the reversal of the impairment loss is treated as a revaluation increase under that other standard. Derecognition The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use.
26 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 252 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Accounting Policies 1.3 Property, plant and equipment (continued)
Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount. Gains or losses arising from derecognition of an item of property, plant and equipment is included in profit or loss. Gains on disposal will not be classified as revenue. Depreciation Depreciation is charged so as to write off the depreciable amount of the assets, other than land, over their estimated useful lives to estimated residual values, using the straight line method to write off the cost of each asset that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated useful lives. The following methods and rates are used during the year to depreciate property, plant and equipment to estimated residual values: Item Furniture and fittings Computer equipment
Average useful life 2 - 10 years 3 years
The methods of depreciation, useful lives and residual values are reviewed annually. 1.4 Intangible assets
An intangible asset is an identifiable non-monetary asset without physical substance. Intangible assets are initially recognised at cost if acquired separately or internally generated or 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 tested for impairment annually and impaired if necessary. If assessed as having a finite useful life, it is amortised over its useful life using a straight line basis and tested for impairment if there is an indication that it may be impaired. Research expenditure relating to gaining new technical knowledge and understanding are recognised in profit or loss when incurred. Development costs are capitalised only if they result in an asset that can be identified, it is probable that the asset will generate future economic benefits and the development cost can be reliably measured. Otherwise it is recognised in profit or loss. Amortisation shall begin when the asset is available for use and shall cease at the earlier of the date that the asset is classified as held for sale or the date that the asset is derecognised. An intangible asset shall be derecognised on disposal or when no future economic benefits are expected from its use or disposal. The gain or loss arising from derecognition from an intangible asset shall be determined as the difference between the net disposal proceeds, if any, and the carrying amount of the asset. It shall be recognised in profit or loss when the asset is derecognised. Gains shall not be classified as revenue. Purchased software and the direct costs associated with the customisation and installation thereof are capitalised. Amortisation is recognised in profit or loss, on a straight line basis, to their residual values as follows: Item Computer software
Useful life 2 years
1.5 Leases
Leases are classified as finance leases or operating leases at the inception of the lease.
27 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 253 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Accounting Policies 1.5 Leases (continued) Operating leases – lessee
Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease where significant or another systematic basis if more representative of the time pattern of the user's benefit. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Contingent rentals are recognised in profit or loss as they accrue. 1.6 Financial instruments Recognition
Financial assets and financial liabilities are recognised on the company's statement of financial position when the company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the statement of financial position include cash and cash equivalents, trade receivables, investments, trade payables, and borrowings. Measurement
Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Financial assets
The company's principal financial assets are investments, accounts receivable and cash and cash equivalents. Investments: The following categories of investments are measured at subsequent reporting dates at amortised cost by using the effective interest rate: (a) Loans and receivables originated by the company with fixed maturities; (b) Held-to-maturity investments; (c) An investment that does not have a quoted market price in an active market and whose fair value cannot be measured reliably using an appropriate valuation model. Loans and receivables with no fixed maturity period and other investments not covered above are classified as fair value through profit and loss on initial recognition. Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted. Trade and other receivables Trade and other receivables are classified as loans and receivables and are subsequently measured at amortised cost using the effective interest rate method, less an allowance for any uncollectable amounts. An estimate for impairment is made when objective evidence is available that indicates the collection of any amount outstanding is no longer probable. Bad debts are written off when identified. The amount of the impairment loss is charged to profit or loss. Cash and cash equivalents Cash and cash equivalents comprise of cash at bank and on hand and instruments which are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are stated at 28 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 254 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Accounting Policies 1.6 Financial instruments (continued) carrying amount which is deemed to be the fair value. Impairment and uncollectability of financial assets
An assessment is made at each balance sheet date to determine whether there is objective evidence that a financial asset or entity of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and an impairment loss is recognised for the difference between the recoverable amount and the carrying amount as follows: For financial assets held at either cost or amortised cost - the carrying amount of the asset is reduced to its undiscounted estimated recoverable amount either directly or through the use of an allowance account and the amount of the loss is recognised in the income statement for the period; and For financial assets at fair value - where a loss has been recognised directly in equity as a result of the write-down of the asset to recoverable amount, the cumulative net loss recognised in equity is transferred to the income statement for the period. Gains and losses on subsequent measurement
All gains and losses arising from a change in fair value of or on disposal of held for trading financial assets are recognised in profit or loss. Gains and losses arising from a change in the fair value of available-for-sale financial assets are recognised in other comprehensive income, until the investment is disposed of or is determined to be impaired, at which time the gain or loss is included in the profit or loss for the period. Gains and losses arising from cash flow hedges are recognised in other comprehensive income. In relation to fair value hedges, which meet the conditions for hedge accounting, the portion of the gain or loss on a hedging instrument that is determined to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion is recognised in profit or loss. If a hedged firm commitment or forecasted transaction results in the recognition of an asset or a liability, then the associated gains or losses recognised in equity are adjusted against the initial measurement of the asset or liability. For all other cashflow hedges, amounts recognised in equity are included in profit or loss in the same period during which the commitment or forecasted transaction affects profit or loss. Derecognition
A financial asset or part thereof is derecognised when the group realises the contractual rights to the benefits specified in the contract, the rights expire, and the group surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period. A financial liability or a part thereof is derecognised when the obligation specified in the contract is discharged, cancelled, or expires. On derecognition, the difference between the carrying amount of the financial liability, including related unamortised costs, and the amount paid for it is included in net profit or loss for the period. Fair value considerations
The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short-term trading cycle of these items. Offsetting
Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 29 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 255 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Accounting Policies 1.6 Financial instruments (continued) Available for sale financial assets
These financial assets are non-derivatives that are either designated in this category or not classified elsewhere. Investments 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 timeframe established by the market concerned. These investments are measured initially and subsequently at fair value. Gains and losses arising from changes in fair value are recognised directly in equity until the security is disposed of or is determined to be impaired. The company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered as an indicator that the securities are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the income statement on equity instruments are not reversed through the income statement. Impairment losses recognised in profit or loss for equity investments classified as available-for-sale are not subsequently reversed through profit or loss. Impairment losses recognised in profit or loss for debt instruments classified as availablefor-sale are subsequently reversed if an increase in the fair value of the instrument can be objectively related to an event occurring after the recognition of the impairment loss. 1.7 Provisions
Provisions represent liabilities of uncertain timing or amounts. Provisions are recognised when a present legal or constructive obligation exists, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks for which future cash flow estimates have not been adjusted. 1.8 Revenue
Revenue is recognised when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. The measurement is at fair value received or receivable net of VAT, cash discounts, rebates and settlement discounts. Revenue from the rendering of services is measured using the stage of completion method based on the services performed to date as a percentage of the total services to be performed. Revenue from the rendering of services is recognised when the amount of the revenue, the related costs and the stage of completion can be measured reliably and when it is probable that the debtor will pay for the services. 1.9 Income from investments
Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. Dividend income from investments is recognised when the shareholders’ right to receive payment has been established.
30 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 256 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Accounting Policies 1.10 Finance costs
Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period to get 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 cost of those assets. Other borrowing costs are recognised as an expense in the period in which they are incurred. 1.11 Irregular and fruitless and wasteful expenditure
Irregular expenditure means expenditure incurred in contravention of, or that is not in accordance with, a requirement of any applicable legislation, including:
the PFMA, or Any provisional legislation providing for procurement procedures in that provincial government.
Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. All irregular and fruitless and wasteful expenditure is charged against income in the period in which they are incurred. When an accounting authority determines the appropriateness of disciplinary steps against an official, the accounting authority must take into account: • The circumstances of the transgression; • The extent of the expenditure involved; and • The nature and seriousness of the transgression. All unauthorised, irregular or fruitless and wasteful expenditure are disclosed as a note to the annual financial statements of the company. 1.12 Key assumptions made by management in applying accounting policies
The following key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year if the assumption or estimation changes significantly: Going concern Management considers key financial metrics and loan covenant compliance in its approved medium term budgets, together with its existing term facilities, to conclude that the going concern assumption used in the compiling of its annual financial statements, is relevant. Valuation of ROMPCO Investments The market values at which investments are carried at the reporting date have been determined using available market data. Where market prices are not available, fair values have been calculated by discounting estimated futures cash flows at the weighted average cost of capital of ROMPCO. Future cash flows are estimated based on management's judgement and the valuation is based on appropriate external valuation methodologies and contracted cash flow, but are not necessarily indicative of the amount that the company could realise in the normal course of business. Other provisions For other provisions, estimates are made of legal or constructive obligations resulting in the raising of provisions, and the expected date of probable outflow of economic benefits to assess whether the provision should be discounted. Impairments and impairment reversals Impairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates 31 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 257 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Accounting Policies 1.12. Key assumptions made by management in applying accounting policies (continued) are made in determining the recoverable amount of assets which include the estimation of cash flows and discount rates used. In estimating the cash flows, management base cash flow projections on reasonable and supportable assumptions that represent managements’ best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. 1.13 Taxation
The tax expense for the period comprises current and deferred tax. The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax is recognised for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the reporting date. 1.14 Subsequent Events
Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.15 Related parties
The services received or rendered from or to related parties arise mainly from service transactions, including management fees for services performed on behalf of the company. The receivables from related parties arise mainly from service transactions and are due one month after the date of services. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties. The payables to related parties arise mainly from service transactions, including management fees and are due one month after the date of purchase. The payables bear no interest. The loans to or from related parties arise from loan agreements entered into for the year under review.
32 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 258 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment
2014 Cost
Accumulated depreciation
2013 Carrying value
Cost
2012
Accumulated depreciation
Carrying value
Cost / Valuation
Accumulated depreciation
Carrying value
Furniture and fixtures Computer equipment
68 155
(52) (137)
16 18
68 220
(41) (200)
27 20
68 220
(30) (158)
38 62
Total
223
(189)
34
288
(241)
47
288
(188)
100
Reconciliation of property, plant and equipment - 2014 Opening Balance Furniture and fixtures Computer equipment
Additions
Disposals
Depreciation
Total
27 20
20
(2)
(11) (20)
16 18
47
20
(2)
(31)
34
Reconciliation of property, plant and equipment - 2013 Opening Balance Furniture and fixtures Computer equipment
Additions
Disposals
Depreciation
Total
38 62
-
-
(11) (42)
27 20
100
-
-
(53)
47
33 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 259 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment (continued) Reconciliation of property, plant and equipment - 2012 Opening balance Furniture and fixtures IT equipment
3.
Additions
Disposals
Depreciation
Total
39 75
10 -
-
(11) (13)
38 62
114
10
-
(24)
100
Intangible assets 2014 Cost Software
2013
Accumulated Carrying value amortisation 44
(44)
-
Cost
2012
Accumulated Carrying value amortisation 44
(42)
2
Cost / Valuation
Accumulated Carrying value amortisation
44
(34)
10
Reconciliation of intangible assets - 2014 Opening Balance Software
Additions 2
Amortisation -
Total
(2)
-
Reconciliation of intangible assets - 2013 (Restated) Opening Balance Software
Additions 10
34 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 260 of 446
Amortisation -
(8)
Total 2
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
3.
2014
2013 Restated
2012 Restated
Amortisation
Total
Intangible assets (continued) Reconciliation of intangible assets - 2012 (Restated) Opening balance Software
4.
Additions 16
-
(6)
10
Investments Available-for-sale Rompco
2,001,274
2,001,274
1,923,618
Total
2,001,274
2,001,274
1,923,618
The company owns 25% of the shares in ROMPCO. This is an investment in an unlisted company. ROMPCO owns the natural gas pipeline from the Temane/Pande gas fields in Mozambique to Secunda in South Africa. The financial year end of the associate is on 30 June 2014 and there are no significant unadjusted transactions or events occurring between this date and 31 March 2014. Separate annual financial statements for ROMPCO have been prepared for South African Gas Development Company SOC Limited. The investment has been classified as available-for-sale, however management does not intend disposing of this investment within the near future (refer to note 18).
5.
Trade and other receivables Trade receivables Prepayments
6.
1 123
122 228
864 244
124
350
1,112
Cash and cash equivalents
Cash and cash equivalents consist of cash on hand and balances with banks and investments in money market instruments. Cash and cash equivalents included in the balance sheet comprise the following: Short-term investments in money market and cash on hand 7.
197,156
155,445
136,507
Authorised 1000 Ordinary par value shares of R1 each
1
1
1
Issued 100 Ordinary par value shares of R1 each - value R100
-
-
-
Share capital
The shares are held by CEF SOC Ltd.
35 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 261 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
8.
2014
2013 Restated
2012 Restated
Fair value reserve Balance at the beginning of year Fair value adjustment
1,400,770 -
1,323,114 77,656
1,009,496 313,618
Total
1,400,770
1,400,770
1,323,114
Fair value adjustment in respect of the 25% shareholding in ROMPCO, the company which owns the natural gas pipeline from Mozambique to South Africa. As is the normal practice the fair valuation was done by an independent external party. The fair value of investment in an associate is determined using a discounted cashflow valuation methodology to determine an indicative valuation. 9.
Shareholder's loan CEF SOC Limited - Non-Interest Bearing Loan CEF SOC Limited - Interest Bearing Loan
364,822 89,475
365,391 147,975
366,197 206,475
454,297
513,366
572,672
CEF SOC Limited - Non-Interest Bearing loan In terms of a Ministerial Directive, CEF SOC Limited will provide the initial working capital to fund the operations of the entity until such time as sufficient income is generated by the entity. This loan will start bearing interest in December 2015. CEF SOC Limited - Interest Bearing loan Sasol Limited through certain of its affiliates, and in association with CMH, CMG and iGas, has implemented a project to produce natural gas from reserves in the Republic of Mozambique and to transport it via a transmission pipeline to the Republic of South Africa to be supplied as feedstock and energy source to its factories at Secunda and Sasolburg and for sale to their customers, distributors and reticulators within the Republic of South Africa. A shareholders agreement was signed on 20 January 2003 between iGas, CMG, Sasol and Rompco in respect of the business activities of ROMPCO. iGas as a Class A Shareholder in ROMPCO has exercised its Class A Call Option whereby it has purchased from Sasol Gas Holdings (Proprietary) Limited, Class B Shares in the same number as the amount of Class A Shares that it holds, together with the associated portion of quasi equity and shareholder loans. iGas has subscribed for its Class B shares. Class B Shares in ROMPCO are currently owned 50% by Sasol Gas Holdings (Proprietary) Limited, 25% by iGas and 25% by CMG. Class B Shares are the non par-value shares in ROMPCO having the rights set out in the ROMPCO shareholders agreement including without limitation the voting rights, rights to dividends and the obligation to make capital contributions to ROMPCO. CEF SOC Limited (Lender), as the holding company of iGas, has provided an interest bearing loan of R352,5 million to iGas to enable iGas, as of 1 July 2005, to acquire the 25% shareholding in ROMPCO. The interest bearing portion of the loan is R89 million (2013: R148 million). Annual interest is paid at 6 months JIBAR plus a margin of 1,15% per annum to CEF SOC Limited. Capital repayment of R29 million is due in July and January each year. The loan will be repaid in full on 27 July 2015. Non-current liabilities Current liabilities
395,797 58,500
454,866 58,500
514,172 58,500
454,297
513,366
572,672
36 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 262 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013 Restated
2012 Restated
10. Trade and other payables Trade payables Sundry accruals
390 1,046
558 632
2,841 631
1,436
1,190
3,472
11. Provisions Reconciliation of provisions - 2014 Opening Balance 1,965
Bonus
Additions 599
Total 2,564
Reconciliation of provisions - 2013 Opening Balance Bonus
1,474
Additions
Utilised during the year 1,228 (737)
Total 1,965
Bonus The provision is for incentives for iGas employees who qualify in terms of their performance during the financial year.
37 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 263 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
12. Operating expenses Amortisation and depreciation Audit fees Consulting and legal fees Directors fees Employee costs Guarantee fees Insurance Legal fees Management fees paid to CEF Bad debts Office and general costs Premises rental Training costs Travel
34 229 3,338 295 6,571 590 35 808 1,421 121 272 271 39 579
62 372 3,037 302 7,124 827 38 1,407 451 288 288 27 846
14,603
15,069
13. Finance income Interest revenue Interest on money market investments
7,427
6,303
14. Finance costs Interest on shareholder loans
8,162
12,022
15. Taxation
No provision has been made for 2014 taxation as the company has no taxable income. The deferred tax asset has not been recognised as management is of the opinion that the company will not generate sufficient taxable income that will be used against the deductible differences in the next three years. The estimated assessed loss amounts to R199 million, the deferred tax asset related to the assets is R56 million. 16. Cash used in operations Profit before taxation Adjustments for: Depreciation and amortisation Loss on sale of assets Dividends received Finance income Finance costs Movements in provisions Changes in working capital: Trade and other receivables Trade and other payables
99,694
79,212
33 2 (115,000) (7,427) 8,162 599
62 (100,000) (6,303) 12,022 491
226 244 (13,467)
38 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 264 of 446
762 (2,283) (16,037)
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
17. Commitments Operating lease commitments Oil Pollution Control South Africa - within one year
-
55
The Vineyard Office Park Estate, 99 Jip de Jager Drive, Bellville, Cape Town. The entity has sub-leased two offices from Oil Pollution Control of South Africa NPC. The agreement commenced on 1 May 2008 and the rent payable shall annually, on the anniversary date, escalate by 9% or alternatively, shall escalate in accordance with the CPI, whichever is greater. This lease terminated on 30 April 2013. SFF Association - within one year
62
-
Milnerton tank farm, corner of Plattekloof and Tygervalley roads, Milnerton, Cape Town. The entity has sub-leased three offices and three parking bays from SFF Association. The agreement commenced on 1 August 2013 and will be terminated on 31 July 2014. CEF SOC Ltd - within one year
209
233
Block C, Upper Grayston Office Park, 152 Ann Crescent, Strathavon, Sandton. The entity has leased Portion 13, remaining Extent of Erf 14, Portion 1 of erf 14 Simba Township, together with the building erected thereon from CEF SOC Limited. The agreement commenced on 1 April 2009 and the rent payable shall annually, on the anniversary date, escalate by 10% or alternatively, shall escalate in accordance with the CPI, whichever is greater. Either party shall be entitled to terminate this lease on six months written notice to the other party. 18. Financial instruments
Financial risk management The company’s corporate treasury function performed by CEF SOC Limited, provides financial risk management services to the business, co-ordinates access to domestic and international financial markets, and monitors and manages the financial risks relating to the operations of the company through internal risk reports which analyses exposures by degree and magnitude of risks. These risks include market risk (including interest rate risk), credit risk and liquidity risk. The company’s objectives, policies and processes for measuring and managing these risks are detailed below. Compliance with policies and exposure limits is reviewed by the board audit and risk committee annually, with the results being reported to this committee. Fair values The entity's financial instruments consist mainly of cash and cash equivalents, trade receivables, investments, trade payables and long-term debt. As at 31 March 2014 no financial asset was carried at an amount in excess of its fair value and fair values could be reliably measured for all financial assets that are available-for-sale. The following methods and assumptions are used to determine the fair value of each class of financial instrument: Cash and cash equivalents The carrying amounts of cash and cash equivalents approximate fair value due to the relatively short-term maturity of these financial assets.
39 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 265 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
18. Financial instruments (continued) Trade receivables
Investments The carrying amounts of short-term investments approximate fair value due to the relatively short-term maturity of these assets. The fair values of other long-term investments are not materially different from the carrying amounts. Trade payables The carrying amounts of trade payables approximates fair value due to the relatively short-term maturity of these liabilities. Interest bearing borrowings The carrying value of short-term borrowings approximates fair value due to the relatively short-term maturity of these liabilities. The fair values of other long-term borrowings are not materially different from the carrying amounts. Credit risk
Financial assets, which potentially subject the company to concentrations of credit risk, pertain principally to investments and trade receivables in the South African money market. Trade receivables are presented net of the allowance for doubtful debts. The exposure to credit risk with respect to trade receivables is not concentrated due to a large customer base. CEF SOC Ltd manages iGas' counter-party exposures arising from money market and derivative financial instruments by only dealing with well-established financial institutions of a high credit rating. Losses are not expected as a result of non-performance by these counter parties. Credit limits with financial institutions are approved by the board. Interest rate risk Exposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The financing of the company is structured on variable interest rates, based on 6-month JIBAR and as best suited to the company needs. Maturity profile
The maturity profiles of financial assets and liabilities at statement of financial position date are as follows:
40 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 266 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 18. Financial instruments (continued)
At 31 March 2014 Assets Less than 1 year
Between 1 and 5 years
Over 5 years
Non-interest bearing
Total
Cash and cash equivalents Trade and other receivables Available for sale*
197,156 1 2,001,274
-
-
-
197,156 1 2,001,274
Total financial assets
2,198,431
-
-
-
2,198,431
Liabilities Trade and other payables Shareholder's loan
1,433 -
-
89,475
364,822
1,433 454,297
Total financial liabilities
1,433
-
89,475
364,822
455,730
Less than 1 year
Between 1 and 5 years
Over 5 years
Non-interest bearing
Cash and cash equivalents Trade and other receivables Available for sale*
155,445 122 573
-
2,001,274 -
-
155,445 2,001,396 573
Total financial assets
156,140
-
2,001,274
-
2,157,414
Liabilities Trade and other payables Shareholder's loan
1,190 -
-
147,975
365,391
1,190 513,366
Total financial liabilities
1,190
-
147,975
365,391
514,556
At 31 March 2013 Assets Total
*This has been classified as such accordingly, however management does not intend disposing of this investment within the next 60 months. Liquidity risk
The company manages liquidity risk through proper management of working capital, capital expenditure and actual versus forecasted cash flows. Adequate reserves and liquid resources are also maintained. The company manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources are available to meet cash commitments.
41 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 267 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 19. Financial assets by category
The accounting policies for financial instruments have been applied to the line items below: 2014 Loans and receivables Investment Trade and other receivables Cash and cash equivalents
Available-forsale
Total
1 197,156
2,001,274 -
2,001,274 1 197,156
197,157
2,001,274
2,198,431
122 155,445
2,001,274 -
2,001,274 122 155,445
155,567
2,001,274
2,156,841
2013 Investment Trade and other receivables Cash and cash equivalents
20. Financial liabilities by category
The accounting policies for financial instruments have been applied to the line items below: 2014
Shareholder's loans Trade and other payables
Financial liabilities at amortised cost
Fair value through profit or loss - held for trading
Fair value through profit or loss designated
Total
454,297 1,433
-
-
454,297 1,433
455,730
-
-
455,730
513,366 1,190
-
-
513,366 1,190
514,556
-
-
514,556
2013 Shareholder's loans Trade and other payables
42 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 268 of 446
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 21. Directors' emoluments Year ended 31 March 2014
233
-
-
Compensate for loss of office -
Mr L Themba**
-
-
-
Mr F Gagiano**
-
-
Mr R Maake**
-
233
Non-executive Directors:
Fees
Mr M Zwane *
Total
Bonus and performance payments
Expenses allowances
Other
Total
-
233
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
233
* Interim Chairperson. ** Directors not remunerated in their personal capacity.
Mr R Boqo
-
-
-
Compensate for loss of office -
Mr J Roelofse*
-
-
-
Ms N Khan
34
-
Mr L Langalebalele
19
Board audit & risk committee
Fees
Ms H Jaxa
Total
Bonus and performance payments
Expenses allowances
Other
Total
-
-
-
-
-
-
-
-
34
-
-
-
-
19
9
-
-
-
-
9
62
-
-
-
-
62
Other
-
Compensate for loss of office -
Other
* Directors not remunerated in their personal capacity Executive Management Dr M De Pontes
Salary
Bonus and performance payments
1,923
Expenses allowances -
Total
-
1,923
Year ended 31 March 2013
217
-
-
Compensate for loss of office -
-
217
Mr F Gagiano **
-
-
-
-
-
-
Ms B Mokoena **
-
-
-
-
-
-
Mr R Maake **
-
-
-
-
-
-
217
-
-
-
-
217
Non-Executive Directors: Mr M Zwane *
Total
Salary
Bonus and performance payments
Expenses allowances
* Interim Chairperson. ** Directors not remunerated in their personal capacity.
43 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 269 of 446
Total
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand 21. Directors' emoluments (continued)
Mr R Boqo
4
-
-
Compensate for loss of office -
Ms N Khan
35
-
-
Mr L Langalebalele
22
-
Ms H Jaxa
22
Total
Board audit and risk committee:
Executive management Dr M De Pontes
Fees
Bonus and performance payments
Expenses allowances
Other
Total
-
4
-
-
35
-
-
-
22
-
-
-
-
22
83
-
-
-
-
83
1,807
Bonus and performance payments 1,305
24
Compensate for loss of office 24
Salary
Expenses allowances
Other
Total
-
3,136
22. Related parties `
Relationships Holding company Fellow subsidiaries
CEF SOC Limited Oil Pollution Control South Africa PetroSA SOC Limited SFF Association Rompco (Pty) Limited
Associates Related party balances Loan accounts - Owing to related parties CEF SOC Limited Cash on call
454,297 197,156
Amounts included in Trade Receivables (Trade Payables) regarding related parties CEF SOC Limited Rompco PetroSA
(390) 573 -
44 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 270 of 446
513,366 155,445
(436) 573 (6)
South African Gas Development Company SOC Limited Annual Report for the year ended 31 March 2014
Notes to the Annual Financial Statements Figures in Rand thousand
2014
2013
22. Related parties (continued) Related party transactions CEF SOC Limited Rental of office space Services received Interest paid Interest received Rompco Dividends received
209 3,673 8,162 7,427
226 3,712 12,022 6,303
115,000
100,000
-
55
62 1
-
Oil Pollution Control South Africa Rental of office space SFF Association Rental of office space Services
Key management personnel refer to note 23. All transactions were carried out on commercial terms and conditions. CEF SOC Limited Details of the holding company are given in paragraph 10 of the Directors' report. The above transactions were carried out on commercial terms and conditions except for the shareholder's loan. For notes on the loan from the holding company refer to note 9. 23. Subsequent Event
As part of the CEF Group reorganisation CEF will ensure that iGas and PetroSA are merged in an equitable manner. This will include the appropriate approvals from third parties. (Refer to paragraph 9 in the Directors report) 24. Prior period errors
During the current financial year, it was determined that the costs that had been capitalised as development costs in prior years, should have been expensed, as it did not meet the recognition criteria to be capitalised as intangible assets. Expenses amounting to R11 304 058 had been incurred on CIP Development and R1 690 792 on the Coega Integrated Project. These expenses were incurred in the 2006, 2007 and 2008 financial years. The correction of the error(s) results in adjustments as follows: Statement of Financial Position Intangible Assets Opening retained earnings
-
45 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 271 of 446
(12,995) 12,995
South African National Energy Research Institute (SOC) Limited (Registration number 2005/017430/30) Annual Financial Statements for the year ended 31 March 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 272 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile Nature of business and principal activities
South Africa To undertake research and technology development in order to exploit and utilise the energy resources of the Republic and Southern Africa.
Directors
Dr C Cooper Mr K Nassiep
Registered office
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Business address
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Postal address
P O Box 786141 Sandton 2146
Holding company
CEF (SOC) Limited incorporated in South Africa
Auditors
Auditor-General of South Africa
Company Secretary
CEF (SOC) Limited
Select Entity registration number
2005/017430/30
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 273 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual financial statements presented to the shareholder:: Index
Page
Statement of Responsibility
3
Report of the Independent Auditors
4-5
Statement of Financial Position
6
Statement of Comprehensive Income
7
Statement of Changes in Equity
8
Statement of Cash Flows
9
Accounting Policies
10 - 17
Notes to the Annual Financial Statements
18 - 20
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 274 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Statement of Responsibility The directors are responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements and related information. The external auditors are responsible for auditing and reporting on the fair presentation of the annual financial statements. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and the Companies Act of South Africa of 2008. To enable the directors to meet the above responsibilities, the board of directors sets standards and implements systems of internal control that are designed to provide reasonable, but not absolute assurance against material misstatements and losses. 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 under review. All assets and liabilities of SANERI have been transferred to the South African National Energy Development Institute, to give effect of the promulgation of the Energy Act, Act 34 of 2008; with exception to the VAT which is the assets and liabilities specifically to SANERI. The unaudited annual financial statements which appear on pages 6 to 20, for the year ended 31 March 2014 were approved by the directors in terms of Section 51(1)(f) of the Public Finance Management Act on 28 May 2014 and were signed on its behalf by:
Mr K Nassiep
Dr C Cooper
Sandton 29 May 2014
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 275 of 446
Report of the Auditor-General to Parliament on South African National Energy Research Institute SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of the South African National Energy Research Institute SOC Limited set out on pages 6 to 21, which comprise the statement of financial position as at 31 March 2014, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended 31 March 2014, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA) and the Companies Act of South Africa 2008 (Act No.71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of South African National Energy Research Institute SOC Limited as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with SA Statements of GAAP and the requirements of the PFMA and Companies Act.
Emphasis of matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Restatement of corresponding figures 8. As disclosed in note 12 to the annual financial statements, the corresponding figures for 31 March 2013 have been restated as a result of an error discovered during 2014 in the financial statements of South African National Energy Research Institute SOC Limited for the year ended 31 March 2013 and 31 March 2012.
Additional matter 9. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Other reports required by the Companies Act 10. As part of our audit of the financial statements for the year ended 31 March 2014, I have read the Statement of Responsibility Report for the purpose of identifying whether there are material inconsistencies between these 4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 276 of 446
reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 11. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected programmes presented in the annual performance report, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 12. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant during the year under review.
Compliance with legislation 13. I performed procedures to obtain evidence that the public entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material noncompliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows:
Annual financial statements 14. The financial statements submitted for auditing were not fully compliant with SA Statements of GAAP as required by section 55(1)(a) and (b) of the Public Finance Management Act and section 29(1)(a) of the Companies Act. Material misstatement identified by management relating to the disclosure of fruitless and wasteful expenditure was subsequently corrected resulting in the financial statements receiving an unqualified audit opinion.
Expenditure management 15. The accounting authority did not take reasonable steps to prevent fruitless and wasteful expenditure, as required by section 51(1) (b) (ii) of the PFMA.
Internal control 16. I considered internal control relevant to my audit of the financial statements and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on the non-compliance with legislation included in this report.
Financial and performance management 17. Non-compliances with laws and regulations could have been avoided had the accounting authority implemented effective controls over monitoring of compliance with laws and regulations relating to the prevention fruitless and wasteful expenditure from being incurred.
Pretoria 31 July 2014
5 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 277 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March Note(s)
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
Assets Current Assets Trade and other receivables
3
Equity and Liabilities Share capital Accumulated loss
4
-
72
72
(18,183)
(16,970)
(15,351)
(18,183)
(16,970)
(15,351)
4,017 14,166
4,017 13,025
4,017 11,406
18,183
17,042
15,423
-
72
72
Liabilities Current Liabilities Trade and other payables Provisions
5 6
Total Equity and Liabilities
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 278 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Statement of Comprehensive Income For the year ended 31 March Note(s) Operating expenses
2014 R '000
2013 R '000 Restated
(72)
Operating loss Finance expense
2012 R '000 Restated -
(8,064)
(72) (1,141)
(1,619)
(8,064) (3,342)
Loss for the year
(1,213)
(1,619)
(11,406)
Total comprehensive loss
(1,213)
(1,619)
(11,406)
7
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 279 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the year ended 31 March Accumulated loss R '000
R '000
Total equity R '000
Balance at 01 April 2012 Total comprehensive loss for the year
-
(15,351) (1,619)
(15,351) (1,619)
Balance at 01 April 2013 Total comprehensive loss for the year
-
(16,970) (1,213)
(16,970) (1,213)
Balance at 31 March 2014
-
(18,183)
(18,183)
Note(s)
4
8 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 280 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Statement of Cash Flows For the year ended 31 March Note(s)
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
Cash flows from operating activities Transfer of trade and other receivales Transfer of trade and other payables
8 9
Cash utilised in operations Taxation Finance expense Transfer of financial assets Net cash from operating activities
1,141
1,619
11,917 (20,435)
1,141 (1,141) -
1,619 (1,619) -
(8,518) (72) (3,342) 16,456
-
-
4,596
Transfer of property, plant and equipment Purchase of other intangible assets
-
-
344 229
Net cash from investing activities
-
-
573
Transfer of third party funds
-
-
(34,725)
Net cash from financing activities
-
-
(34,725)
Cash and cash equivalents movement for the year Cash and cash equivalents at the beginning of the year
-
-
(29,556) 29,556
Cash and cash equivalents at end of the year
-
-
Cash flows from investing activities
Cash flows from financing activities
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 281 of 446
-
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of Financial Statements
1.1 Basis of preparation
The entities annual financial statements are prepared under the historical cost basis, except for derivative financial instruments and available-for-sale investments that have been measured at fair value. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the Companies Act of 2008. Although SA GAAP was withdrawn in December 2012, the Group obtained an extension for presenting its financial statements for 2014 on SA GAAP rather than International Financial Reporting Standards. These annual financial statements are presented in South African Rands, being the functional currency of the Group. Rounding is to the nearest Rand in thousands. The financial statements are prepared on the going concern basis. 1.2
Adoption of South African Accounting Standards
The company has adopted the following amended AC’s as of 1 January 2013:
The company has applied, for the first time, standards and certain amendments that require restatement of previous financial statements. Although SA GAAP was withdrawn in December 2012, the company obtained an extension for presenting its financial statements for 2014 on SA GAAP rather than International Financial Reporting Standards ‘IFRS’, thus IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangement, IFRS 12 Disclosures of Interests in Other Entities, IFRS 13 Fair Value Measurements and IFRIC 20 Stripping costs, were not adopted by the company as these standards were not applicable under SA GAAP. The company has adopted the following amended AC’s as of 1 January 2013: IAS 1(AC 101) Clarification of the requirement for comparative information (Amendment)
These amendments clarify the difference between voluntary additional comparative information and the minimum required comparative information. An entity must include comparative information in the related notes to the financial statements when it voluntarily provides comparative information beyond the minimum required comparative period. The amendments clarify that the opening statement of financial position (as at 1 April 2012 in the case of the company), presented as a result of retrospective restatement or reclassification of items in financial statements does not have to be accompanied by comparative information in the related notes. As a result, the company has not included comparative information in respect of the opening statement of financial position as at 1 April 2012.The amendments affect presentation only and have no impact on the company’s financial position or performance. IFRS 9(AC 146) Financial Instruments
IFRS 9, as issued, reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard was initially effective for annual periods beginning on or after 1 January 2013, but Amendments to IFRS 9 Mandatory Effective Date of IFRS 9 and Transition Disclosures, issued in December 2011, moved the mandatory effective date to 1 January 2015. In subsequent phases, the IASB is addressing hedge accounting and impairment of financial assets and the 1 January 2015 effective date of IFRS 9 was removed. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the company’s financial assets. The company will quantify the effect in conjunction with the other phases, when the final standard including all phases is issued. IAS 32(AC 125) Offsetting Financial Assets and Financial Liabilities - Amendments to IAS 32
These amendments clarify the meaning of “currently has a legally enforceable right to set-off” and the criteria for nonsimultaneous settlement mechanisms of clearing houses to qualify for offsetting. These are effective for annual periods beginning on or after 1 January 2014. The company will assess the impact of this amendment. Improvements to IFRS (2010-2012 cycle) and (2011-2013 cycle) are effective for annual periods beginning on or after 1 July 2014.
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 282 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Comparative figures
Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.4 Financial instruments Recognition
Financial assets and financial liabilities are recognised in the company Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial instruments recognised on the Statement of Financial Position include cash and cash equivalents, trade receivables, investments, trade payables, borrowings, and derivatives instruments. Inital measurement and recognition
Financial assets are initially measured at fair value, plus transaction costs. However transaction costs of financial assets classified as fair value through profit or loss are expensed. Regular way purchases or sales of financial assets area recognised on trade date, i.e. when the company commits to purchase or sell the asset.
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 283 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.4 Financial instruments (continued) Subsequent measurement
Subsequent measurement will depend on the classification of the financial asset as detailed below. The company has the following catgories of the financial assets as detailed below The company has the following categories of the financial asssets as detailed below. (a) Loans and receivables (b) Held-to-maturity investments; (c) Available-for-sale investment (d) Financial assets at fair value through profit or loss Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. Loans and receivables are carried at amortised cost using the effective interest rate method, less an allowance of uncollectable amounts. An estimate for impairment is made when objective evidence is available that indicates the collection of any amount outstanding is no longer probable. The amount of the impairment loss is charged to profit or loss. Bad debts are written off when identified Held-to-maturity The company classifies non-derivative financial assets with fixed or determinable payments and fixed maturity dates as held-to-maturity when the company has the positive intention and ability to hold the instrument to maturity. These assets are subsequently measured at amortised cost. Amortised cost is computed as the amount initially recognised minus principal repayments, plus or minus the cumulative amortisation using the effective interest rate method. This calculation includes all fees paid or received between parties to the contract. For investments carried at amortised cost, gains and losses are recognised in profit or loss when the investments are sold or impaired as well as through the amortisation process. Available-for-sale An investment that does not have a quoted market price in an active market and whose fair value cannot be measured reliably using an appropriate valuation model. After initial measurement, available-for-sale financial investments are subsequently measured at fair value with unrealised gains or losses recognised as other comprehensive income in the available-for-sale reserve until the investment is derecognised or the investment is determined to be impaired, at which time the cumulative gain or loss is recognised in other operating income, when the cumulative loss is reclassified from the available-for sale reserve to profit or loss. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives are classified as held for trade. Financial assets at fair value through profit or loss that are actively traded in financial markets is determined by reference to quoted market prices at the close of business on the reporting date. Where there is no active market, fair value is determined using valuation techniques such as discounted cash flow analysis that maximise the use of relevant observable inputs and minimises the use of unobservable inputs. The net changes in fair value are recognised as finance costs (negative changes in fair value) or investment income (positive net changes in fair value). The company recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the event or change in circumstances that caused the transfer has occurred. 12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 284 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.4 Financial instruments (continued)
Derecognition A financial instrument or a portion of a financial instrument is derecognised and a gain or loss recognised when the company’s contractual rights expire, financial assets are transferred or financial liabilities are extinguished. On derecognition of a financial asset or liability, the difference between the consideration and the carrying amount on the settlement date is included in finance charges and fair value movements for the year. Impairment of financial assets Non-derivative financial assets A financial asset not classified as at fair value through profit or loss, including an interest in an equity-accounted investee, is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the company on terms that the company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. Financial assets measured at amortised cost The company considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss in an allowance account against loans and receivables or held-tomaturity investment securities. Interest on the impaired asset continues to be recognised in investment income. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. Available-for-sale financial assets The company assesses at each reporting date whether there is objective evidence that an investment is impaired. Impairment losses on available-for-sale financial assets are recognised by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. The cumulative loss on a debt instrument that is reclassified from equity to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss recognised previously in profit or loss. Changes in cumulative impairment losses attributable to application of the effective interest method are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. Financial liabilities The company’s principal financial liabilities are interest bearing borrowings, accounts payable and bank overdraft. 13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 285 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.4 Financial instruments (continued)
Initial measurement and recognition Financial liabilities are recognised initially on the transaction date at fair value net of transaction costs. Subsequent measurement Subsequent measurement will depend on the classification of the financial liability as detailed below. Financial liabilities at fair value through profit or loss Financial liabilities are classified as held for trading if they are acquired for the purpose of selling in the near term. This category includes derivative financial instruments entered into by the company that are not designated as hedging instruments Gains or losses on net changes on fair value are recognised in profit or loss. Loans and borrowings Subsequently, interest-bearing loans and borrowings are measured at amortised cost, using the effective interest rate method, comprising original debt less principal payments and amortisation. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the effective interest rate amortisation process. Financial guarantee contracts Financial guarantee contracts issued by the company are those contracts that require a payment to be made to reimburse the holder for a loss it incurs because the specified debtor fails to make a payment when due in accordance with the terms of a debt instrument. Financial guarantee contracts are recognised initially as a liability at fair value, adjusted for transaction costs that are directly attributable to the issuance of the guarantee. Subsequently, the liability is measured at the higher of the best estimate of the expenditure required to settle the present obligation at the reporting date and the amount recognised less cumulative amortisation. Trade and other payables All financial liabilities are measured at amortised cost, comprising original debt less principal payments and amortisation. Bank overdraft and borrowings Bank overdrafts and borrowings are initially measured at fair value, and are subsequently measured at amortised cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognised over the term of the borrowings in accordance with the company’s accounting policy for borrowing costs. Offsetting Financial assets and financial liabilities are offset and the net amount presented in the statement for financial position when, and only when, the company has a legal right to offset the amounts and intends to either settle them on a net basis or to realise the asset and settle the liability simultaneously. Fair value considerations The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items Derivative financial instruments Derivative financial instruments, principally interest rate swap contracts and forward foreign exchange contracts, are 14 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 286 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.4 Financial instruments (continued) used by the company in its management of financial risks.
Derivative financial instruments are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Payments and receipts under interest rate swap contracts are recognised in the profit or loss on a basis consistent with the corresponding fluctuations in the interest payment on floating rate financial liabilities. The carrying amounts of interest rate swaps, which comprise net interest receivables and payables accrued are included in assets and liabilities respectively. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. All gains and losses arising from a change in fair value of or on disposal of held for trading financial assets are recognised in profit or loss. Cash and cash equivalents Cash and cash equivalents comprise cash at banks and on hand and short-term investments and deposits which are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. They have maturity period of three months or less. For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash and short-term deposits. Cash and cash equivalents
Cash and cash equivalents comprise cash at banks and on hand and short-term investments and deposits which are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. They have maturity period of three months or less. For the purpose of the consolidated statements of cash flows, cash and cash equivalents consist of cash and short-term deposits. Share capital
Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the asset of an entity after deducting all its liabilities. 1.5 Tax Current tax assets and liabilities
The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax is recognised for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the reporting date. 1.6 Subsequent events
Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.7 Irregular and fruitless and wasteful expenditure
Irregular expenditure means expenditure incurred in contravention of, or that is not in accordance with, a requirement of any applicable legislation, including: • •
The PFMA, or Any provisional legislation providing for procurement procedures in that provincial government.
When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: •
Could reasonable steps have been taken to avoid the expenditure? 15 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 287 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.7 Irregular and fruitless and wasteful expenditure (continued) • Were there policies and/or procedures governing the incurred expenditure? • Is it material? (for disclosure purposes)
Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. All irregular and fruitless and wasteful expenditure is charged against profit or loss in the period in which it is incurred and disclosed as a note to the annual financial statements of the company. When an accounting authority determines the appropriateness of disciplinary steps against an official, the accounting authority must take into account: • The circumstances of the transgression; • The extent of the expenditure involved; and • The nature and seriousness of the transgression. All unauthorized, irregular or fruitless and wasteful expenditure are disclosed as a note to the annual financial statements of the company. 1.8 Key assumptions made by management in applying accounting policies
In preparing the annual report, management is required to make estimates and assumptions that affect the amounts represented in the annual report and related disclosures. Use of available information and the application of judgement are inherent in the formation of estimates. Actual results in the future could differ from these estimates which may be material to the annual report. Significant judgements include: Going concern Management considers key financial metrics and loan covenant compliance in its approved medium term budgets, together with its existing term facilities, to conclude that the going concern assumption used in the compiling of its annual financial statements, is relevant. Evaluation of the useful life of assets. On an annual basis, management evaluate the useful life of all assets. In carrying out this exercise, experience of asset’s historical performance and the medium term business plan are taken into consideration. Contingent liabilities Management considers the existence of possible obligations which may arise from legal action as well as the possible non-compliance of the requirements of completion guarantees and other guarantees provided. The estimation of the amount disclosed is based on the expected possible outflow of economic benefits should there be a present obligation. Impairment testing Impairment tests are performed when there is an indication of impairment of assets or reversal of previous impairments of assets. Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets which include the estimation of cash flows and discount rates used. In estimating the cash flows, management base cash flow projections on reasonable and supportable assumptions that represent managements’ best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. Capital Management Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the company treasury. Group treasury invests surplus cash in money market investments, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient head-room as determined. 1.9 Related parties
16 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 288 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies The services received or rendered from or to related parties arise mainly from service transactions, including management fees for services performed on behalf of the company. The receivables from related parties arise mainly from service transactions and are due one month after the date of services. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties. The payables to related parties arise mainly from service transactions, including management fees and are due one month after the date of purchase. The payables bear no interest. The loans to or from related parties arise from loan agreements entered into for the year under review.
17 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 289 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements 2014 R '000
2.
2013 R '000 Restated
2012 R '000 Restated
Taxation Receivable Major components of the tax expense
The estimated tax loss available for set off against future taxable income is R18 183 million (2013: R16 970 million). No provision has been made for 2014 tax and deferred tax as it is not probable that there will be future profits against which losses can be utilised.
3.
Trade and other receivables Trade receivables
-
72
72
Bad debt written off
This relates to a SARS income tax refund that was owing to SANERI for the 2011 year of assessment which was paid to SANEDI. The amount has been written off as SANEDI will not be transferring these funds to SANERI. 4.
5.
Share capital Authorised 1 000 Ordinary par value shares of R1 each
-
1
1
Issued 100 Ordinary par value shares of R1 each
-
-
-
4,071
Trade and other payables VAT
SANERI has applied for a VAT ruling from SARS on whether SANERI should be exempt from VAT, given the current establishment of SANEDI as a Schedule 3A public entity. The ruling received from SARS confirms that SANERI has to be registered for VAT from 2006. SANERI has been registered for VAT and application will be done under the voluntary disclosure programme of SARS to waive the penalities and interest. 6.
Provisions Reconciliation of provisions - 2014
Provision for penalties and interest
Opening Balance 13,025
Additions
Opening Balance 11,406
Additions
1,141
Total 14,166
Reconciliation of provisions - 2013
Provision for penalties and interest
1,619
Total 13,025
Provision for penalties and interest The provision relates to the possible interest and penalties due to SARS for submission of the VAT returns from 2006. There is uncertainty as to the actual amount payable at the end of the financial year as no statement of penalties and interest has been received. An estimate of the liability has therefore been made.
18 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 290 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements 2014 R '000
7.
1,141
1,619
3,342
72 (1,141)
(1,619)
8,064 16,745 1,824
(1,069)
(1,619)
26,633
(1,213)
(1,619)
(11,406)
1,141 1,141
1,619 1,619
3,342 7,423
72 -
-
11,917 (16,745) (3,049)
1,141
1,619
(8,518)
Transfer of trade and other payables Operating costs Movement in trade and other payables Non-cash items adjusted
9.
2012 R '000 Restated
Finance expense Interest on outstanding VAT returns
8.
2013 R '000 Restated
Cash utilised in operations Loss before taxation Adjustments for: Finance expense Movements in provisions Changes in working capital: Trade and other receivables Trade and other payables Deferred income
10. Directors emoluments
For the year ended 31 March 2014 no payments were made to the following directors in their capacity as directors: Mr. K Nassiep
Executive
Dr C Cooper
Non-Executive
For the year ended 31 March 2013 no payments were made to the following directors in their capacity as directors: Mr. K Nassiep
Executive
Dr C Cooper
Non-Executive
11. Related parties `
Relationship Ultimate holding company National department providing Grant
CEF (SOC) Limited Department of Science and Technology
12. Prior period errors
The prior period comparative figures were restated to disclose fruitless and wasteful expenditure for prior periods. refer to note 13.
19 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 291 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements 2014 R '000
2013 R '000 Restated
2012 R '000 Restated
13. Fruitless and wasteful expenditure Fruitless and wasteful expediture (R'000) Penalities and interest paid to SARS
1,141
1,619
11,406
SANERI has incurred interest of R14,166 million as a result of an unpaid VAT liability to SARS. The liability was incurred during the 2009 financial year. SANERI will apply to SARS under the Voluntary Disclosure Programme to have the penalties and interest waived. SANERI will, through SANEDI, submit a request for a MTEF allocation for the financial year ending 2015/16 from the Department of Energy to discharge the VAT liability. Reconciliation of fruitless and wasteful expenditure Opening balance Fruitless and wasteful expenditure – relating to prior year Fruitless and wasteful expenditure – relating to current year
13,025 1,141 -
11,406 1,619 -
11,406
Fruitless and wasteful expenditure awaiting condonation
14,166
13,025
11,406
Current Relating to prior years
1,141 13,025
1,619 11,406
11,406 -
Total
14,166
13,025
11,406
Analysis of awaiting condonation per economic classification
20 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 292 of 446
South African National Energy Research Institute (SOC) Limited Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statements 2014 R '000
2013 R '000 Restated
2012 R '000 Restated
13. Fruitless and wasteful expenditure Fruitless and wasteful expediture (R'000) Penalities and interest paid to SARS
1,141
1,619
11,406
SANERI has incurred interest of R14,166 million as a result of an unpaid VAT liability to SARS. The liability was incurred during the 2009 financial year. SANERI will apply to SARS under the Voluntary Disclosure Programme to have the penalties and interest waived. SANERI will, through SANEDI, submit a request for a MTEF allocation for the financial year ending 2015/16 from the Department of Energy to discharge the VAT liability. Reconciliation of fruitless and wasteful expenditure Opening balance Fruitless and wasteful expenditure – relating to prior year Fruitless and wasteful expenditure – relating to current year
13,025 1,141 -
11,406 1,619 -
11,406
Fruitless and wasteful expenditure awaiting condonation
14,166
13,025
11,406
Current Relating to prior years
1,141 13,025
1,619 11,406
11,406 -
Total
14,166
13,025
11,406
Analysis of awaiting condonation per economic classification
21 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 293 of 446
South African Supplier Development Agency NPC (Registration number 2005/001519/08) Annual financial statements for the year ended 31 March 2014
These annual audited financial statements were prepared under the supervision of Mr SK Mthethwa (CA) (SA) Group Chief Financial Officer - CEF SOC Ltd
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 294 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile Nature of business and principal activities
South Africa The objective of the company is to accelerate progress in the empowerment of historically disadvantaged South African suppliers in the petroleum industry through increased access to industry procurement opportunities.
Directors
Mr G C Ngcukana Mr M Kajee Mr L Saki
Registered office
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Business address
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
Postal address
P O Box 786141 Sandton 2146
Holding company
CEF SOC Ltd incorporated in South Africa
Bankers
ABSA Bank Ltd Protea Park Branch
Auditors
Auditor General of South Africa
Company Secretary
CEF SOC Ltd
Company registration number
2005/001519/08
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 295 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Report of the Independent Auditors
3-6
Directors' Responsibilities and Approval
7
Statement on Corporate Governance
8 - 11
Report of the Board Audit and Risk Committee
13
Directors' Report
15 - 17
Statement from Company Secretary
12
Materiality and Significance Framework
18
Statement of Financial Position
19
Statement of Comprehensive Income
20
Statement of Changes in Equity
21
Statement of Cash Flows
22
Accounting Policies
23 - 29
Notes to the Annual Financial Statements
30 - 39
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 296 of 446
Report of the Auditor-General to Parliament on South African Supplier Development Agency NPC Report on the financial statements Introduction 1. I have audited the financial statements of the South African Supplier Development Agency NPC set out on pages 19 to 40, which comprise the statement of financial position as at 31 March 2014, the statement of financial performance, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority, is responsible for the preparation and fair presentation of these financial statements in accordance with the South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act of South Africa (Act No. 1 of 1999)(PFMA) and the Companies Act of South Africa (Act No. 71of 2008) (Companies Act) and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 297 of 446
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the South African Supplier Development Agency NPC as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with the SA Statements of GAAP and the requirements of the PFMA and the Companies Act.
Emphasis of matter 7. I draw attention to these matters below. My opinion is not modified in respect of these matters. Going-concern 8. The accounting authority’s report on page 17, paragraph 7 of the financial statements indicates that SASDA (NPC) incurred a net loss of R 6, 9 million during the year ended 31 March 2014 and, as of that date, the entity’s current liabilities exceeded its total assets by R 65, 6 million. The paragraph further states that the directors believe that the company will not continue as a going-concern in the year ahead. These conditions, along with other matters as set forth in the accounting authority’s report paragraph 8, indicate the existence of a material uncertainty that may cast significant doubt on the public entity’s ability to operate as a going concern. Restatement of corresponding figures 9. As disclosed in note 16 to the annual financial statements, the corresponding figures for 31 March 2013 have been restated as a result of an error discovered during 2014 in the financial statements of South African Supplier Development Agency NPC for the year ended 31 March 2014.
Additional matter 10. I draw attention to the matter below. My opinion is not modified in respect of this matter Other reports required by the Companies Act 11. As part of our audit of the financial statements for the year ended 31 March 2014, I have read the Directors’ Report, the Audit Committee’s Report and the Company Secretary’s Certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 12. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings relevant to the reported performance information against predetermined objectives for selected programmes presented in the annual performance report, compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 298 of 446
Predetermined objectives 13. I was unable to report on the usefulness and reliability of the reported performance information, as the annual performance report of the public entity was not prepared as required by section 55(2)(a) of the PFMA.
Compliance with legislation 14. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows: Annual financial statements 15. The financial statements submitted for auditing were not fully compliant with SA Statement of GAAP as required by section 55(1)(a) and (b) of the PFMA. Material misstatements on employee costs identified were corrected, resulting in the financial statements receiving an unqualified audit opinion. Expenditure Management 16. The accounting authority did not take effective and appropriate steps to prevent fruitless and wasteful expenditure as required by section 51(b) (ii) of the PFMA. Audit Committee Members 17. The shareholder has not appointed members of the audit committee to the board of directors of the entity as required by section 94(4) of the Companies Act. Strategic planning and performance management 18. The corporate plan for the entity for the year ended 31 March 2014 was not approved by the shareholder and as a result the accounting authority did not submit the corporate plan for the entity to the national treasury as required by section 52(b) of the PFMA.
Internal control 19. I considered internal control relevant to my audit of the financial statements and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies and the findings on non-compliance with legislation included in this report. Leadership 20. Leadership does not exercise adequate oversight responsibility regarding financial and performance reporting and compliance and related internal controls to address the on-going compliance of the relevant legislation.
5 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 299 of 446
Financial and performance management 21. As indicated in paragraph 15 of this report, the financial statements contained misstatements that were corrected. This was mainly due to lack of review by finance management of adjustments made to the financial statements to ensure that they are correctly recorded. 22. Non-compliance with laws and regulations reported above could have been prevented had compliance been properly reviewed and monitored.
Pretoria 31 July 2014
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 300 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Responsibilities and Approval The Board of Directors (Board or the Directors) is required, by the Companies Act, No 71 of 2008 of South Africa (Companies Act), and the Public Finance Management Act No 1, 1999, of South Africa (PFMA), to prepare annual financial statements which fairly present the state of affairs of SASDA as at the end of the financial year, the profit or loss and cash flows of the Company for the financial year then ended. In preparing these annual financial statements, the directors are required to:
Select suitable accounting policies and apply them consistently
Make judgements and estimates that are reasonable and prudent
State whether applicable accounting standards have been followed: and
Prepare the annual financial statements on the discontinued
The directors of the Company are responsible for the maintenance of adequate accounting records, maintenance of appropriate systems of internal control as well as the preparation and integrity of the annual financial statements and related information.
Directors’ statements The Audit Committee has evaluated the Company annual financial statements and has recommended their approval to the Board. In preparing the Company annual financial statements, the Company has complied with IFRS and the Companies Act. In addition, the Company has complied with the reporting requirements of the PFMA, except as set out in the Report of the Directors on page 12-14. The Company has used appropriate accounting policies supported by reasonable and prudent judgements and estimates. Judgements and estimates made in the application of IFRS, that have a significant impact on the annual financial statements are disclosed in the accounting policies. The external auditors, Auditor-General, are responsible for independently auditing and reporting on the annual financial statements in conformity with International Standards on Auditing. Their unmodified audit report on the annual financial statements, prepared in terms of the Public Audit Act of South Africa, Act No. 25 of 2004 (PAA), appears on pages 3 to 6. The Internal Audit activities are in accordance with the preapproved Internal Audit Plan. The Internal Audit Plan is reviewed and approved by the Audit Committee annually. CEF Soc Ltd Internal Audit has executed the Internal Audit Plan during the year and has provided assurance to the Board of Directors as to the state of the internal controls of the Company. Their assessment of the internal controls of the Company is included in the Audit Committee Report. The Audit Committee has reviewed the effectiveness of the Company’s internal controls and considers the systems appropriate for the effective operation of the Company. The directors are of the opinion that the Company have complied with applicable laws and regulations except as disclosed in the Report of the Directors as set out on page 16-18. The directors are of the opinion that these annual financial statements fairly present the financial position of the Company as at 31 March 2014, and the results of their operations and cash flow information for the year then ended. The annual financial statements have been prepared under the supervision of the Group Chief Financial Officer. The annual financial statements set out on pages 15 to 39, for the year ended 31 March 2014, which have been prepared on liquidation basis, were approved by the board of directors on 28 July 2014 and were signed by them or on their behalf by:
CEF Director
CEF Director
28 July 2014 7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 301 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement on Corporate Governance 1.
Introduction The company's Board of Directors (the Board) strives to promote the highest standard of corporate governance, by subscribing to the principles of good corporate governance as outlined in the King III Report on Corporate Governance, Public Finance Management Act of 1999 (PFMA), Companies Act of 2008 and Protocol on Corporate Governance in the Public Sector. Good corporate governance includes the structures, processes and practices that the Board uses to direct and manage operations of SASDA. This is to ensure proper accountability by the Board to the shareholders and other stakeholders. It is the Board’s understanding and belief that adherence to good corporate governance will improve the confidence of the shareholder, stakeholders and employees in the leadership of the company. This in turn will allow space for wealth creation and economic well being to the wider community of stakeholders and society. To ensure that the company is managed in an efficient, accountable, responsible, moral and ethical manner in compliance with these principles, an on going monitoring of the developments in the field of corporate governance is maintained and improvements are made to the extent determined as appropriate. 1.2 Highlights on governance for the year under review. The following are highlights of implementations on the company's governance framework during the reporting period: The seperation of the Audit and Risk commitees into specific commitees for Risk and Audit to align with the King III and the Companies Act and to facilitate more focus on these two critical areas; Evaluations of the Board and its committees Drafting of the new Memorandum of Incorporation (MOI) to replace the existing Memorandum and Articles of Association in accordance with the Companies Act 2008.
2.
Compliance The board of directors believe that the entity endorses the principles as set out in the Protocol on Corporate Governance, and where applicable, the King Report on Corporate Governance for South Africa (King IlI) and have endeavoured to comply with the Public Finance Management Act (PFMA). The report is also presented in terms of Treasury Regulations and PFMA which requires the directors to maintain adequate accounting records to prepare financial statements which fairly present the financial position of SASDA. The entity has a formalised system of corporate governance as set out below.
3.
Governing bodies Board of directors In terms of section 49 of the PFMA, the Board is the accounting authority of the group. The group has a unitary Board structure made up of a majority of non executive directors, appointed by the shareholder. The size of the Board is dictated by Section 1 (4) of the Central Energy Fund Act, No. 38 of 1977 ('CEF Act'), as amended, which permits a maximum of 8 directors appointed by the Shareholder. In line with the recommendations of KING III the positions of Chairman and Chief Executive Officer are separately held to ensure a clear division of duties. The Board retains overall accountability for the running of the company and reserves, for itself, decisions on matters that could have a material impact on the business, addressing a range of key issues to ensure that it retains the strategic direction of, and proper control over the company, ensuring that policies and procedures are in place, monitoring the performance of the group against agreed objectives, identifying key performance and risk areas, providing effective leadership on an ethical foundation, ensuring that there is an effective risk based internal audit function, defining levels of materiality, reserving specific powers to itself and delegating other matters, with the necessary written authority, to the CEO, ensuring that timelines for submission of reports in compliance with the PFMA and other applicable laws affecting the business are adhered to, including submission of financial statements and ensuring that annually a Shareholder's Compact is concluded with the shareholder in respect of agreed performance indicators for the Company in the next year. Executive Management is charged with the day-to-day running of the business The non executive directors are appointed in terms of the CEF Act and re-appointment is not automatic. The Board met three times during the period under review due to efforts to synchronise the meetings with the reporting requirements of the PFMA.
8 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 302 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement on Corporate Governance Board committees The Board established several committees in order to assist it in the discharge of its duties. Each Committee operates within the defined terms of reference and is chaired by a executive director. Board audit and risk committee The Audit and Risk Committees comprise at least three independent non-executive directors appointed by the shareholder at each annual general meeting. The Committee meets at least four times per annum. The Committees are chaired by an independent non-executive director who is not the chairperson of the Board. The Committees consist of three members with financial, internal and external audit, corporate law and other relevant experience. The Committees charter is reviewed annually by the Board. The Committees are responsible for overseeing the internal audit function, Company compliance function, risk management and control processes of the Company. The Chief Executive Officer and Chief Financial Officer are permanent invitees to these meetings. Other executive managers are invited to the committee meetings when appropriate. Group compliance risk management function The Board is accountable for ensuring that there is compliance with law, regulations, policies and procedures and any adopted standards applicable to the company. The function of compliance has been delegated throughout the company based on specialist areas. As a principle the Company does not tolerate non-compliance with laws, regulations, and any of its own standards. The company is working on providing combined assurance on compliance to the Board going forward. Business continuity management as a discipline, within the compliance function, maintains a collection of plans readily accessible and available for use in the event of a disaster or major disruptions to business activities. These plans are empowered by an approved Business Continuity Management policy. This policy requires that all business continuity plans across the organisation be kept in ready mode for execution and be updated at a minimum every three years, or as and when material changes to business processes occur. The Company philosophy on enterprise wide risk management is that of pro-active management of risks whilst exploiting any related opportunities that could present themselves as risks. The current governance policies in place include: - Business Continuity Management Plan; - Fraud Prevention Policy; and - Code of Ethics Policy. Some of these governing policies and structures have been supplemented with work procedures, practise frameworks and terms of references. Risks are continuously identified throughout the organisation, including mitigation strategies and where appropriate management action plans. This process is rolled into development of a corporate strategic risk register that is dynamic in nature and reviewed quarterly by EXCO and the Board. In line with integrating and embedding a culture of enterprise wide risk management, risk management plays a pivotal role and informs key decisions taken by management and the Board. The Company is Committed to the eradication of fraud, corruption, misconduct and any irregularities. The Fraud Prevention Policy addresses fraud risk management from both proactive and reactive perspective.
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 303 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement on Corporate Governance The Company has outsourced its whistle blower hotline, which is available to staff, various stakeholders and members of the public. All reported cases are treated with utmost confidentiality to protect the rights of both the whistle blower and the alleged party. 4.
Approving key policies, investments, risk management and relevant transactions that exceed managements' levels of authority; Reviewing and approving the entity’s strategy, objectives, and plans; Considering and approving annual financial statements and submissions to the shareholder; Ensuring adherence to good corporate governance and ethics; and Reviewing effectiveness of controls.
Materiality and significance framework A materiality and significance framework is in place. Its purpose is to regulate disclosure of material facts to the Minister of Energy, disclosure in the Company annual financial statements and approval from the Minister of Energy for participation in certain transactions.
5.
Directors' responsibility for the annual financial statements The Directors of the Company are responsible for the entity's annual financial statements and other information presented in the annual financial statements. The Auditor General is responsible for performing an independent audit of the annual financial statements. The annual financial statements and notes thereto are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (SAGAAP). Accounting policies are consistently applied except where otherwise stated, in which case full disclosure of changes are made.
6.
Internal audit SASDA uses the services of the company's internal audit function that has the support and cooperation of both the board and management. The internal audit function has written terms of reference for the Company, approved by the holding Company Board of Directors annually. The internal audit function is under the control and direction of the board. The Internal Audit function carries out its work in terms of an approved internal work plan based on the risk framework of the company. The annual work plan is approved by the audit committee. The Chief Audit Executive has full access to the chairpersons of the audit committee and the board of directors. The key responsibilities of internal audit are to the board through the board audit risk committee, its committees, or both, in discharging its responsibilities by:
Evaluating the entity's governance processes including ethics review; Performing an objective assessment of the effectiveness of risk management and internal control framework; Systematically analysing and evaluating business processes and associated controls; and Providing a source of information, as appropriate, regarding incidents of fraud, corruption, unethical behaviour and irregularities.
The Chief Audit Executive developed and maintained a quality assurance and improvement program. The internal audit function is subjected to an external quality review at least every 5 years, the last review was conducted in March 2013 and the evaluation result was “general conformance", which is the highest level of conformance. The next review is due in 2018. 7.
Company Secretary The Company Secretary is responsible for ensuring that the Company's affairs, as well as the Board proceedings are properly carried out in accordance with the relevant laws and standards. The Company Secretary provides the board of directors with guidance and advice on matters of business ethics and good governance, as well as on the nature and extent of their duties and responsibilities and how such duties and responsibilities should be properly discharged. Each of the Directors have unrestricted access to the advice and services of the Company Secretary team and Company information, and are entitled to seek independent professional advice, at the Company's expense in pursuance of their duties as director. The Company Secretary is responsible to the Board.
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 304 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement on Corporate Governance 8.
Management reporting Comprehensive management reporting disciplines are in place, which include the preparation of an annual corporate plan and budget approved by the board of directors. Monthly and quarterly results are reported against the approved budget to the Executive Committees and the boards of directors respectively for review. There are comprehensive management reporting disciplines in place, which include the preparation of annual budgets by all divisions and reporting thereon on a quarterly basis. The budget and capital expenditure are reviewed and approved by the board. Quarterly performance results and the financial status of the company are reported against approved targets. Profit projections and forecasted cash flows are updated monthly, while working capital and borrowing levels are monitored on an ongoing basis. Executive Management meets on a regular basis to consider day to day issues pertaining to the business of Company.
9.
the
Code of Ethics Entities within the Company have codes of ethics which require employees to observe the highest ethical standards thereby ensuring that business practices are conducted in a manner which is beyond reproach. Directors and employees are required to maintain the highest ethical standards, ensuring that business practices are conducted in a manner which, in all reasonable circumstances, are beyond reproach. The Code of ethics serves as a guide to assist the Board, Executive Management, staff of the Company in making ethical decisions and engaging in appropriate and lawful conduct. The Company has contracted the services of an independent hotline service providing for the confidential reporting of fraud and other inappropriate behaviour. Employee breaches are dealt with in accordance with the disciplinary policy. In addition, directors are required to annually declare their interests in contracts as well as directorships in other companies in accordance with the Companies Act
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 305 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement from secretary In my capacity as Company Secretary, I hereby confirm, except where otherwise mentioned in the annual financial statements, for the year ended 31 March 2014, that the company has lodged with the Companies and Intellectual Property Commission all such returns as are required of a company in terms of this act and that all such returns are to the best of my knowledge and belief, correct and up to date.
Mr A Haffejee Group Secretary 28 July 2014
12 The supplementary information presented does not form part of the annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 306 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Report of the Board Audit and Risk Committee We are pleased to present our report for the financial year ended 31 March 2014. 1.
Charter The roles and responsibilities for the Audit Committee and risk committee were split during the financial year to improve and focus attention on risk management activities separately. The members of the two committees are the same members and the committee meetings happened on the same dates. The Audit Committee is guided by a detailed charter that is reviewed and approved by the board on an annual basis. The audit committee has regulated their affairs in compliance with this charter and has discharged all their responsibilities as contained therein. The Board Audit and Risk Committee (the Committee) is guided by a detailed charter that is reviewed and approved by the Board on an annual basis. The Committee has regulated its affairs in compliance with this charter and has discharged all its responsibilities as contained therein.
2.
Purpose The Committee’s purpose and responsibilities arise from the Public Finance Management Act of 1999; Section 76 (4)(d) and Treasury Regulations 27.1. In performing its responsibilities the committee has reviewed the following:
3.
the effectiveness of the internal control systems; the effectiveness of the internal audit function; the risk areas of operations to be covered in the scope of the internal and external audits; the adequacy, reliability and accuracy of financial information provided to management and other users of such information; the accounting and auditing concerns identified as a result of the internal or external audits; compliance with applicable legal and regulatory provisions; the activities of the internal audit function, including its annual work program, coordination with the external auditors, the reports of significant investigations and the responses of management to specific recommendations; and the independence and objectivity of the external auditors.
Membership The Committee was appointed by the Board of Directors and comprises of at least three non-executive members. The Committee consists of the members listed here under and should meet at least twice per annum as per the approved Charter. During the financial year four meetings were held. Name of members Mr M Kajee (Chairperson) Ms N Mgadza Ms P Ravjee
4.
Number of meetings attended 4 4 2
External audit The Committee, in consultation with executive management, agreed to the engagement letter, terms, nature and scope of the external audit plan as presented by the Auditor-General of South Africa (AGSA). We have reviewed the AuditorGeneral of South Africa's Strategic Audit Plan for the 2014 financial year and have recommended approval of their budget to the board of directors. The Committee has satisfied itself that the Auditor-General of South Africa exercised their duties in an independent and objective manner.
5.
Internal Audit The Committee considered and recommended the internal audit charter for approval to the board and approved the annual work plan for the internal audit function. The internal audit function is responsible for reviewing and providing assurance on the adequacy of the internal control environment across operations. The Chief Audit Executive is responsible for reporting the findings of the internal audit work against the agreed audit plan to the Committee on a quarterly basis. The Chief Audit Executive has direct access to the Committee, primarily through its Chairperson. The Committee is also responsible for the assessment of the performance of the internal audit function. In 2007, an external effectiveness review was performed by the Institute of Internal Auditors (IIA), reporting positive results and rating the internal audit function as “generally conformance” with the IIA Standards. 13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 307 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Report of the Board Audit and Risk Committee The Internal Audit function is independent and has the necessary resources, budget, standing and authority within the organisation to enable it to discharge its functions. We are satisfied that the internal audit function is operating effectively and that it has addressed the risks pertinent to the Company in its audits. We believe Internal Audit contributes to the improvement of internal controls within the Company. 6.
Internal control effectiveness The Committee is satisfied that a system of internal controls has been put in place and that these controls have functioned effectively during the period under review. The Committee considers the system of internal controls appropriate in all material respects to: reduce risks to an acceptable level; meet the business objectives; ensure assets are adequately safeguarded; and ensure that transactions undertaken are recorded in the accounting records. Internal Audit provides the Committee with assurance that internal controls are appropriate. This is achieved by means of the risk management process, as well as the identification of corrective actions and suggested enhancements to the controls and processes. From the various reports of the internal auditors, we noted that no matters were reported that indicate any material deficiencies in the system of internal control or any deviations there from. It was noted that no significant or material non compliance with prescribed policies and procedures has been reported. Accordingly, we can report that the system of internal controls for the period under review was effective except for those identified by external auditors.
7.
Corporate governance We are of the opinion that the Company continues to strive towards complying with sound principles of corporate governance. As per our discussions with management, management confirms that the content and quality of monthly and quarterly reports prepared and issued by the Acting Chief Executive Officer during the year under review were properly formulated and have complied with the PFMA in this regard. The Committee is in the process of reviewing its corporate governance practices with a view to complying with the requirements of the 2008 Companies Act and King III recommendations.
8.
Risk management The Board assigned the oversight of the risk management function to the Committee. The Company implemented a risk management strategy which includes the fraud prevention plan and combined assurance plan. A formal risk assessment was undertaken for the year ending 31 March 2014 with quarterly reviews, updates and reports. Consequently, internal audit used this assessment to prepare the three year rolling strategic plan and the annual operating audit plan. The Committee monitors the significant risks faced by the Company by participating in risk assessment workshop and through reviewing risk reporting which is informed by management report, internal audit reports and external audit reports. We are satisfied that significant risks were managed to an acceptable level.
9.
Annual Financial Statements We have: Reviewed and discussed with management the annual financial statements; Reviewed the Auditor General of South Africa management letter and management’s response thereto; We therefore recommend to the Board for approval.
10. Appreciation The Committee expresses its sincere appreciation to the Acting Chief Executive Officer, Management, Internal Audit and the Auditor-General of South Africa.
CEF Board Audit and Risk Committee 23 July 2014 14 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 308 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report The Board of Directors acts as the accounting authority in terms of the Public Finance Management Act No.1 of 1999 (as amended by Act No.29 of 1999), (PFMA). 1.
Incorporation South African Supplier Development Agency NPC was incorporated on 18 February 2005 and obtained its certificate to commence business on the same day. Directors The Directors of the Company during the year and to the date of this report are as follows: Name Mr G C Ngcukana Mr M Kajee Mr L Saki Ms G Leketi
= = =
2013/05/08
2013/07/16
2013/10/02
2013/11/13
2014/03/03
Mr G C Ngcukana Mr L Saki Mr M Kajee Ms G Leketi Y N N/A
Appointed 01 November 2007 01 December 2012 01 June 2012 01 December 2012
Chairperson Non Execuctive member Executive member Non-Executive member Non-Executive member
Y Y Y Y
Y Y Y Y
Y Y Y N
Y Y Y N
Y Y Y N
Resigned 31 March 2013 31 March 2013 31 March 2013 31 March 2013
Attended meeting Apology received Not a director at the date of the meeting
Board audit and risk committee The Committee consists of the following members: Name Mr M Kajee Ms N Mgadza Ms P Ravjee
Appointed 01 February 2009 21 January 2009 28 January 2009
Chairperson Member Member
Resigned 31 March 2014 31 March 2014 31 March 2014
Y N
= =
2013/11/13
2014/03/03
Mr M Kajee Ms M Mgadza Ms P Ravjee
2013/07/13
Attendance at meetings:
2013/05/08
2.
Y Y Y
Y Y Y
Y Y N
Y Y N
Attended meeting Apology received
All the members are independent non-executive members, except for the Chairperson who is a non-executive director. 15 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 309 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report This Board Audit and Risk Committee met on three occasions during this financial year period. The Internal Audit, External Auditors and such members of management as are deemed necessary also attend these meetings. The Board Audit and Risk Committee is responsible for the internal controls and risk management of the entity delegated to it by the Board of Directors. In order to meet its requirements it reviews the findings of both internal and external auditors. In addition it reviews important accounting issues, material pending litigation if applicable, entity insurance, risk management and disclosure requirements in the annual financial statements. The responsibilities of this sub-committee of the Board of Directors are set out in the report of the Board Audit and Risk Committee which forms part of these annual financial statements. 3.
Company Secretary The secretary of the Company is CEF SOC Ltd and its business and postal addresses are as follows: Business address Block C Upper Grayston Office Park 152 Ann Crescent, Strathavon Sandton 2199 Johannesburg Postal address P O Box 786141 Sandton 2146
4.
Nature of business Main business and operations The main business objective of the Company is to accelerate progress in the development of Black Suppliers in order to contribute meaningfully to BBBEE and Economic Growth within the participating Industries as well as all the other sectors of the economy through increased access to procurement activities. The operating results and state of affairs of the entity are fully set out in the attached annual financial statements and do not in our opinion require any further comment.
5.
Review of financial position Analysis and review of results and financial position The company's business and operations and the results thereof are clearly reflected in the attached annual financial statements. No material fact or circumstance has occurred between the accounting date and the date of this report. 5. 1 Property, plant and equipment The Directors of the entity evaluated the estimated useful life of the fixed assets at 31 March 2014 to ensure that the assets were fairly stated at the year end. 5. 2 Loans The CEF SOC Ltd Board has subordinated its loan of R64.2 million (2013: R55.5 million) in favour of the Creditors of the Company.
6.
Dividends No dividends have been considered for payment in the current financial period.
16 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 310 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Directors' Report 7.
Going concern The Company reported a profit for the year ended 31 March 2014 of R6,9 million (2013: R14.9 million loss) . The profit is as a result of the write-off of the loan from CEF as per the CEF Board of Directors approval in line with the closure of SASDA as an entity. The Directors believe that the Company will not continue as a going concern in the year ahead. The annual financial statements have been prepared on the liquidation basis.
8.
Review of operations The Company did not operate as anticipated that resulted to the closing down of business as from 31 March 2014.
9.
Holding company The entity's holding Company is CEF SOC Ltd South Africa . The annual financial statements set out on pages 19 to 39, which have been prepared on the liquidation basis, were approved by the Board of Directors on 28 July 2014 and were signed on its behalf by:
CEF Director
CEF Director
Sandton 28 July 2014
17 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 311 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Materiality and Significance Framework For purposes of materiality (as per PFMA sections 50(1) and 55 (2)) and significant (as per PFMA sections 54(2)) framework the following of acceptable levels was agreed with the Executive Authority in consultation with the Auditor General:
Section 50(1) - Material facts to be disclosed to the Minister of Energy are considered to be facts that may influence the decisions or actions of the Stakeholders of the Public Entity or the Group of companies.
Section 55(2) - Disclosure of material losses in the Annual Financial Statements will be for all losses through criminal conduct and any irregular expenditure and fruitless and wasteful expenditure that occurred during the year.
Section 54(2) - The criteria to determine the level of significance was based upon the guiding principles as set out in the "Practice Note on applications under Section 54 of the PFMA no.1 of 1999 (as amended) by Public Entities" as published by National Treasury during 2006 subject to adjustments for any Section 54(4) exemptions. The significant Rand level was determined as being 2% of Total Assets as follows: APPROVAL LEVELS IN TERMS OF SECTION 54
Public Entity's board approval levels
Approval level of the CEF Board in terms of subsidiary companies
R26000 and R671 million
Obtain Department of Energy approval and inform National Treasury via the top-most holding company
>R671 million
18 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 312 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R '000
2013 R '000
Assets Non-Current Assets Property, plant and equipment Intangible assets
2 3
Current Assets Trade and other receivables
5
Total Assets
-
235 36
-
271
-
627
-
898
Equity and Liabilities Equity Share capital Retained income
6
-
(56 335)
-
(56 335)
4
-
55 571
7
-
1 662 -
-
1 662
Total Liabilities
-
57 233
Total Equity and Liabilities
-
898
Liabilities Non-Current Liabilities Loans from CEF SOC Ltd
Current Liabilities Trade and other payables Deferred income Provisions
16
19 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 313 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Comprehensive Income For the year ended March 31, 2014 Note(s)
2014 R '000
2013 R '000
Revenue Other income Operating expenses
9 9 8
65 720 (9 386)
2 159 5 (14 770)
Operating profit/ (loss) Investment income
8
56 334 -
(12 606) -
Profit/(loss) for the year
56 334
(12 606)
Total comprehensive income (loss)
56 334
(12 606)
20 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 314 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the period ended 31 March 2014 Share capital R '000
Retained income R '000
Total equity R '000
Balance at 01 April 2012 Changes in equity Total comprehensive loss for the period previously reported Prior year adjustment
-
(43 729)
(43 729)
-
(14 972) 2 366
(14 972) 2 366
Total changes
-
(12 606)
(12 606)
Balance at 01 April 2013 Changes in equity Total comprehensive loss for the period
-
(56 334)
(56 334)
-
56 334
56 334
Total changes
-
56 334
56 334
Balance at 31 March 2014
-
-
-
21 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 315 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Statement of Cash Flows For the period ended 31 March 2014 Note(s)
2014 R '000
2013 R '000
Cash flows from operating activities Cash receipts from customers Cash paid to suppliers and employees 10
Cash utilised by operations Investment income Net cash from operating activities
64 847 (9 266)
2 409 (17 355)
55 581 -
(14 946) -
55 581
(14 946)
Cash flows from investing activities 2 2 3
Purchase of property, plant and equipment Sale of property, plant and equipment Purchase of other intangible assets Net movement in funds held by holding company Net cash from investing activities
(10) -
(27) (27)
(10)
(27)
Cash flows from financing activities Net movement on shareholders loan
(55 571)
14 973
Net cash from financing activities
(55 571)
14 973
Cash and cash equivalents movement for the year Cash and cash equivalents at the beginning of the year
-
-
Cash and cash equivalents at end of the year
-
-
22 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 316 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of Financial Statements The following are the principal accounting policies used by the Company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and the Companies Act of South Africa of 2008 and the Corporate Laws Amendment Act.The annual financial statements are prepared on the liquidation basis. The annual financial statements are prepared on historical cost basis, except where otherwise specified. 1.2 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Property, plant and equipment Property, plant and equipment represent tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period. Carrying amounts All property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost Cost includes all costs directly attributable to bringing the assets to the working condition for their intended use. Improvements are capitalised. Maintenance, repairs and renewals which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. Finance costs directly associated with the construction or acquisition of major assets are capitalised at interest rates relating to loans specifically raised for that purpose, or at the average borrowing rate where the general pool of borrowings is utilised. Derecognition The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount. The gain or losses arising from derecognition of an item of property, plant and equipment is included in profit or loss. Gains on disposal will not be classified as revenue. Depreciation Depreciation is charged so as to write off the depreciable amount of the assets, other than land, over their estimated useful lives to estimated residual values, using the straight line method to write off the cost of each asset that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated useful lives. The useful life of the assets are reviewed annually. The following methods and rates were used during the year to depreciate property, plant and equipment to estimated residual values:
23 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 317 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Property, plant and equipment (continued) Item Furniture, fittings and communication equipment Office equipment Computer equipment
Average useful life 6 years 6 years 3 years
The methods of depreciation, useful lives and residual values are reviewed annually. 1.4 Intangible assets An intangible asset is an identifiable non monetary asset without physical substance. Intangible assets are initially recognised at cost if acquired separately or internally generated or 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 tested for impairment annually and impaired if necessary. If assessed as having a finite useful life, it is amortised over its useful life using a straight-line basis and tested for impairment if there is an indication that it may be impaired. Research expenditure relating to gaining new technical knowledge and understanding are recognised in profit or loss when incurred. Development costs are capitalised only if they result in an asset that can be identified, it is probable that the asset will generate future economic benefits and the development cost can be reliably measured. Otherwise it is recognised in profit or loss. Purchased software and the direct costs associated with the customisation and installation thereof are capitalised. Amortisation is provided to write down the intangible assets, on a straight line basis, to their residual values as follows: Item Computer software, other
Useful life 2 years
1.5 Impairment of non- financial assets At each reporting date, the entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash generating unit to which the asset belongs. Value in use is estimated taking into account future cash flows, forecast market conditions and the expected lives of the assets,discounted by the weighted average cost of capital. If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, its carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. Subsequent to the recognition of the impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. If an impairment loss is subsequently reversed, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount but limited to the carrying amount that would have been determined had an impairment loss not been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. 1.6 Leases Rentals payable under operating leases are recognised in profit or loss on a straight-line basis over the term of the relevant lease where significant or another systematic basis if more representative of the time pattern of the user's benefit. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership.
24 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 318 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.7 Financial instruments Recognition Financial assets and financial liabilities are recognised on the entity statement of financial position when the entity becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the statement of financial position include cash and cash equivalents, trade receivables, investments, trade payables, and borrowings. Financial assets The entity's principal financial assets are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Trade and other trade receivables Trade and other receivables are classified as loans and receivables and are subsequently measured at amortised cost using the effective interest rate method, less an allowance for any uncollectable amounts. An estimate for impairment is made when objective evidence is available that indicates the collection of any amount outstanding is no longer probable. Bad debts are written off when identified. The amount of the impairment loss is charged to profit or loss. Cash and cash equivalents Cash and cash equivalents comprise of cash at bank and on hand and instruments which are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are stated at carrying amount which is deemed to be the fair value. Financial liabilities The Company's principal financial liabilities are interest free borrowings and accounts payable. All financial liabilities are measured at amortised cost, comprising original debts less principal payments and amortisation's, except for financial liabilities held for trading; borrowings with no fixed maturity period and are classified as fair value through profit and loss on initial recognition and derivative liabilities, which are subsequently measured at fair value. A change in fair value is recognised in profit or loss. Impairment and uncollectability of financial assets An assessment is made at each reporting date to determine whether there is objective evidence that a financial asset may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and an impairment loss is recognised for the difference between the recoverable amount and the carrying amount as follows: For financial assets held at either cost or amortised cost - and reflected in on allowance account against loans and receivables, and For financial assets at fair value - where a loss has been recognised directly in equity as a result of the write-down of the asset to recoverable amount, the cumulative net loss recognised in equity is transferred to profit or loss for the period. When an event occurring after impairment was recognised causes the amount of impairment loss to decrease- the decrease in impairment loss is reversed through profit or loss Gains and losses on subsequent measurement All gains and losses arising from a change in fair value of or on disposal of held for trading financial assets are recognised in profit or loss. Gains and losses arising from a change in the fair value of available for sale financial assets are recognised in other 25 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 319 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.7 Financial instruments (continued) comprehensive income, until the investment is disposed of or is determined to be impaired, at which time the gain or loss is included in the profit or loss for the period. The impairment loss is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the assets original effective interest rate. Derecognition A financial asset or part thereof is derecognised when the company realises the contractual rights to the benefits specified in the contract, the rights expire and, the company surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period. A financial liability or a part thereof is derecognised when the obligation specified in the contract is discharged, cancelled, or expires. On derecognition, the difference between the carrying amount of the financial liability, including related unamortised costs, and the amount paid for it is included in net profit or loss for the period. Fair value considerations The fair values at which financial instruments are carried at the balance sheet date have been determined using available market prices. Where market values are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short-term trading cycle of these items. Disclosure about financial instruments to which the company is a party to are provided in note 13 to the annual financial statements. Offsetting Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 1.8 Provisions Provisions represent liabilities of uncertain timing or amounts. Provisions are recognised when a present legal or constructive obligation exists, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks for which future cash flow estimates have not been adjusted. Provision for the cost of environmental and other remedial work such as reclamation costs, close down and restoration costs is made when such expenditure is probable and the cost can be estimated with a reasonable range of possible outcomes.
26 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 320 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.9 Revenue Revenue is recognised when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. The measurement is at transactional cost or receivable net of VAT, cash discounts, rebates and settlement discounts. Revenue from the rendering of services is measured using the stage of completion method based on the services performed to date as a percentage of the total services to be performed. Revenue from the rendering of services is recognised when the amount of the revenue, the related costs and the stage of completion can be measured reliably and when it is probable that the debtor will pay for the services. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods are transferred, when delivery has been made, when the amount of the revenue and the related costs can be reliably measured and when it is probable that the debtor will pay for the goods. 1.10 Income from investments Interest income is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable. 1.11 Tax Current and deferred income tax The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax is recognised for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at reporting date. 1.12 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting are dealt with by way of a note. 1.13 Irregular, fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or that is not in accordance with, a requirement of any applicable legislation, including the PFMA, or Any provisional legislation providing for procurement procedures in that provincial government. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. All irregular and fruitless and wasteful expenditure is charged against profit or loss in the period in which it is incurred. When an accounting authority determines the appropriateness of disciplinary steps against an official, the accounting authority must take into account: • The circumstances of the transgression; • The extent of the expenditure involved; and • The nature and seriousness of the transgression. All unauthorised, irregular or fruitless and wasteful expenditure are disclosed as a note to the annual financial statements. 1.14 Finance costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period to get 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 cost of those assets.
27 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 321 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.14 Finance costs (continued) Other borrowing costs are recognised as an expense in the period in which they are incurred. 1.15 Key assumptions made by management in applying accounting policies In preparing the annual financial statements in terms of SA GAAP, the entity's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgments are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances. Actual results in the future could differ from these estimates which may be material to the annual report. Significant judgment include: Going concern Management considers key financial metrics and loan covenant compliance in its approved medium-term budgets, together with its existing term facilities, to conclude that the going concern assumption used in the compiling of its annual financial statements, is relevant. Provisions Provisions were raised and management determined an estimate based on the information available. Additional disclosures of these estimates of provisions are included in note 16. Evaluation of the useful life of assets On an annual basis, management evaluates the useful life of all assets. In carrying out this exercise, experience of the assets historical performance and the medium-term business plan are taken into consideration. 1.16 Adoption of Generally Accepted Accounting Practice The following standards and amendments to existing standards have been published and are not yet effective and the Company has not adopted them earlier. IFRS 9, ‘Financial instruments’, issued in November 2009 (effective 1 January 2013). This standard is the first step in the process to replace IAS39, ‘Financial Instruments: Recognition and measurement’. IFRS 9 introduces new requirements for classifying and measuring financial assets and is likely to affect the company’s accounting for its financial assets. The standard is not applicable until 1 January 2013. IFRS 13, ‘Fair Value Measurement’ (effective 1 January 2013). This standard provides new guidance on fair value measurement and its disclosure requirements. IAS 1, ‘Presentation of Financial Statements’ (effective 1 July 2012). 1.17 Related parties The services received or rendered from or to related parties arise mainly from service transactions, including management fees for services performed on behalf of the company. The receivables from related parties arise mainly from service transactions and are due one month after the date of services. The receivables are unsecured in nature and bear no interest. There are no provisions held against receivables from related parties. The payables to related parties arise mainly from service transactions, including management fees and are due one month after the date of purchase. The payables bear no interest. The loans to or from related parties arise from loan agreements entered into for the year under review. These loans are sub-ordinated by CEF SOC Ltd.
28 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 322 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.18 Prior period error An omission from or misstatement in the annual financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available when financial statements for those periods were authorised for issue and could reasonably be expected to have been obtained and taken into account in the preparation of those annual financial statements.
29 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 323 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement
30 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 324 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement 2.
Property, plant and equipment 2014 Cost
2013
Accumulated Carrying value depreciation
Cost
Accumulated Carrying value depreciation
Furniture and fixtures Office equipment Computer equipment
-
-
-
314 71 499
(188) (61) (400)
126 10 99
Total
-
-
-
884
(649)
235
Reconciliation of property, plant and equipment - 2014 Opening Balance 126 10 99
Furniture and fixtures Office equipment Computer equipment
235
Transfers
Depreciation
Total
(95) (8) (36)
(31) (2) (63)
-
(139)
(96)
-
Reconciliation of property, plant and equipment - 2013 Opening Depreciation Balance 166 (40) 15 (5) 208 (109)
Furniture and fixtures Office equipment Computer equipment
389
31 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 325 of 446
(154)
Total 126 10 99 235
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement Figures in Rand thousand 3.
Intangible assets 2014 Cost Computer software
2013
Accumulated Carrying value amortisation -
-
-
Cost
Accumulated Carrying value amortisation 145
(109)
36
Reconciliation of intangible assets - 2014 Opening Balance Computer software
Transfers 36
(19)
Amortisation
Total
(17)
-
Reconciliation of intangible assets - 2013 Opening Balance Computer software
Additions 32
32 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 326 of 446
27
Amortisation (23)
Total 36
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Detailed Income Statement Note(s) 4.
2014 R '000
2013 R '000
Loans from holding company CEF SOC Ltd
-
(55 571)
-
839 37 21 130 (400)
-
627
-
-
-
1 086 354 222
-
1 662
396 1 324 27 108 239 278 17 96 6 028 339 534
568 1 706 252 12 400 120 534 278 23 154 10 673 208 1 506 726
9 386
17 160
CEF Loan written off in the current year amounts to R65 720 million. 5.
Trade and other receivables Trade receivables Loans to employees Prepayments VAT Provision for bad debts
6.
Share capital Authorised and issued 100 Ordinary par value shares of R1 each
7.
Trade and other payables Trade payables VAT Accrued leave pay Sundry payables
8.
Operating profit/ (loss) Travel Managerial fees paid to CEF Consulting and legal fees Insurance Bad debts written off Training costs Premises rental Audit fees Amortisation on intangible assets Depreciation on tangible assets Employee costs Directors fees Enterprise development expenses Office and other overhead costs
33 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 327 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Detailed Income Statement Note(s) 9.
2014 R '000
2013 R '000
Revenue and Other Income Revenue Development revenue Verification income
Other Income CEF SOC Ltd Loan write off Other Income
-
1 782 377
-
2 159
64 231 1 489
-
65 720
-
10. Cash generated from operations Profit before taxation Adjustments for: Depreciation and amortisation Proceeds on sale of assets Interest received Movements in provisions Transfer and other movement in assets Changes in working capital: Trade and other receivables Trade and other payables Deferred income
34 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 328 of 446
56 334
(12 606)
113 10 160
176 (1 512) -
626 (1 662) -
274 (216) (1 062)
55 581
(14 946)
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement 11. Directors' emoluments Executive management Year ended 31 March 2014
Salary
Bonus and performance payments 1 146 -
Mr L Saki Year ended 31 March 2013
Total 1 146
Salary
Bonus and performance payments 1 131 292 72 -
M l Saki Mr AW Mjekula
1 203
Total 1 423 72
292
1 495
Year ended 31 March 2014
136
Bonuses and performance payments -
Mr M Kajee
87
Ms G Leketi
Non-Executive Directors: Mr CG Ngcukana
Total
Fees
-
-
Compensate for loss of office -
-
-
-
-
87
-
-
-
-
-
-
223
-
-
-
-
223
Other contributions
Bonus and performance payments
Other contributions
Expenses
Total 136
Mr M Kajee
48
-
-
-
Compensate for loss of office -
Ms N Mgadza
21
-
-
-
-
21
Ms P Ravjee
21
-
-
-
-
21
Total
90
-
-
-
-
90
Other contributions
Board Audit Committee
Fees
Expenses
Total 48
Year ended 31 March 2013
-
-
-
-
Compensate for loss of office -
124
-
-
-
-
124
Mr M Kajee
-
-
-
-
-
-
Ms G Leketi
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
124
-
-
-
-
124
Non-Executive Directors:
Mr CG Ngcukana
Total
Fees
Bonus and performance payments
Expenses
35 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 329 of 446
Total -
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement 11. Directors' emoluments (continued) Fees
Mr M Kajee
30
Bonuses and performance payments -
Ms N Mgadza
13
Ms P Ravjee
Board Audit Committee
Total
Expenses -
Compensate for loss of office -
-
-
7
-
50
-
Other
Total -
30
-
-
13
-
-
-
7
-
-
-
50
* The directors are not remunerated in their personal capacity as they are employed within CEF Group of Companies. 12. Related parties `
Relationship Ultimate holding company Fellow-subsidiary
CEF SOC Ltd SFF Association (Association Incorporated under Section 21)
Joint venture of key management Fellow-subsidiary PETROSA SOC Ltd Post employment benefit plan for employees of entity and/or other related parties Related party transactions CEF SOC Limited Other income Services received Loan from holding company Accounts payable Accounts receivables Office rental
64 231 1 324 -
1 667 55 571 884
-
536
-
543 178
Saneri Accounts receivables SFF Association NPC Accounts receivables Accounts payable PETROSA SOC Ltd Services rendered Accounts receivables Key Management Personnel Refer to note 11.
36 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 330 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement 13. Financial instruments Risk profile The Company utilises the treasury department of the holding company, that manages the financial risks relating to the Company's operations. The Company's liquidity, credit, foreign exchange and interest rate are monitored regularly. Approved policies exist for managing these risks. In the course of the company's business operations it is exposed to liquidity, credit, interest rate . The risk management policy of the Company relating to each of these risks is discussed below. Risk management objectives and policies The Company's objective in using financial instruments is to reduce the uncertainty over future cash flows arising from movements in interest rates . Throughout the year under review it has been, and remains, the company's policy that no speculative trading in derivative instruments be undertaken. Credit risk Financial assets, which potentially subject the company to the risk of non-performance by counterparties and thereby subject the Company to concentrations of credit risk, consist primarily of cash and cash equivalents, short-term investments, trade receivables and derivatives. The Company's cash equivalents and short-term deposits are placed with high credit quality financial institutions. These institutions are reviewed by the holding company board of directors on a quarterly basis. The Company's exposure and the credit ratings of its treasury counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counter-parties. This covers the risk of significant exposure to any individual customer or counterparty. The company does not expect to incur any losses as a result of non-performance by these counterparties. The carrying amounts of financial assets included in the statement of financial position represent the company's exposure to credit risk in relation to these assets. The credit exposure of forward exchange contracts is represented by the net market value of the contracts as disclosed. Financial assets, which potentially subject the company to concentrations of credit risk, pertain principally to trade receivables and investments in the South African money market. Trade receivables are presented net of the allowance for doubtful debts. The Company manages counterparty exposures arising from money market and derivative financial instruments by only dealing with well-established financial institutions of a high credit rating. Losses are not expected as a result of nonperformance by these counterparties. Fair value The entity's financial instruments consist mainly of cash and cash equivalents, trade payables and long-term debt. As at 31 March 2014 no financial asset was carried at an amount in excess of its fair value and fair values could be reliably measured for all financial assets. The following methods and assumptions are used to determine the fair value of each class of financial instrument: Cash and cash equivalents The carrying amounts of cash and cash equivalents approximates fair value due to the relatively short-term maturity of these financial assets. Trade receivables The carrying amounts of trade receivables is disclosed at fair value. Trade payables The carrying amounts of trade payables approximates fair value due to the relatively short-term maturity of these 37 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 331 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement 13. Financial instruments (continued) liabilities. Maturity profile The maturity profiles of financial assets and liabilities at the financial position date are as follows: At 31 March 2014 Assets Less than 1 Between 1 Over 5 years Non-interest year and 5 years bearing -
Trade and other receivables
Total -
Total financial assets
-
-
-
-
-
Liabilities Trade and other payables Loan from holding company
-
-
-
-
-
Total financial liabilities
-
-
-
-
-
At 31 March 2013 Assets Less than 1 Between 1 Over 5 years Non-interest year and 5 years bearing 498 -
Trade and other receivables Total financial assets
Total 498
498
-
-
-
498
-
-
-
-
-
Liabilities At 31 March 2013
Less than 1 Between 1 Over 5 years Non-interest year and 5 years bearing 1 308 40 598
Trade and other payables Loan from holding company Total financial liabilities
1 308
-
-
Total 1 308 40 598
40 598
41 906
The company manages liquidity risk through proper management of working capital, capital expenditure and actual vs. forecasted cash flows. The company manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources are available to meet cash commitments. 14. Financial assets by category The accounting policies for financial instruments have been applied to the line items below: 2013 Loans and receivables Trade and other receivables
Fair value Fair value through profit through profit or loss - held or loss for trading designated 498 -
Held to maturity investments
Available for sale -
38 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 332 of 446
Total
-
498
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Notes to the Annual Financial Statement 15. Financial liabilities by category The accounting policies for financial instruments have been applied to the line items below: 2014
Trade and other payables
Financial Fair value Fair value liabilities at through profit through profit amortised cost or loss - held or loss for trading designated -
Total
Financial Fair value Fair value liabilities at through profit through profit amortised cost or loss - held or loss for trading designated 55 571 1 308 -
Total
-
2013
Loans from holding company Trade and other payables
56 879
-
55 571 1 308
-
56 879
16. Provisions Reconciliation of provisions - 2013 Opening Balance Performance bonus
1 512
Additions
Utilised Unused during the amounts year reversed 2 390 (1 512) (2 390)
Total -
No bonuses were paid in the current year due to Company poor financial performance and unreached targets. 17. Prior period adjustment The prior year adjustments of R24 000 relates to the reversal of income for the services that were not rendered due to SRA department closure and the amount of R2 390 million is the reserval of the unused bonus provision. The error resulted in adjustments as follows: Statement of Financial Position Increase in retained earnings Decrease in trade and other receivables Increase in provisions
-
(2 366) (24) 2 390
Profit or Loss Decrease in other expenses Decrease in revenue
-
(2 390) 24
39 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 333 of 446
South African Supplier Development Agency NPC Annual Financial Statements for the year ended 31 March 2014
Detailed Income Statement Note(s)
2014 R '000
2013 R '000
18. Fruitless and wasteful expenditure Fruitless and wasteful expenditure (R'000) Penalty paid to SARS Interest on late payment of invoices
2
1 -
2
1
SASDA budget was approved third quarter of period 2013/2014 that caused a delay of payment to suppliers, resulted in interest being charged for late payment. Irregular expediture (R'000) Contravention of prescribed policy
200
1 698
Current year irregular expenditure of R200k is as a result of services procured without following procurement policy and procedures. Reconciliation of fruitless and wasteful expenditure Opening balance Fruitless and wasteful expenditure – relating to prior year Fruitless expenditure – relating to current year Less: Amounts condoned by the Board of Directors
47 2 -
46 1 -
Fruitless and wasteful expenditure awaiting condonation
49
47
Reconciliation of irregular expenditure Opening balance Irregular expenditure Less: Amounts condoned by the Board of Directors Irregular expenditure awaiting condonation
1 698 200 1 898
1 698 1 699
Non current Current
1 698 200
46 1 699
Total
1 898
1 745
Analysis of Current year’s fruitless, wasteful and irregular expenditure Incident
Disciplinary steps taken/criminal proceedings R '000
Interest late payment Irregular expenditure
2 200
Total
1 948
40 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 334 of 446
SASDA Verifications SOC Limited (Registration number: 2006/023862/27) Annual Financial Statements for the year ended 28 February 2014
These Annual Financial Statements were prepared under the supervision of Mr S K Mthethwa (CA) (SA) Group Chief Financial Officer: CEF SOC Ltd
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 335 of 446
SASDA Verifications SOC Limited Annual Financial Statement for the year ended 28 February 2014 General Information Country of incorporation and domicile
South Africa
Directors
Mr L. Saki
Business address
Block C, Upper Grayston Office Park 152 Ann Crescent Strathavon Sandton 2199
P.O. Box 786141 Sandton 2146 Auditors
Auditor-General of South Africa
Secretary
CEF SOC Limited
Company registration number
2006/023862/07
Holding company
South African Supplier Development Agency NPC
Ultimate holding company
CEF SOC Limited
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 336 of 446
SASDA Verifications SOC Limited Annual Financial Statement for the year ended 28 February 2014 Index
The reports and statements set out below comprise the annual report presented to the shareholder: Page 3-6
Report of the Independent Auditors Statement of Responsibility
7 8
Statement of Changes in Equity
9
Accounting policies
10
Notes to the Annual Financial Statements
11
Director's report has not been prepared as the company is dormant and a wholly owned subsidiary of the South African Supplier Development Agency NPC, which is incorporated in South Africa.
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 337 of 446
Report of the Auditor-General to Parliament on South African Supplier Development Agency Verification SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of the South African Supplier Development Agency Verification SOC Limited set out on pages 7 to 10, which comprise statement of financial position as at 28 February 2014, the statement of comprehensive income, statement of changes in equity, and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority, accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with the South African Statements of Generally Accepted Accounting Practice (SA Statements of GAAP) and the requirements of the Public Finance Management Act (PFMA) (Act No. 1 of 1999) and the Companies Act of South Africa (Companies Act) (Act No. 71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 338 of 446
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of the South African Supplier Development Agency Verification SOC Limited as at 28 February 2014 and its financial performance and cash flows for the year then ended, in accordance with the SA Statement of GAAP and the requirements of the PFMA and the Companies Act.
Emphasis of matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter. Other reports required by the Companies Act 8. As part of our audit of the financial statements for the year ended 31 March 2014, I have read the Statement of Responsibility Report for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements in respect of which I have expressed unqualified opinion. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant during the year under review.
Compliance with legislation 11. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 339 of 446
Internal control 12. I did not identify any significant deficiencies in internal control.
Pretoria 31July 2014
5 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 340 of 446
SASDA Verifications SOC Limited Annual Financial Statements for the year ended 29 February 2014 Statement of responsibility The director is responsible for the maintenance of adequate accounting records and the preparation and integrity of the annual financial statements and related information. The external auditors are responsible for reporting on the fair presentation of the annual financial statements. The annual financial statements fairly present the state of affairs of SASDA Verifications SOC Limited and its financial position at the end of the year in terms of the South African Statements of Generally Accepted Accounting Practice and in the manner required by the Companies Act of South Africa. Nothing has come to the attention of the director to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review. The company was dormant during the year.
The annual financial statements set out on pages 4 to 8, for the year ended 28 February 2014, were approved by the board of directors on 28 July 2014 and were signed on its behalf by:
CEF Director Sandton 28 July 2014
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 341 of 446
SASDA Verifications SOC Limited Annual Financial Statement for the year ended 28 February 2014 Statement of Financial Position 2014 R'000
2013 R'000
-
-
-
-
-
-
-
-
Current Liabilities Trade and other payables
-
-
Total Equity and Liabilities
-
-
Note (s) Assets Non-Current Assets Property, plant and equipment
Current Assets Trade and other receivables
Equity and Liabilities Equity Share Capital Retained earnings
2
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 342 of 446
SASDA Verifications SOC Limited Annual Financial Statement for the year ended 28 February 2014 Statement of Changes in Equity For the year ended February Share Capital R'000 -
Balance at 01 March 2012 Changes in equity Profit for the year Balance at 01 March 2013 Changes in equity Profit for the year Balance at 29 February 2014
2
8 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 343 of 446
SASDA Verifications SOC Limited Annual Financial Statement for the year ended 28 February 2014 Accounting Policies 1 Presentation of Annual Report The following are the principal accounting policies used by the entity which are consistent in all material respects with those of the previous year, except as otherwise stated. 1.1 Basis of preparation Accounting Framework The annual financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and the Companies Act of South Africa of 2008. This annual financial statements are presented in South African Rands. Rounding is to the nearest Rand in Thousands. 1.2 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.3 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error.
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 344 of 446
SASDA Verifications (Proprietary) Limited Annual Report for the year ended 28 February 2014 Notes to the Annual Financial Statements 2014 R'000
2013 R'000
2 Share Capital Authorised 1000 Ordinary par value shares of R1 each
1
Issued 100 Ordinary par value shares of R1 each
-
Taxation No provision has been made as the company is dormant. 4 Statement of Comprehensive Income and Statement of Cash Flows The Statement of Comprehensive Income and Statement of Cash Flows have not been presented as the company did not operate during the year.
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 345 of 446
1
-
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd (Registration number 2005/036653/07) Audited annual financial statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) and Ms LE Bakoro CA(SA) (Group Chief Financial Officer) respectively. Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 346 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
The company holds the PetroSA Group interest in the exploration, appraisal, development and production of hydrocarbon reserves in Namibia.
Directors
Mr A T Dippenaar
Registered office
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499 The Petroleum Oil and Gas Corporation of South Africa SOC Limited (PetroSA) incorporated in South Africa
Holding company
Ultimate shareholder
South African Government
Auditors
Auditor-General of South Africa Registered Auditors
Secretary
Mr J C Nell
Company registration number
2005/036653/07
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 347 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Page Report of the Auditor General
3-4
Directors' Responsibilities and Approval
5
Directors' Report
6-7
Statement from Company Secretary
8
Statement of Financial Position
9
Statement of Changes in Equity
10
Accounting Policies
11 - 12
Notes to the Audited Annual Financial Statements
13
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 348 of 446
Report of the auditor-general to Parliament on Petroleum Oil and Gas Corporation of South Africa (Namibia) SOC Limited Report on the financial statements Introduction 1. I have audited the financial statements of Petroleum Oil and Gas Corporation of South Africa (Namibia) SOC Limited set out on pages 9 to 13 which comprise the statement of financial position as at 31 March 2014 and statement of changes in equity for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008) and for such internal control as the management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the financial statements present fairly, in all material respects, the financial position of Petroleum Oil and Gas Corporation of South Africa (Namibia) SOC Limited as at 31 March 2014 in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa.
3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 349 of 446
Additional matter 7. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Other reports required by the Companies Act of South Africa 8. As part of my audit of the financial statements for the year ended 31 March 2014, I have read the directors’ report and the company secretary’s certificate for the purpose of identifying whether there are material inconsistencies between these reports and the audited financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between the reports and the audited financial statements. I have not audited the reports and accordingly do not express an opinion on them.
Report on other legal and regulatory requirements 9. In accordance with the PAA and the general notice issued in terms thereof, I report the following on predetermined objectives, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
Predetermined objectives 10. I did not audit performance against predetermined objectives, as the entity is not required to prepare a report on its performance against predetermined objectives. There are no matters to report, as the entity was dormant for the year under review
Compliance with legislation 11. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. I did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.
Internal control 12. I considered internal control relevant to my audit of the financial statements and compliance with legislation. I did not identify any deficiencies in internal control which was considered to be sufficiently significant for the inclusion in this report.
Pretoria 29 July 2014
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 350 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 351 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors present their annual report that forms part of the audited annual financial statements of the company for the year ended 31 March 2014. 1.
Directors The directors of the company during the year and at the date of this report are as follows: Name Mr G Sweto Mr G Griessel Mr AT Dippenaar Mr E G September
Date of appointment Non-executive Non-executive Non-executive Non-executive
26 July 2013 26 July 2013
Date of resignation 31 January 2014 16 May 2014 31 January 2014
Board Audit and Risk Committee PetroSA Namibia SOC Ltd does not have a Board Audit and Risk Committee currently and the PetroSA Board Audit and Risk Committee fulfills this role. 2.
Secretary Mr J C Nell was appointed as secretary of the company on the 26 July 2013 and, his business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Nature of business Main business and operations The company will hold the PetroSA Group's interest in the exploration, appraisal, development and production of hydrocarbon reserves in Namibia.
4.
Review of financial position The company's business and operations and the results thereof are clearly reflected in the attached annual financial statements. The company is dormant and therefore did not trade during the year under review.
5.
Authorised and issued share capital Details of the share capital of the company are set out in note 3 to the annual financial statements.
6.
Dividends No dividends were declared or paid to the shareholder during the current year (2013: R nil).
7.
Shareholder compact The strategic objective of the company is in line with the PetroSA Group strategic objectives, and therefore reference should be made to the Shareholder Compact of PetroSA.
8.
Subsequent events The directors are not aware of any matters or circumstances arising since the end of the financial year, not otherwise dealt with in the financial statements which significantly affect the financial position of the company or the results of the operations. 6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 352 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report 9.
Shareholder The company is a wholly-owned subsidiary of PetroSA SOC Ltd.
10. Annual general meeting The annual general meeting will be held in terms of section 61 of the Companies Act of 2008.
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 353 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 354 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position At 31 March 2014 Note(s)
2014 R
2013 R
Assets Non-Current Assets Loan to shareholder
2
120
120
3
120
120
Equity and Liabilities Equity Share capital
9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 355 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity For the year ended 31 March 2014 Share capital R Balance at 01 April 2012 Balance at 01 April 2013 Balance at 31 March 2014
120 120 120
Note(s)
3
10
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 356 of 446
Total equity R 120 120 120
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies used by the company which are, in all material respects, consistent with those applied in the previous year, except as otherwise indicated.
1.1 Basis of preparation The financial statements are prepared under the historical cost basis, except where otherwise specified. The annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice (GAAP) and the Companies Act of 2008. With the promulgation of the new Companies Act of 2008, SA GAAP was withdrawn with effect from 1 December 2012. As an interim measure, the PetroSA Group will maintain the status quo until the decision on the future accounting framework is finalised. These annual financial statements are presented in South African Rands. The financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset, unless it is required or permitted by a standard. 1.2 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.3 Financial instruments Recognition Financial assets and financial liabilities are recognised on the company's Statement of Financial Position when the company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the Statement of Financial Position include loans receivable. Measurement Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below. Financial assets The company's principal financial assets are loans receivable. Loans and receivables with no fixed maturity period are classified as fair value through profit and loss on initial recognition. Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted. Derecognition A financial asset or part thereof is derecognised when the company realises the contractual rights to the benefits specified in the contract, the rights expire, the company surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in net profit or loss for the period.
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 357 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Financial instruments (continued) Fair value considerations The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the company could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items. Offsetting Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 1.4 Share capital and equity Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. 1.5 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.6 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • • •
Could reasonable steps have been taken to avoid the expenditure? Were there policies and/or procedures governing the incurred expenditure? Is it material? (for disclosure purposes)
All irregular or fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the company. 1.7 Key accounting judgements and key sources of estimation uncertainty Critical accounting estimates and judgments In preparing the annual financial statements in terms of SA GAAP, the company's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgments are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 358 of 446
The Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements 2014 R 2.
2013 R
Loan to shareholder Petroleum Oil & Gas Corporation of South Africa SOC Ltd The loan is unsecured, interest free and has no fixed terms of repayment.
3.
120
Share capital Authorised 1000 Ordinary par value shares of R1 each Issued 120 Ordinary par value shares of R1 each
4.
120
1,000
1,000
120
120
Financial instruments Introduction The company has access to the parent company's risk management and central treasury function that manages the financial risks relating to the company's operations. Approved group policies exist for managing this risk. Risk profile Due to the current dormant state of the company no risk profile exists. Classification of financial instruments The loan receivable is designated as fair value through profit and loss. It is managements view that the current carrying value is the fair value of the loan.
5.
Directors' emoluments The directors were not remunerated.
6.
Related parties Related party balances Petroleum Oil & Gas Corporation of South Africa SOC Ltd Amounts owed by related parties
120
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 359 of 446
120
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd (Registration number 1970/008130/07) Audited Annual Financial Statements for the year ended 31 March 2014
These annual financial statements were prepared and supervised by: Mr JP Rhode CA(SA) (Group Financial Manager) Ms LE Bakoro CA(SA) (Group Chief Financial Officer) Published 31 July 2014
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 360 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
General Information Country of incorporation and domicile
South Africa
Nature of business and principal activities
Exploration for and production of oil and gas, refining operations, converting gas and gas condensate to liquid fuels and petrochemicals and the marketing thereof.
Directors
Mr S Mncwango Ms NN Nokwe Mr ACG Molusi Ms FE Letlape Mr MM Zwane Mr V Sibiya Mr GC Smith Adv B Madumise Mr S Mokoena Mr D Hlatshwayo Ms L Bakoro
Registered office
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7499
Holding company
CEF SOC Limited incorporated in South Africa
Auditors
Auditor-General of South Africa Registered Auditors
Secretary
Ms K Kekana
Company registration number
1970/008130/07
1 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 361 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Index The reports and statements set out below comprise the annual report presented to the shareholder: Index
Page
Report of the Auditor General
3-7
Directors' Responsibilities and Approval
8
Performance against objectives
9 - 14
Directors' Report
15 - 18
Report of the Board Audit and Risk Committee
19 - 20
Statement of the Company Secretary
21
Statement of Financial Position
22
Statement of Profit or Loss and Other Comprehensive Income
23
Statement of Changes in Equity
24
Statement of Cash Flows
25
Accounting Policies
26 - 38
Notes to the Audited Annual Financial Statements
39 - 76
The following supplementary information does not form part of the audited annual financial statements and is unaudited: Fields in production and under development
78 - 79
Definition of financial terms
80 - 86
2 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 362 of 446
Report of the auditor-general to Parliament on the Petroleum Oil And Gas Corporation of South Africa SOC Limited Report on the consolidated and separate financial statements Introduction 1. I have audited the consolidated and separate financial statements of the Petroleum Oil and Gas Corporation of South Africa SOC Limited and its subsidiaries (“PetroSA”) set out on pages 22 to 77 which comprise the consolidated and separate statement of financial position as at 31 March 2014, the consolidated and separate statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, as well as the notes, comprising a summary of significant accounting policies and other explanatory information.
Accounting authority’s responsibility for the consolidated and separate financial statements 2. The board of directors, which constitutes the accounting authority is responsible for the preparation and fair presentation of these consolidated and separate financial statements in accordance with South African Statements of Generally Accepted Accounting Practice (SA GAAP) and the requirements of the Public Finance Management Act of South Africa, 1999 (Act No. 1 of 1999) (PFMA), the Companies Act of South Africa, 2008 (Act No. 71 of 2008), and for such internal control as the accounting authority determines is necessary to enable the preparation of consolidated and separate financial statements that are free from material misstatement, whether due to fraud or error.
Auditor-general’s responsibility 3. My responsibility is to express an opinion on these consolidated and separate financial statements based on my audit. I conducted my audit in accordance with the Public Audit Act of South Africa, 2004 (Act No. 25 of 2004) (PAA), the general notice issued in terms thereof and International Standards on Auditing. Those standards require that I comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the consolidated and separate financial statements are free from material misstatement. 4. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated and separate 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 consolidated and separate financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated and separate financial statements. 5. I believe that the audit evidence I have obtained is sufficient and appropriate to provide a basis for my audit opinion.
Opinion 6. In my opinion, the consolidated and separate financial statements present fairly, in all material respects, the financial position of the Petroleum Oil and Gas Corporation of South Africa SOC Limited and its subsidiaries as at 31 March 2014 and their financial performance and cash flows for the year then ended, in accordance with SA GAAP and the requirements of the PFMA and the Companies Act of South Africa. 3 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 363 of 446
Emphasis of matters 7. I draw attention to the matter below. My opinion is not modified in respect of these matters.
Restatement of comparative figures 8. Note 16 to the financial statements indicates that the consolidated and separate financial statements were restated due to corrections made during the current financial year relating to the prior financial years for production assets, restoration assets and the abandonment provision, treatment of exploration and evaluation assets and the inclusion of duty at source (DAS) and CEF levies in sales and cost of sales. 9. Note 16 to the financial statements indicate that certain balances were reclassified in the current year to provide more appropriate disclosure. These balances for the financial year ended 31 March 2013 and 31 March 2012 were restated to reflect the changes.
Material impairments 10. Notes 2 and 18 to the financial statements which details the impairment raised during the current financial year of R3.395 billion in respect of the GTL refinery cash generating unit of PetroSA.
Additional matter paragraphs 11. I draw attention to the matter below. My opinion is not modified in respect of this matter.
Other reports required by the Companies Act of South Africa 12. As part of my audit of the consolidated and separate financial statements for the year ended 31 March 2014, I have read the Directors’ Report, the Audit Committee’s Report and the Statement of the Secretary for the purpose of identifying whether there are material inconsistencies between these reports and the audited consolidated and separate financial statements. These reports are the responsibility of the respective preparers. Based on reading these reports I have not identified material inconsistencies between these reports and the audited consolidated and separate financial statements. However, I have not audited these reports and accordingly do not express an opinion on these reports.
Unaudited supplementary schedules 13. The supplementary information set out on pages 78 to 86 does not form part of the consolidated and separate financial statements and is presented as additional information. I have not audited these schedules and, accordingly, I do not express an opinion thereon.
Report on other legal and regulatory requirements 14. In accordance with the PAA and the general notice issued in terms thereof, I report the following findings on the reported performance information against predetermined objectives for selected objectives presented in the annual performance report, non-compliance with legislation as well as internal control. The objective of my tests was to identify reportable findings as described under each subheading but not to gather evidence to express assurance on these matters. Accordingly, I do not express an opinion or conclusion on these matters.
4 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 364 of 446
Predetermined objectives 15. I performed procedures to obtain evidence about the usefulness and reliability of the reported performance information for the following selected objectives presented in the annual performance report of PetroSA for the year ended 31 March 2014: a. Finance - Cost optimisation and utilisation of resources on pages 9 to 14. b. Internal Business Processes – Sustainability and Internal Business Processes – Growth objectives on pages 9 to 14. 16. I evaluated the reported performance information against the overall criteria of usefulness and reliability. 17. I evaluated the usefulness of the reported performance information to determine whether it was presented in accordance with the National Treasury’s annual reporting principles and whether the reported performance was consistent with the planned objectives. I further performed tests to determine whether indicators and targets were well defined, verifiable, specific, measurable, time bound and relevant, as required by the National Treasury’s Framework for managing programme performance information (FMPPI). 18. I assessed the reliability of the reported performance information to determine whether it was valid, accurate and complete. 19. The material finding in respect of the selected objectives are as follows:
Finance - Cost optimisation and utilisation of resources Usefulness of reported performance information Consistency 20. Treasury Regulations 29.1.1 requires the strategic plan to form the basis for the annual report, therefore requiring consistency of objectives, indicators and targets between planning and reporting documents. A total of 50% of the reported targets were not consistent with those in the approved strategic plan. This was due to two of the targets being amended during the year without sufficient approval. A request to amend the targets for the Return on Assets Managed (ROAM) objective and the net operating margin (NOM) objective was approved by the PetroSA Executive Committee but was not submitted for further approval as required by section 52 of the PFMA. The request was made so that the target for the ROAM objective would be reduced from 1% to 0.36% and the NOM objective from 1% to 0.56%.
Reliability of reported performance information 21. I did not raise any material findings on the reliability of the reported performance information for Finance – cost optimisation and utilisation of resources.
Internal business processes – Sustainability and growth objectives 22. I did not raise any material findings on the usefulness and reliability of the reported performance information for Internal Business Processes – Sustainability and Internal Business Processes – Growth objectives.
5 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 365 of 446
Additional matter 23. I draw attention to the following matters:
Achievement of planned targets 24. Refer to the annual performance report on pages 4 to 9 for information on the achievement of planned targets for the year. This information should be considered in the context of the material findings on the usefulness of the reported performance information for the selected objectives reported in paragraph 20 of this report.
Adjustment of material misstatements 25. I identified material misstatements in the annual performance report submitted for auditing on the reported performance information of the finance and internal business processes objectives. As management subsequently corrected only some of the misstatements, I raised a material finding on the usefulness of the reported performance information for the selected objectives reported in paragraph 20 of this report.
Compliance with legislation 26. I performed procedures to obtain evidence that the entity had complied with applicable legislation regarding financial matters, financial management and other related matters. My findings on material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA, are as follows:
Annual Financial statements 27. Material misstatements of non-current assets, current assets, liabilities, revenue, expenditure and disclosure items identified by the auditors in the submitted consolidated and separate financial statement were subsequently corrected, resulting in the financial statements receiving an unqualified audit opinion. The consolidated and separate financial statements submitted for auditing were not fully compliant with SA GAAP as required by section 55(1)(a) and (b) of the Public Finance Management Act, 1999 (Act No. 1 of 1999) and section 29(1)(a) of the Companies Act of South Africa.
Expenditure management 28. As disclosed in note 35 to the consolidated and separate financial statements, PetroSA incurred irregular, fruitless and wasteful expenditure as contemplated in section 51(1)(b)(ii) of the PFMA and in the process of resolving the matter.
Internal control 29. I considered internal control relevant to my audit of the financial statements, reported performance information and compliance with legislation. The matters reported below are limited to the significant internal control deficiencies that resulted in the findings on the reported performance information and the findings on non-compliance with legislation included in this report.
6 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 366 of 446
Leadership 30. The material misstatements corrected during the audit of the consolidated and separate financial statements and reported performance information should have been detected and prevented by senior management. Management should identify and accept its oversight responsibilities in relation to established requirements and expectations in order to improve reporting requirements.
Financial and performance management 31. Non-compliance with legislation should be continuously monitored and steps taken to prevent such non-compliance instances. Management should periodically review its control activities to determine their continued relevance, and refresh them when necessary in order to establish a well-controlled environment which promotes compliance with legislation.
OTHER REPORTS Investigations 32. As disclosed in paragraph 7 of the Directors’ Report the investigations, mandated by the Honourable Minister of Energy and by the Board of PetroSA were completed. The outcomes of these investigations were considered by the accounting authority of PetroSA and accounting authority of CEF SOC Limited (CEF) and PetroSA is in the process of resolving the matters.
Audit-related services and special audits 33. As requested by the company, agreed upon procedures engagements were conducted during the period under review concerning the accuracy of the illuminating paraffin (IP) tracer levy quarterly payments to CEF. The reports covered the period 1 April 2013 to 31 March 2014. 34. As requested by the company, an agreed upon procedures engagement was conducted during the period under review concerning the cash and cash equivalent balances held by PetroSA at 31 March 2014.
Pretoria 31 July 2014
7 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 367 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 368 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Performance against objectives A summary of The Petroleum Oil And Gas Corporation of South Africa SOC Ltd Company business performance against objectives is contained in the table below: Objective
Key performance indicator
1. TRANSFORMATION
To meet specific Transformation requirements 1.1 Recruitment of women at all levels 30% 1.2 Recruitment of people living with 2% disabilities 1.3 Preferential Procurement 50% of discretionary spend 1.4 BEE Sales 300ML
2. FINANCE
Group cost optimisation and utilisation of resources 2.1 Gross Margin Percentage 2.2 Actual vs. Revised Budget 2.3 Return on assets managed 2.4 Net Operating Margin
3. STAKEHOLDERS
4. INTERNAL BUSINESS PROCESSES
Target
Actual
Performance results
30.8% 2%
Achieved Achieved
101.7%
Achieved
263.2 ML
Not achieved
10.2% 21% -5% -8%
Achieved Achieved Not achieved Not achieved
63.2%
Not achieved
0 <0.40
0 >0.44
Achieved Not achieved
12 Retain ISO 9001 certification on current scope + increase the scope to include E&P by 31 March 2014 80%
9 Achieved Obtained Achieved recertification on increased scope that include depots 70.50%
Not achieved
4.77 MMbbls
4.145 MMbbls
Not achieved
6.89% +10% variance on opex 0.36% 0.56%
Manage stakeholder relationships 3.1 To obtain the appropriate 70% stakeholder support 4.1 SHEQ 4.1.1 Fatalities 4.1.2 Disabling Injury Frequency Rate (DIFR) 4.1.3 Environmental Incidents 4.1.4 Quality
4.1.5 Occupational hygiene survey 4.2 Sustainability 4.2.1 Total indigenous GTL Refinery Production and FO 4.2.2 To execute the LNG project
4.2.2.1 FEED close-out Completed the Not achieved report to be issued by 31 feasibility study March 2014 into a land-based LNG terminal in Saldanha Bay and the associated pipelines to Mossel Bay by 31-Mar-14 4.2.2.2 Draft DEA suspended Not achieved Environmental Impact EIA process Report (EIR) to be issued to the public by 31 March 2014 4.2.3 Completion of the shutdown as 3 3.42 Achieved per shutdown index 4.2.4 Ikhwezi development executed First Gas : Nov 2013 First gas delayed Not achieved on schedule according to approved development plan Project costs within 97.9% of budget Achieved budget 9 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 369 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Performance against objectives 4. INTERNAL BUSINESS PROCESSES (CONTINUED) 4.3 Growth initiatives 4.3.1 To enter the downstream market 4.3.1.1 Acquire Downstream Asset - Conclude Due Diligence Due diligence by 31 December 2013 completed on 13 December 2013. - Conclude Share Board approved Purchase Agreement by Final Offer on 22 31 March 2014 January 2014 4.3.1.2 Implement Milestones were feasibility study for not completed Mthombo as per agreement with JSA partners (50% of milestones completed) 4.3.1.3 Develop access to 53 ML new trading markets by 31 March 2014 - 120ML 4.3.1.4 Implement 100 ML commercial and industrial sales strategy, including LPG by 31 March 2014 300ML 4.3.2 To grow resource base, reserves & production for long-term profitability
15 Mmboe by 31 March 2014
24.3
10 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 370 of 446
Achieved Not achieved Not achieved
Not achieved Not achieved
Achieved
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Performance against objectives 1.
Transformation 1.1 Women as a percentage of PetroSA’s total population The target is to improve total women representation within the organisation to 30% by 31 March 2014 through appointments and promotions. Appointment refers to appointments to the permanent establishment and promotion refers to upward movement to a job with greater responsibilities at a higher level or grade. Actual: As at 31 March 2014, women constituted 30.8% of the total workforce. 1.2 People living with disabilities as a percentage of PetroSA’s total employed Attraction of people with disabilities includes both recruitment of new employees and disclosures by current employees living with disabilities. The target for the total number of employees living with disabilities is 2% of the workforce by 31 March 2014. Actual: As at 31 March 2014, people living with disabilities constituted 2.0% of the total workforce. 1.3 Preferential Procurement In terms of the BBBEE codes of good practice, certain expenditure may be excluded from total procurement (i.e. procurement from other organs of state, imported goods and services that cannot be sourced locally, as well as specific branded sole source procurement). This constitues discretionary procurement. The target of 50% is the ratio between total BEE expenditure against total discretionary procurement for the period under review. The BEE procurement spend was 101.7% of the total discretionary procurement spend for the year. This is mostly driven by the fact that 75% of our discretionary spend was spent on companies that are between level 1 to Level 3 of BEE codes, which allows for a claim ratio of 1.35 to 1.1 of actual expenditure. 1.4 BEE Sales BEE sales comprise of both fuels (diesel, petrol and kerosene) and speciality grades (LPG, propane, HFO and the gases LIN/LOX/CO2). The target for this financial year is 300ML. Actual: The year to date BEE sales volumes were 263.2 ML against a target of 300 ML.
2.
Finance Cost Optimisation 2.1 Gross Margin Percentage The gross margin percentage is the ratio of the gross margin (revenue - cost of sales) to revenue. The 6.89% target is in line with the corporate plan and approved budget. Actual: The actual gross margin percentage was 10.2% against an annual target of 6.89%. 2.2 Actual vs budget operating expenditure Actual costs are compared to original budget costs. The target is a postive vairance of 10%. This measure encourages adherence to budget. Actual: Operating costs were 21% below budget. 2.3 Return on Assets Managed (ROAM) The Return on Assets Managed (ROAM) ratio measures the efficiency of the business in using its assets to generate net income. ROAM is the net profit /total assets. The formula to calculate return on assets managed is: ROAM =
NET PROFIT AVERAGE TOTAL ASSETS
11 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 371 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Performance against objectives 2.
Finance (continued) Actual: A Return on Assets Managed ratio of -5% was achieved in the period under review against an annual target of 0.36%. 2.4 Net Operating Margin The net operating margin is the ratio of operating income of a business to its revenue. It shows operating income as a percentage of revenue. Actual: A net operating margin of -8% was achieved in the period under review against a target of 0.56%.
3.
Managing stakeholders Approval rating from stakeholders 3.1 Customer surveys Customer surveys will be conducted for a variety of stakeholders, including trade customers, suppliers, the Government, employees, management, board of directors, and media. Actual: The organisation achieved an average rating of 63.2% on stakeholder management.
4.
Internal Business Processes 4.1 SHEQ 4.1.1 Fatalities This refers to any employee's death resulting from PetroSA work-related exposure, in general, from an accident or illness caused by or related to a workplace hazard. Actual: No fatal incidents occurred for the period under review and there were no fatalities that were directly caused by work-related activities. In total, there were zero fatalities year to date in the 2014 financial year. 4.1.2 DIFR (Disabling Injury Frequency Rate) A disabling injury is defined as a work-related injury including occupational illness arising out and in the course of duty giving rise to any related temporary or permanent disablement or death as determined by a medical practitioner. The DIFR is calculated on a 12-month moving frequency rate and is calculated as follows: DIFR = NUMBER OF INJURIES x 200 000 (hours) NO. OF HOURS WORKED (DURING PERIOD UNDER REVIEW) The industry DIFR standard is 1, compared to PetroSA’s benchmark of <0.4. Actual: A DIFR of >0.44 against a target of <0.4 was achieved. 4.1.3 Environmental Incidents This refers to an event which has a localised effect, environmental damage beyond the fence boundary or substantiated community complaint or permit exceedance or non-compliance. In the absence of any organisation we know of in our industry, that has defined an environmental incident in the same way as us, we have had to do the benchmarking internally by way of identifying historical incidents that PetroSA has had that fit the revised definition of an environmental incident. The target was to have no more than 12 environmental incidents during the 2013/14 financial year. Actual: The total number of environmental incidents is 9.
12 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 372 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Performance against objectives 4.
Internal Business Processes (continued) 4.1.4 Quality PetroSA’s Quality Management System is currently certified under ISO9001:2008. The target is to retain ISO 9001 certification and increase scope to include E&P by 31 March 2014. Actual: Obtained recertification on increased scope to include depots (Tzaneen & Bloemfontein) 4.1.5 Occupational Hygiene Survey In terms of the Health and Safety legislation PetroSA must conduct occupational hygiene surveys to determine the health hazards employees might be or are exposed to and put in place an annual medical surveillance programme. A medical or occupational health surveillance programme will be used as a measure for determining interventions/improvements in employee health. This KPI seeks to measure the percentage of employees who have undergone medical surveillance against the year-plan. Actual: The year-to-date performance on medicals is 70.5%. 4.2 Sustainability (GTL refinery operations) 4.2.1 Total indigenous GTL Refinery Production The corporate target for indigenous production from the GTL refinery is 4.77 MMbbls. Actual: The total indigenous GTL refinery production for the year was 4.145 MMbbls against the annual target of 4.77MMbbls.The main reason for lower volumes is due to delays in project Ikhwezi. 4.2.2 Execute LNG FEED The liquified natural gas (LNG) project aims to ensure the long-term sustainability of the GTL Refinery, while also supplying Eskom for power generation and helping to reduce the country’s carbon footprint. The milestones for 2014 include having the FEED close-out report issued by 31 March 2014 as well as the environmental impact report (EIR) to be issued to the public by the same date. Actual: 4.2.2.1 Completed the feasibility study into a land-based LNG terminal in Saldanha Bay and the associated pipelines to Mossel Bay by 31 March 2014; 4.2.2.2 Despite numerous attempts to meet with Department of Environment Affairs (DEA), the Mossel Bay EIA process is still suspended. Therefore the target of issuing a final scoping report to the DEA was not achieved. 4.2.3 Refinery Shutdown Measurement of the shutdown success is in accordance with what has been submitted in the 2013/14 budget. In this respect overall duration is 51 days from budget gas out to budget gas in. This includes all the shutdown activities such as decommissioning, maintenance works, commissioning and ramp up. Actual: The maintenance shutdown was completed as per the schedule but delays in commissioning negatively impacted production and contributed to 25 days of overall production loss for the month of November. All units completed Mechanical Complete (MC) and Clearance for Operation (CFO). The FA platform was in full operation and back in hydrocarbon mode as from 1 November 2013. A strike, bad weather spells and certain inefficiencies contributed to some days of overall production loss for the month of November. The gas loop started on 1x1 operational mode by 26 November and 2x1 mode by 30 November 2013. The FA Platform and GTL Refinery achieved 1 x 1 operational status on the 26 November 2013. In terms of safety, the shutdown was completed with an excellent safety record. As at 15 November 2013 a total of 1 884 751 man hours were completed with only 1 recorded disabling injury and 1 fire. The shutdown budget was tightly controlled per the awarded budget and final cost was within budget. A score of 3.42 was achieved.
13 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 373 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Performance against objectives 4.
Internal Business Processes (continued) 4.2.4 Ikhwezi development executed on schedule according to approved development plan Actual: The target for Project Ikhwezi first gas was November 2013. Challenges mainly due to the drilling rig were experienced resulting in delays in first gas for Ikhwezi. The Project Ikhwezi costs are expected to be at 97.9% of budget. 4.3 Growth initiatives 4.3.1 Downstream Market Entry 4.3.1.1 Acquire downstream asset Actual: - Conclude the due diligence by 31 December 2013 - The due diligence was completed on 13 December 2013. - Conclude the share purchase agreement by 31 March 2014 - The Board approved the final offer on 22 January 2014 and the share purchase agreement; lubricants shareholder agreement and memorandum of incorporation on 27 March 2014. The funding plan is to be finalised to enable signature of agreement. For that reason, this target has not been met. 4.3.1.2 Project Mthombo Project Mthombo has a feasibility study duration of ±15 months. From the start of the agreed schedule (kick-off meeting), it would cover the technical aspects of the study as well as non-technical work such as supply demand studies and economic analyses, etc. Actual: The conversion and further development by Sinopec Engineering Incorporation (SEI) of the LP model that is required to facilitate selection of technology licensors early in the Mthombo feasibility study was completed in December 2013. The completion of the model marks a major milestone in the technical preparation for executing the feasibility study. No additional technical work is planned to be performed with SEI before the start of the feasibility phase. 4.3.1.3 Develop access to new trading markets The trading strategy for 2013/14 is to access markets within sub-Sahara. The planned sales volume for the year was 120 million litres. The target sales were expected from sales to the DRC and East Africa through Mozambique and Botswana. The business development team is also exploring crude trading opportunities from West Africa. The success factors were access to storage and sources of supply while limiting the working capital exposure for PetroSA. Actual: The actual sales volumes for the year were 53 ML against an annual target of 120ML. 4.3.1.4 Implement commercial and industrial sales strategy, including LPG • • •
Implementation of a wholesale strategy Access to/acquire inland infrastructure Develop contracts with Resellers
Actual: Actual sales volumes for the year were 100 ML against an annual target of 300ML. 4.3.2 Grow production and reserve base for long term profitability The target was to add 15 Mmboe reserves by 31 March 2014. The 2P quoted reserves were conducted by a third party reserve auditor (AGR TRACS International Limited) as per good industry practice. The reserve figures can be used for the purpose of defining deliverables in the corporate scorecard under “reserves added”, upon verification that it was not already included in previous years. Actual: Total Reserves added = 24.3 Mmboe
14 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 374 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report The directors present their report that forms part of the annual financial statements for the group for the year ended 31 March 2014. Directors The directors of the company during the year and at the date of this report are as follows: Name Mr S Mncwango Ms NN Nokwe Mr ACG Molusi Ms FE Letlape Mr MM Zwane Mr V Sibiya Mr GC Smith Adv B Madumise Mr S Mokoena Mr D Hlatshwayo Ms L Bakoro
Appointed Non-Executive (Interim Chairman) Executive - Group CEO Non-Executive Non-Executive Non-Executive Non-executive Non-executive Non-executive Non-executive Non-executive Executive - Group CFO
1 December 2013
-
=
Human Capital
Strategy & Growth
Business Performance
Social & Ethics
Ad hoc**
Mr S Mncwango Ms NN Nokwe Mr ACG Molusi1 Ms FE Letlape2 Mr MM Zwane3 Mr V Sibiya Mr GC Smith4 Adv B Madumise Mr S Mokoena5 Mr D Hlatshwayo6 Ms L Bakoro
Board Audit & Risk
Attendance at meetings:
Board
1.
27/28 26/28 27/28 27/28 23/28 23/28 25/28 26/28 28/28 26/28 9/10
5/5* 3/5 4/5 5/5 2/2*
4/5* 3/5 5/5 5/5 -
7/11 9/11* 10/11 4/11* 1/11* 11/11 9/11 10/11 1/11* 5/5*
4/4* 3/4 1/4 4/4 2/4 4/4 1/1*
2/3* 2/3 3/3 3/3 1/1*
6/7* 7/7 7/7 7/7 7/7 -
Not a member
* =
Invitee
** =
Ad hoc Committee on the implementation of the Investigations Reports per SizweNtsalubaGobodo, KPMG and the Joint Task Team (PetroSA & CEF Task Team) reports
1 =
Chairperson of Strategy & Growth Committee
2 =
Chairperson of Human Capital Committee
3 =
Chairperson of Social & Ethics Committee
4 =
Chairperson of Business Performance & Monitoring Committee
5 =
Chairperson of Board Ad Hoc Committee
6 =
Chairperson of Board Audit & Risk Committee
15 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 375 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report 2.
Secretary The secretary of the company is Ms K Kekana and her business and postal addresses are as follows:
3.
Business address
151 Frans Conradie Drive Parow 7500
Postal address
Private Bag X5 Parow 7449
Nature of business Activities The main areas of activity within the group during the year are as follows :
To focus on projects aimed at sustaining the GTL refinery through the securing of long-term feedstock and cash-flow maximisation;
To ensure security of supply, growth of the group and increase its share of the local market through the development of a crude oil refinery in Coega, entry into the downstream market and ensuring upstream reserves and production growth;
To deliver sustainable development of the economy and communities through the targeting of skills development, the implementation of Enterprise and Supplier Development programmes and the investment in social upliftment programmes of targeted groups through Corporate Social Investment programmes; and
To ensure adherence to world class environmental, safety, health and quality standards.
Objectives The key elements/objectives of PetroSA’s core business strategy are as follows:
4.
Ensure security of supply of liquid fuels for the country;
Be a competitive, commercially viable company on a sustained basis along the value chain for the petroleum, oil, gas and petrochemical sectors;
To achieve transformation on a continuous basis through the implementation of Employment Equity and Broad Based Black Economic Empowerment policies;
Operate PetroSA in line with best international practices with regard to safety, product quality, and protection of the environment and health of the people employed by the company; and
Actively contribute to macro-economic objectives related to the fuel price to the end user, security of supply and reduction of exposure to foreign exchange requirements.
Group financial results and operating activities The group experienced a challenging financial year, with production volumes as well as sales volumes not living up to the expectations of the corporate plan. The group achieved an operating profit before impairment of property, plant and equipment of R2.2 billion (2013: R983 million) in the year under review. A net loss of R1.65 billion (2013: R612 million profit) was recorded for the year on the back of a R3.4 billion impairment that was booked against overvalued production assets. Revenue increased 12% from R18.8 billion to R21.2 billion which was largely driven by increased local trading of finished product sourced from outside of the group, the PetroSA Ghana subsidiary’s contribution and the benefit from the Rand’s weakness against all major currencies. The downward trending of the high value GTL revenues has been compensated by the low margin purchased product sales, with the consequential diminution of overall margins.
16 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 376 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Directors' Report 4.
Group financial results and operating activities (continued) The gross margins increased to 13% principally because of PetroSA Ghana's contribution. The subsidiary contributed a strong 80% margin. The impairment of the GTL refinery (Cash Generating Unit) resulted in total other operating costs increasing 198% to R5.1 billion (2013: R1.7 billion). Investment income was R439 million compared to R733 million in 2013 due to a reduction of R2 billion in cash reserves to finance project Ikhwezi. Lower finance costs of R804 million were recorded for the year compared to R817 million in 2013 due to the repayment of a portion of the bridging loan (R698 million). The group’s financial position remains strong with total assets of R34 billion (2013: R35.7 billion). The decrease in assets is attributable to the impairment of GTL refinery which is partially set off by increased expenditure on Project Ikwhezi. A cash balance of R5.5 billion (2013: R7.4 billion) and a short term loan of R1.6 billion (2012: R2 billion) reflects the group's weaker net cash position at year-end. The reduction in cash is testimony to the capital expansion program which includes the Ikhwezi offshore development project. Various options are also being explored in conjunction with the funding community to optimise our currently low-geared statement of financial position as the organisation embarks on significant capital expansion programs in the short-to-medium term.
5.
Authorised and issued share capital Details of the share capital of the company are set out in note 12 to the annual financial statements.
6.
Dividends No dividends were declared to the shareholder during the year.
7.
Materiality and significant framework A materiality and significant framework has been developed for reporting losses through criminal conduct and irregular, fruitless and wasteful expenditure, as well as for significant transactions envisaged per section 54(2) of the PFMA that require ministerial approval. The framework was finalised after consultation with the external auditors and has been formally approved by the Board. Gross misconduct by employees from PetroSA and a supplier resulted in fraudulent activities amounting to R0.338 million. The request to cancel a company contract was not actioned timeously resulting in additional costs to the company of R0.1 million. PetroSA accepts stock losses of 0.25% on throughput volumes from depots. Lack of due care exercised at the depots, resulted in stock losses of R3.052 million, which is above the tolerable level. PetroSA Equatorial Guinea received notification from the Ministry of Mines, Industry and Energy in Equatorial Guinea that a fine of $224 000 (R2.295 million) was imposed for non-compliance to the PSC due to the late submission of the 2014 work plan. In the last financial reporting period the Board reported that there were certain investigations that had been mandated by the Minister as well as the PetroSA Board. These investigations related to procurement processes by the company covering a certain period. The reports are in the process of being finalised and appropriate action is being taken to recover any losses and address areas where weaknesses in our system have been identified. The company has initiated legal proceedings against the former acting CEO in order to recover fruitless and irregular expenditure that the company incurred as a result of decisions made by him during his term as acting CEO.
8.
Accounting policies With the promulgation of the new Companies Act of 2008, the South African Statements of GAAP were withdrawn with effect from 1 December 2012. The group is in the process of requesting permission from National Treasury to prepare the annual financial statements in accordance with International Financial Reporting Standards for the financial years commencing on or after 1 April 2014. The group will retain the status quo during the intervening period.
9.
Holding company The company's holding company is CEF SOC Limited incorporated in South Africa and the ultimate shareholder is the South African Government. All shares held by the Government in CEF are not transferable in terms of the Central Energy Fund Act (Act No. 37 of 1977).
17 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 377 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 378 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Report of the Board Audit and Risk Committee The Board Audit and Risk committee has formal terms of reference that are reviewed and approved by the board on an annual basis. The Committee has discharged its responsibilities in compliance with its terms of reference and as required in terms of the Companies Act of South Africa. 1.
Responsibilities The Committee consists of three independent non-executive directors, elected by the shareholder at each annual general meeting (AGM). The Board appointed the chairman of the Committee, an independent non-executive director. The Group Chief Executive Officer, Group Chief Financial Officer, Chief Internal Auditor, Chief Risk and Compliance Officer and External Auditors are permanent invitees to the committee meetings. Five meetings were held during the year; directors’ attendances at these meetings are set out in the annual financial statements. The Committee completed a self-evaluation of its performance for the year under review to ensure that it delivers on its mandate and enhances its contribution to the board. The Committee performed the following duties during the year in accordance with section S94(7) of the Companies Act 71 of 2008: • nominated the external auditor for appointment by the shareholder; • determined the fees to be paid to the auditors and the auditor’s terms of engagement; • determined the nature and extent of any non-audited services; • pre-approved any proposed agreement with the auditor for the provision of non-audit services to the company; • prepared a report, to be included in the annual financial statements for the financial year; • made submissions to the board on matters concerning the company’s accounting policies, financial control, records and reporting; and • performed other oversight functions determined by the board. The Committee is responsible for overseeing the external audit process and confirms that the external auditors are independent of the company and conducted its audit without influence from the company. The Committee chairman meets with the external auditors independently of management. The Committee is responsible for overseeing the Internal Audit function, preserving its independence and ensuring that it has the necessary resources and authority to enable it to fulfil its duties. The Chief Internal Auditor reports functionally to the Committee and has quarterly meetings with the chairman of the committee independently of management. The Committee annually reviews and approves the internal audit coverage plan and reviews the performance of the internal audit function on a quarterly basis. The Committee has reviewed the expertise, competence and experience of the Finance function. Based on the selfassessment performed, the Committee is satisfied that the group Chief Financial Officer and the finance management team have the appropriate expertise and experience. A combined assurance model has not been successfully implemented during the year; the Committee will focus its attention on enhancing an effective combined assurance approach in the year ahead. The Committee has reviewed the written assessment performed by Internal Audit on the design, implementation and effectiveness of internal financial controls and risk management of the company. Based on the results of the review and after considering the results of external audit, critical financial controls were assessed as generally adequate and effective. The critical financial control process review indicates material opportunities for improvement as material weaknesses were identified in the design and effectiveness of the critical financial control process implemented by management. Limited reliance was placed on the effectiveness of the process. Strategic risks are appropriately identified, assessed and monitored; however appropriate risk mitigation remains an area for improvement. Weaknesses were identified in respect of process level risks; however these weaknesses were not material in nature. The Committee has reviewed the written assessment performed by the compliance manager on the overall compliance environment of the company. Based on the results of the review, the Committee is of the opinion that material opportunity for improvement exists in the overall company compliance environment where weaknesses were identified when testing the effectiveness of controls. The overall compliance environment was assessed as partially adequate and effective. The Committee reviewed the assessment of the going concern premise of the group and concurs that the group will be a going concern for the foreseeable future. 19 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 379 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 380 of 446
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 381 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Financial Position Group Note(s)
Company
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
18 016 750 1 541 059 296 490 489 021
15 509 171 3 130 903 215 306 489 021
7 319 121 931 711 185 597 243 869 489 021
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
11 574 005 1 133 724 3 883 782 29 625 296 490 489 021
10 797 214 1 038 648 3 883 782 29 625 215 306 489 021
7 317 579 931 711 3 131 29 625 185 597 243 869 489 021
Assets Non-Current Assets Property, plant and equipment Intangible assets Investments in subsidiaries Investments in associates Other financial assets Prepayments Amounts held by holding company Tax receivable
2 3 5 6 7 8
-
17 294
22 452
-
17 294
22 452
20 343 320
19 361 695
9 191 771
17 406 647
16 470 890
9 222 985
2 973 773 1 725 000 3 511 462 5 489 903
2 798 836 2 594 000 5 158 3 526 736 7 442 483
2 300 207 4 262 3 399 510 12 848 843
2 965 375 2 465 759 3 401 440 4 880 617
2 789 834 4 111 538 5 158 3 433 811 6 541 242
2 288 355 4 262 3 400 002 12 783 863
13 700 138
16 367 213
18 552 822
13 713 191
16 881 583
18 476 482
34 043 458
35 728 908
27 744 593
31 119 838
33 352 473
27 699 467
2 755 936 237 752 15 478 709
2 755 936 95 205 17 127 420
2 755 936 4 671 16 515 271
2 755 936 1 590 14 920 415
2 755 936 1 655 16 887 333
2 755 936 104 16 503 252
18 472 397
19 978 561
19 275 878
17 677 941
19 644 924
19 259 292
1 791 557 8 125 194
1 728 498 8 286 357
5 928 079
7 910 953
7 996 617
5 900 052
9 916 751
10 014 855
5 928 079
7 910 953
7 996 617
5 900 052
1 591 050 4 767 3 484 026 216 812 357 655
2 037 200 5 388 3 438 637 254 267 -
4 104 2 272 977 263 555 -
1 591 050 3 365 938 216 301 357 655
2 037 200 3 419 945 253 787 -
2 277 210 262 913 -
5 654 310
5 735 492
2 540 636
5 530 944
5 710 932
2 540 123
Total Liabilities
15 571 061
15 750 347
8 468 715
13 441 897
13 707 549
8 440 175
Total Equity and Liabilities
34 043 458
35 728 908
27 744 593
31 119 838
33 352 473
27 699 467
Current Assets Inventories Other financial assets Tax receivable Trade and other receivables Cash and cash equivalents
9 7 10 11
Total Assets Equity and Liabilities Equity Share capital Reserves Retained income
12
Liabilities Non-Current Liabilities Deferred tax Provisions
Current Liabilities Other financial liabilities Current tax payable Trade and other payables Provisions Bank overdraft
4 13
14 15 13 11
22 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 382 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Profit or Loss and Other Comprehensive Income Group Note(s) Revenue Cost of sales
17
Gross profit Other income Operating expenses
2014 R '000
Company 2013 R '000 Restated
2014 R '000
2013 R '000 Restated
21 199 294 (18 524 595)
18 880 815 (16 920 159)
20 191 919 (18 035 359)
18 397 814 (16 544 885)
2 674 699 1 157 748 (5 056 222)
1 960 656 379 764 (1 717 602)
2 156 560 1 159 862 (5 104 597)
1 852 929 384 810 (1 907 897)
Operating (loss) profit Investment income Finance costs
18 19 20
(1 223 775) 439 273 (804 080)
622 818 732 954 (816 993)
(1 788 175) 618 939 (797 682)
329 842 864 675 (810 436)
(Loss) profit before taxation Taxation
21
(1 588 582) (60 129)
538 779 73 370
(1 966 918) -
384 081 -
(1 648 711)
612 149
(1 966 918)
384 081
90 534
(65)
1 551
(Loss) profit for the year Other comprehensive income: Items that may be reclassified subsequently to profit or loss Exchange differences on translating foreign operations
142 547
Total comprehensive (loss) income
(1 506 164)
702 683
(1 966 983)
385 632
Total comprehensive (loss) income attributable to: Owners of the parent
(1 506 164)
702 683
(1 966 983)
385 632
23 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 383 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Changes in Equity Share capital Share premium Total share capital R '000
Foreign currency translation reserve R '000
Retained income
Total equity
R '000
R '000
R '000
R '000
2
2 755 934
2 755 936
4 671
15 257 464
18 018 071
-
-
-
-
1 257 807
1 257 807
Balance at 01 April 2012 as restated Changes in equity Profit for the year as previously reported Restatement of profit
2
2 755 934
2 755 936
4 671
16 515 271
19 275 878
-
-
-
-
593 452
593 452
-
-
-
-
18 697
18 697
Restated profit for the year Other comprehensive income
-
-
-
90 534
612 149 -
612 149 90 534
Balance at 01 April 2013 Changes in equity Loss for the year Other comprehensive income
2
2 755 934
2 755 936
95 205
17 127 420
19 978 561
-
-
-
142 547
(1 648 711) -
(1 648 711) 142 547
Balance at 31 March 2014
2
2 755 934
2 755 936
237 752
15 478 709
18 472 397
Group Opening balance as previously reported Adjustments Restatement of profit
Note(s)
12
Company Opening balance as previously reported Adjustments Restatement of profit
12 2
12
2 755 934
16
2 755 936
104
15 245 445
18 001 485
-
-
-
-
1 257 807
1 257 807
Balance at 01 April 2012 as restated Changes in equity Profit for the year as previously reported Restatement of profit
2
2 755 934
2 755 936
104
16 503 252
19 259 292
-
-
-
-
365 384
365 384
-
-
-
-
18 697
18 697
Restated profit for the year Other comprehensive income
-
-
-
1 551
384 081 -
384 081 1 551
Balance at 01 April 2013 Changes in equity Loss for the year Other comprehensive income
2
2 755 934
2 755 936
1 655
16 887 333
19 644 924
-
-
-
(1 966 918) -
(1 966 918) (65)
Balance at 31 March 2014
2
2 755 934
2 755 936
14 920 415
17 677 941
Note(s)
12
12
12
(65) 1 590
16
24 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 384 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Statement of Cash Flows Group Note(s)
2014 R '000
Company
2013 R '000 Restated
2014 R '000
2013 R '000 Restated
Cash flows from operating activities Cash generated by operations Interest income Finance costs Tax refunded/(paid)
23
2 551 384 439 273 (19 664) 24 761
3 033 521 732 954 (19 777) (383)
1 630 629 618 939 (19 169) 22 452
2 771 407 864 675 (14 149) 4 262
2 995 754
3 746 315
2 252 851
3 626 195
(5 265 821) 1 061 (144 115) 6 882 (151 227) 787 816 -
(3 485 164) 50 (169 944) (3 355 624) (2 623 709) -
(4 865 466) 1 057 (102 999) 1 366 964 -
(3 376 993) 50 (109 252) (4 326 683) (3 880 651)
(4 765 404)
(9 634 391)
(3 600 444) (11 693 529)
Movement in other financial liabilities Movement in intercompany loan
(697 988) -
1 814 340 (1 342 997)
Net cash from financing activities
(697 988)
24
Net cash from operating activities Cash flows from investing activities Purchase of property, plant and equipment Sale of property, plant and equipment Purchase of intangible assets Sale of intangible assets Business combinations Sale/(purchase) of financial assets Purchase of subsidiaries
2 2 3 3 26 5
Net cash from investing activities Cash flows from financing activities
Cash and cash equivalents movement for the year Cash and cash equivalents at the beginning of the year Effect of exchange rate movement on cash balances Cash and cash equivalents at end of the year
471 343
(2 467 638) (5 416 733) 7 442 483 12 848 843 157 403 10 373 11
5 132 248
7 442 483
(697 988) -
1 814 340 -
(697 988)
1 814 340
(2 045 581) (6 252 994) 6 541 242 12 783 863 27 301 10 373 4 522 962
25 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 385 of 446
6 541 242
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.
Presentation of annual financial statements The following are the principal accounting policies of the group which are, in all material respects, consistent with those of the previous year, except as otherwise indicated:
1.1 Basis of preparation The consolidated financial statements are prepared under the historical cost basis, except where otherwise specified. The group annual financial statements are prepared in accordance with South African Statements of Generally Accepted Accounting Practice and the Companies Act of 2008. These annual financial statements are presented in South African Rands. Rounding is to the nearest Rand in thousands. The consolidated financial statements are prepared on the going concern basis. Assets and liabilities or income and expenditure will not be offset, unless it is required or permitted by a standard. 1.2 Basis of consolidation The consolidated financial statements incorporate the annual financial statements of the entity and enterprises controlled by the entity at 31 March each year. Control is achieved where the entity has the power to govern the financial and operating policies of an investee enterprise so as to obtain benefits from its activities. On acquisition, the assets and liabilities of the relevant subsidiaries are measured at their fair values at the effective date of acquisition. The results of subsidiaries, associates and joint ventures acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the annual financial statements of subsidiaries to bring the accounting policies used in line with the group accounting policies. All significant inter-entity transactions, unrealised profit and losses and balances between group enterprises are eliminated on consolidation. The most recent audited annual financial statements of associates, joint ventures and subsidiaries are used where available, which are all within three months of the year-end of the group. Adjustments are made to the financial results for material transactions and events in the intervening period. Losses in excess of the group’s interest are not recognised unless there is a binding obligation to contribute to the losses. Company financial statements Investments in subsidiaries, associates and joint ventures in the financial statements presented by the company are recognised at cost, except where there is a permanent decline in the value in which case they are written down to fair value. Consolidated financial statements Business combinations Subsidiaries are entities controlled by the holding company. The consolidated financial statements incorporate the assets, liabilities, income, expenses and cash flows of the company and all entities controlled by the company as if they are a single economic entity. Acquisitions of subsidiaries and businesses are accounted for using the acquisition method. The cost of the business combination is measured as the aggregate of the fair values (at the date of acquisition) of assets given, liabilities incurred or assumed and equity instruments issued by the group in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Acquisition related costs are expensed as incurred. The acquiree's identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 (AC 140): Business Combinations are recognised at their fair values at the acquisition date. 26 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 386 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.2 Basis of consolidation (continued) The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Any contingent consideration to be transferred by the acquirer is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity. Goodwill is calculated as the excess of the sum of a) fair value of consideration transferred, b) the recognised amount of any non-controlling interest in the acquiree and c) acquisition-date fair value of any existing equity interests in the acquiree over the acquisition-date fair values of net identifiable assets. 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 group treats transactions with non-controlling interests as transactions with equity owners of the group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. When the group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss. Interest in associates An associate is an enterprise in which the group has significant influence, through participation in the financial and operating policy decisions of the investee, but not control. The results and assets and liabilities of associates are incorporated in the financial statements by using the equity method of accounting. Under the equity method, investments in associates are carried in the consolidated Statement of Financial Position 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 that, in substance, form part of the group's net investment in associate) are recognised only to the extent that the group has incurred legal or constructive obligations or made payments on behalf of the associate. 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 that 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. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to profit or loss where appropriate. 1.3 Translation of foreign currencies Transactions Foreign currency transactions are recognised, initially in Rand by applying the foreign currency amount to the exchange rate between the Rand and the foreign currency at the date of the transaction, and is restated at each reporting date by using the ruling exchange rate at that date. Statement of Financial Position At each reporting date: foreign currency monetary items are measured using the closing rate; non-monetary items, which are carried in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction, and non-monetary items which are carried at fair value denominated in a foreign currency are reported using the exchange rates that existed when the values were determined. 27 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 387 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.3 Translation of foreign currencies (continued) Exchange differences Exchange differences arising on the settlement of monetary items or on reporting a company's monetary items at rates different from those at which they were initially recorded during the period, or reported in previous annual financial statements, are recognised as income or expenses in the period in which they arise. Exchange differences are capitalised where they relate to the purchase or construction of property, plant and equipment. Foreign entities In translating the financial statements of a foreign entity for incorporation in the group financial statements, the following is applied: (a) The assets and liabilities, both monetary and non-monetary, of the foreign entity are translated at the closing exchange rate at the financial year end date. (b) Income and expense items of the foreign entity are translated at the weighted average rates of exchange for the year. (c) All resulting exchange differences are taken directly to the foreign currency translation reserve which is classified as a non-distributable reserve. On disposal the related amount in this reserve will be recognised in profit or loss. 1.4 Comparative figures Comparative figures are restated in the event of a change in accounting policy or prior period error. 1.5 Property, plant and equipment Property, plant and equipment represent tangible items that are held for use in the production or supply of goods or services, for rental to others, or for administrative purposes and are expected to be used during more than one period. Carrying amounts All property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment losses. Cost Cost includes all costs directly attributable to bringing the assets to the working condition for their intended use. Improvements are capitalised. Maintenance, repairs and renewals which neither materially add to the value of assets nor appreciably prolong their useful lives are charged against income. Finance costs directly associated with the construction or acquisition of major assets are capitalised at interest rates relating to loans specifically raised for that purpose, or at the average borrowing rate where the general pool of borrowings is utilised. Derecognition The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Gains or losses on disposal of property, plant and equipment are determined by reference to their carrying amount. The gain or losses arising from derecognition of an item of property, plant and equipment is included in profit or loss. Gains on disposal will not be classified as revenue. Depreciation Depreciation is charged so as to write off the depreciable amount of the assets, other than land, over their estimated useful lives to estimated residual values, using the straight line method or other acceptable method to write off the cost of each asset that reflects the pattern in which the asset’s future economic benefits are expected to be consumed by the entity. 28 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 388 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.5 Property, plant and equipment (continued) Where significant parts of an item have different useful lives to the item itself, these parts are depreciated over their estimated useful lives. The following methods and rates are used during the year to depreciate property, plant and equipment to estimated residual values: Item Land Buildings Furniture, fittings and communication equipment Motor vehicles Computer equipment Shutdown costs
Average useful life Not depreciated 40 years 3 - 15 years 10 - 12 years 3 - 5 years 3 - 5 years
An exception is made for Production assets and Restoration costs, where the unit of production method is used to calculate depreciation. Reference to the supplementary reserves disclosure can be made for more information on the reserves used. Improvements to leased premises are written off over the period of the lease. The methods of depreciation, useful lives and residual values are reviewed annually. Production assets (oil and gas fields) Oil and gas production assets are the aggregated exploration and evaluation tangible assets, and development expenditure associated with the production of proved reserves. Subsequent expenditure which enhances or extends the performance of oil and gas production assets beyond their original specifications is recognised as capital expenditure and added to the original cost of the asset. Production assets are depreciated over their expected useful lives. This applies from the date production commences, on a unit of production basis, which is the ratio of oil and gas production in the period to the estimated quantities of proved and probable reserves at the end of the period plus the production in the period, on a field-byfield basis. Costs used in the unit of production calculation comprise the net book value of capitalised costs plus the estimated future field development costs required to recover the commercial reserves remaining. Unit of production rates are based on the proved and probable developed reserves, which are oil, gas and other mineral reserves estimated to be recoverable from existing facilities using current operating methods. Changes in the estimates of commercial reserves or future field development costs are dealt with prospectively. Where there has been a change in economic conditions that indicates a possible impairment in a discovery field, the recoverability of the net book value relating to that field is assessed by comparison with the estimated discounted future cash flows based on management’s expectations of future oil and gas prices and future costs. Where there is evidence of economic interdependency between fields, such as common infrastructure, the fields are grouped as a single cash generating unit for impairment purposes. Any impairment identified is charged to the Statement of Comprehensive Income as additional depreciation. Where conditions giving rise to impairment subsequently reverse, the effect of the impairment charge is also reversed as a credit to the Statement of Comprehensive Income, net of any depreciation that would have been charged since the impairment. Restoration costs Cost of property, plant and equipment also includes the estimated costs of dismantling and removing the assets and site rehabilitation costs. Estimated decommissioning and restoration costs are based on current requirements, technology and price levels. Provision is made for all net estimated abandonment costs as soon as an obligation to rehabilitate the area exists, based on the present value of the future estimated costs. These costs are deferred and are depreciated over the useful life of the assets to which they relate using the unit of production method based on the same reserve quantities as are used for the calculation of depletion of oil and gas production assets.
29 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 389 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.5 Property, plant and equipment (continued) The amount recognised is the estimated cost of restoration, discounted to its net present value, and is reassessed each year in accordance with local conditions and requirements. Changes in the estimated timing of decommissioning or decommissioning cost estimates are dealt with prospectively by recording an adjustment to the provision, and a corresponding adjustment to property, plant and equipment. The unwinding of the discount on the restoration provision is included as a finance cost. 1.6 Exploration, evaluation and development of oil and gas wells The "successful efforts" method is used to account for natural oil and gas exploration, evaluation and development activities. Pre-licensing cost These are costs incurred prior to the acquisition of a legal right to explore for oil and gas. They may include speculative seismic data and subsequent geological and geophysical analysis of this data, but may not be exclusive to such costs. These costs are expensed in the year they are incurred. Exploration and evaluation costs All costs relating to the acquisition of licences, exploration and evaluation of a well, field or exploration area are initially capitalised. Directly attributable administration costs and interest payable are capitalised insofar as they relate to specific development activities. These costs are then written off as exploration costs in the Statement of Comprehensive Income unless commercial reserves have been established or the determination process has not been completed and there are no indications of impairment. Assets pending determination Exploratory wells that discover potentially commercial reserves are capitalised pending a decision to further develop or a firm plan to develop has been approved. These wells may remain capitalised for three years. If no such plan or development exists or information is obtained that raises doubt about the economic or operating viability then these costs will be recognised in the profit or loss of that year. If a plan or intention to further develop these wells or fields exists, the costs are transferred to development costs. Commercial reserves Commercial reserves are proven and probable oil and gas reserves, which are defined as the estimated quantities of crude oil, natural gas and natural gas liquids which geological, geophysical and engineering data demonstrate with a specified degree of certainty to be recoverable in future years from known reservoirs and which are considered commercially producible. There should be a 50 per cent statistical probability that the actual quantity of recoverable reserves will be more than the amount estimated as proven and probable reserves and a 50 per cent statistical probability that it will be less. Development costs Costs of development wells, platforms, well equipment and attendant production facilities are capitalised. The cost of production facilities capitalised includes finance costs incurred until the production facility is completed and ready for the start of the production phase. All development wells are not depreciated until production starts and then they are depreciated on the unit of production method calculated using the estimated proved and probable reserves. Dry wells Geological and geophysical costs, as well as all other costs relating to dry exploratory wells costs are recognised in profit or loss in the year they are incurred. 1.7 Intangible assets An intangible asset is an identifiable non-monetary asset without physical substance.
30 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 390 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.7 Intangible assets (continued) Intangible assets are initially recognised at cost less accumulated amortisation and accumulated impairment, if acquired separately or internally generated or 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 tested for impairment annually and impaired if necessary. If assessed as having a finite useful life, it is amortised over its useful life using a straight line basis and tested for impairment if there is an indication that it may be impaired. Research costs are recognised in profit or loss when incurred. Development costs are capitalised only if they result in an asset that can be identified, it is probable that the asset will generate future economic benefits and the development cost can be reliably measured. Otherwise it is recognised in profit or loss. Purchased software and the direct costs associated with the customisation and installation thereof are capitalised. 1.8 Impairment of financial assets Non-derivative financial assets A financial asset not classified as at fair value through profit or loss, including an interest in an equity accounted investee, is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the group on terms that the group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. Financial assets measured at amortised cost The group considers evidence of impairment for financial assets measured at amortised cost (loans and receivables) at both a specific asset and collective level. All individually significant assets are assessed for specific impairment. Those found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Assets that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the group uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss in respect of a financial asset measured at amortised cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against loans and receivables or held to maturity investment securities. Interest on the impaired asset continues to be recognised. When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.
1.9 Impairment of non - financial assets At each reporting date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets may be impaired. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount for an individual asset, the recoverable amount is determined for the cash generating unit to which the asset belongs. Value in use is estimated taking into account future cash flows, forecast market conditions and the expected lives of the assets discounted by the weighted average cost of capital. 31 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 391 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.9 Impairment of non - financial assets (continued) If the recoverable amount of an asset (or cash generating unit) is estimated to be less than its carrying amount, its carrying amount is reduced to the higher of its recoverable amount and zero. Impairment losses are recognised in profit or loss. Subsequent to the recognition of the impairment loss, the depreciation or amortisation charge for the asset is adjusted to allocate its remaining carrying value, less any residual value, over its remaining useful life. If an impairment loss is subsequently reversed, the carrying amount of the asset (or cash generating unit) is increased to the revised estimate of its recoverable amount but limited to the carrying amount that would have been determined had an impairment loss not been recognised in prior years. A reversal of an impairment loss is recognised in profit or loss. 1.10 Leases Finance leases are recognised as assets and liabilities at the lower of the fair value of the assets and the present value of the minimum lease payments at the date of the acquisition. Finance costs represent the difference between the total leasing commitments and the fair value of the assets acquired. Finance costs are charged to profit or loss over the term of the lease at the interest rates applicable to the lease on the remaining balance of the obligations. Rentals payable under operating leases are recognised in profit or loss on a straight line basis over the term of the relevant lease where significant or another basis if more representative of the time pattern of the user's benefit. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place. Contingent rentals are recognised in profit or loss as they accrue. 1.11 Inventories Trading inventory Finished and intermediate inventory is measured at the lower of cost and net realisable value according to the weighted average method. Cost includes production expenditure, depreciation and a proportion of triennial turnaround expenses and replacement of catalysts, as well as transport and handling costs. No account is taken of the value of raw materials and work in progress prior to it reaching intermediate storage tanks. Provision is made for obsolete, slow moving and defective inventories. Spares, catalysts and chemical These inventories are measured at the lower of cost on a weighted average cost basis and net realisable value less appropriate provision for obsolescence in arriving at the net realisable value. 1.12 Financial instruments Recognition Financial assets and financial liabilities are recognised on the group and company's Statement of Financial Position when the group and company becomes a party to the contractual provisions of the instrument. Financial assets and liabilities as a result of firm commitments are only recognised when one of the parties has performed under the contract. Financial instruments recognised on the Statement of Financial Position include cash and cash equivalents, trade receivables, investments, trade payables and borrowings. Measurement Financial assets and liabilities are initially measured at fair value, plus transaction costs. However transaction costs of financial assets and liabilities classified as at fair value through profit or loss are expensed. Subsequent measurement will depend on the classification of the financial instrument as detailed below.
32 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 392 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.12 Financial instruments (continued) Financial assets The group's principal financial assets are investments and loans receivable, accounts receivable and cash and cash equivalents. All financial assets except for those at fair value through profit or loss are subject to review for impairment at each reporting date. Investments The following categories of investments are measured at subsequent reporting dates at amortised cost by using the effective interest rate method: (a) Loans and receivables originated by the group with fixed maturities; (b) Held-to-maturity investments; (c) An investment that does not have a quoted market price in an active market and whose fair value cannot be measured reliably using an appropriate valuation model. Loans and receivables with no fixed maturity period and other investments not covered above are classified as at fair value through profit or loss on initial recognition. Fair value for this purpose, is market value if listed or a value derived by using an appropriate valuation model, if unlisted. Trade and other receivables Trade and other receivables are classified as loans and receivables and are subsequently measured at amortised cost, using the effective interest rate method, less an allowance for any uncollectable amounts. An estimate for impairment is made when objective evidence is available that indicates the collection of any amount outstanding is no longer probable and is charged to profit or loss. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments (more than 30 days overdue) are considered indicators that the trade receivable is impaired. Bad debts are written off when identified. Cash and cash equivalents Cash and cash equivalents comprise cash at bank and on hand and instruments which are readily convertible to known amounts of cash and are subject to an insignificant risk of change in value. Cash and cash equivalents are stated at carrying amount which is deemed to be the fair value. Financial liabilities The group's principal financial liabilities are interest bearing borrowings, accounts payable and bank overdraft. Financial liabilities are stated initially on the transaction date at fair value including transaction costs. Subsequently, all financial liabilities are measured at amortised cost, using the effective interest rate method, comprising original debt less principal payments and amortisation, except for financial liabilities held for trading, borrowings with no fixed maturity period and are classified as at fair value through profit or loss on initial recognition and derivative liabilities, which are subsequently measured at fair value. A change in fair value is recognised in profit or loss. Trade and other payables All financial liabilities are subsequently measured at amortised cost, comprising original debt less principal payments and amortisation. Borrowings Borrowings are initially measured at fair value net of transaction costs incurred, and are subsequently measured at amortised cost, using the effective interest rate method. Any differences between the proceeds (net of transaction costs) and settlement or redemption of borrowings are recognized over the term of the borrowings in accordance with the group’s accounting policy on borrowing costs. Derivative financial instruments Derivative financial instruments, principally interest rate swap contracts and forward foreign exchange contracts, are used by the company in its management of financial risks. 33 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 393 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.12 Financial instruments (continued) Derivative financial instruments are initially measured at fair value on the contract date, and are re-measured to fair value at subsequent reporting dates. Payments and receipts under interest rate swap contracts are recognised in the Statement of Comprehensive Income on a basis consistent with the corresponding fluctuations in the interest payment on floating rate financial liabilities. The carrying amounts of interest rate swaps, which comprise net interest receivables and payables accrued are included in assets and liabilities respectively. Gains and losses on subsequent measurement All gains and losses arising from a change in fair value of or on disposal of held for trading financial assets are recognised in profit or loss. Gains and losses arising from a change in the fair value of available-for-sale financial assets are recognised in other comprehensive income, until the investment is disposed of or is determined to be impaired, at which time the gain or loss is included in the profit or loss for the period. In relation to fair value hedges, which meet the conditions for hedge accounting, the portion of the gain or loss on a hedging instrument that is determined to be an effective hedge is recognised directly in other comprehensive income and the ineffective portion is recognised in profit or loss. If a hedged firm commitment or forecasted transaction results in the recognition of an asset or a liability, then the associated gains or losses recognised in equity are adjusted against the initial measurement of the asset or liability. For all other cash flow hedges, amounts recognised in equity are included in profit or loss in the same period during which the commitment or forecasted transaction affects profit or loss. Derecognition A financial asset or part thereof is derecognised when the group realises the contractual rights to the benefits specified in the contract, the rights expire, the group surrenders those rights or otherwise loses control of the contractual rights that comprise the financial asset. On derecognition, the difference between the carrying amount of the financial asset and the sum of the proceeds receivable and any prior adjustment to reflect the fair value of the asset that had been reported in equity is included in profit or loss for the period. A financial liability or a part thereof is derecognised when the obligation specified in the contract is discharged, cancelled, or expires. On derecognition, the difference between the carrying amount of the financial liability, including related unamortised costs, and the amount paid for it is included in profit or loss for the period. Fair value considerations For financial reporting purposes, fair value measurements are categorised into level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to their fair value measurement in its entirety, are described as follows: a) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the group can access at measurement date; b) Level 2 inputs are inputs, other than quoted prices included in Level 1, that are observable for the asset or liability, either directly or indirectly; and c) Level 3 inputs are unobservable for the asset or liability. The fair values at which financial instruments are carried at the reporting date have been determined using available market prices. Where market prices are not available, fair values have been calculated by discounting expected future cash flows at prevailing interest rates. The fair values have been estimated using available market information and appropriate valuation methodologies, but are not necessarily indicative of the amounts that the group could realise in the normal course of business. The carrying amounts of financial assets and financial liabilities with a maturity of less than one year are assumed to approximate their fair values due to the short term trading cycle of these items. Offsetting Financial assets and financial liabilities are offset if there is an intention to either net the asset and liability or to realise the asset and settle the liability simultaneously and a legally enforceable right to set off exists. 34 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 394 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.13 Post-employment benefit costs Defined contribution costs The group operates a defined contribution plan, the assets of which are held in a separate trustee administered fund. The plan is funded by payments from the group, and takes into account the recommendations of independent qualified actuaries. Contributions to a defined contribution plan in respect of service in a particular period are recognised as an expense in that period. Defined benefit costs Current service costs in respect of defined benefit plans are recognised as an expense in the current period. Past service costs, experience adjustments, the effects of changes in actuarial assumptions and the effects of plan amendments in respect of existing employees in a defined benefit plan are recognised in profit or loss systematically over the remaining work lives of those employees (except in the case of shorter plan amendments where the use of a shorter time period is necessary to reflect the economic benefits by the enterprise). The effects of plan amendments in respect of retired employees in a benefit plan are measured as the present value of the effect of the amended benefits, and are recognised as an expense or as income in the period in which the plan amendment is made. The cost of providing retirement benefits under a defined benefit plan is determined using a projected unit credit valuation method. Actuarial gains and losses are recognised as income or expense in profit or loss immediately. Other post-employment obligations Post-employment health care benefits are provided to retirees. The entitlement to post retirement health care benefits is based on the employees remaining in service up to retirement age. The expected costs of these benefits are accrued over the period of employment, using an accounting methodology similar to that for defined benefit pension plans. Valuations of these obligations are carried out annually by independent qualified actuaries. 1.14 Provisions Provisions represent liabilities of uncertain timing or amounts. Provisions are recognised when a present legal or constructive obligation exists, as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made for the amount of the obligation. Provisions are measured at the expenditure required to settle the present obligation. Where the effect of discounting is material, provisions are measured at their present value using a pre-tax discount rate that reflects the current market assessment of the time value of money and the risks for which future cash flow estimates have not been adjusted. The increase in the provision due to passage of time is recognised as interest expense. Provision for the cost of environmental and other remedial work such as reclamation costs, close down and restoration costs is made when such expenditure is probable and the cost can be estimated with a reasonable range of possible outcomes. 1.15 Share capital and equity Ordinary shares are classified as equity. An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all its liabilities. 1.16 Revenue recognition Revenue is recognised when it is probable that future economic benefits will flow to the enterprise and these benefits can be measured reliably. The measurement is at the fair value received or receivable net of VAT, cash discounts, rebates and settlement discounts. 35 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 395 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.16 Revenue recognition (continued) Revenue from the rendering of services is measured using the stage of completion method based on the services performed to date as a percentage of the total services to be performed. Revenue from the rendering of services is recognised when the amount of the revenue, the related costs and the stage of completion can be measured reliably and when it is probable that the debtor will pay for the services. Revenue from the sale of goods is recognised when the significant risks and rewards of ownership of the goods are transferred, when delivery has been made and title has passed, when the amount of the revenue and the related costs can be reliably measured and when it is probable that the debtor will pay for the goods. 1.17 Cost of sales When inventories are sold, the carrying amount is recognised as part of cost of sales. Any write-down of inventories to net realisable value and all losses of inventories or reversals of previous write-downs or losses are recognised in cost of sales in the period the write-down, loss or reversal occurs. 1.18 Income from investments Interest income is accrued on a time basis by reference to the principal outstanding and at the effective interest rate applicable. Dividend income from investments is recognised when the shareholder's right to receive payment has been established. 1.19 Taxation Current tax assets and liabilities The tax expense for the period comprises current and deferred tax. The charge for current tax is based on the results for the year as adjusted for income that is exempt and expenses that are not deductible using tax rates that are applicable to the taxable income. Deferred tax is recognised for all temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantially enacted at the reporting date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the group expects to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets A deferred tax asset is only recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised, unless specifically exempt. It is measured at the tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax liability A deferred tax liability is recognised for taxable temporary differences, unless specifically exempt, at the tax rates that have been enacted or substantively enacted at the reporting date. Deferred tax arising on investments in subsidiaries, associates and joint ventures is recognised except where the group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. 1.20 Finance costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until the assets are substantially ready for their intended use or sale. Qualifying assets are assets that necessarily take a substantial period to get 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 cost of those assets. Other borrowing costs are recognised as an expense in the period in which they are incurred. 36 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 396 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.21 Government grants Government grants are recognised as income over the periods necessary to match them with the related costs that they are intended to compensate. 1.22 Subsequent events Recognised amounts in the annual financial statements are adjusted to reflect events arising after the reporting date that provide evidence of conditions that existed at the reporting date. Events after the reporting date that are indicative of conditions that arose after the reporting date are dealt with by way of a note. 1.23 Irregular and fruitless and wasteful expenditure Irregular expenditure means expenditure incurred in contravention of, or not in accordance with, a requirement of any applicable legislation, including the PFMA. Fruitless and wasteful expenditure means expenditure that was made in vain and would have been avoided had reasonable care been exercised. When determining whether expenditure shall be classified as fruitless and wasteful or irregular the following will be considered: • Could reasonable steps have been taken to avoid the expenditure? • Were there policies and/or procedures governing the incurred expenditure? • Is it material? (for disclosure purposes) All irregular and fruitless and wasteful expenditure is charged against income in the period in which it is incurred and disclosed as a note to the annual financial statements of the Company and group. 1.24 Withdrawal of SA GAAP With the promulgation of the new Companies Act of 2008, the South African Statements of GAAP were withdrawn with effect from 1 December 2012. The group is in the process of requesting permission from National Treasury to prepare the annual financial statements in accordance with International Financial Reporting Standards for the financial years commencing on or after 1 April 2014. The group will retain the status quo during the intervening period. Amendments to IAS 1 (AC101) Presentation of Financial Statements The amendments to IAS 1 introduce new terminology for the statement of comprehensive income and income statement. Under the amendments to IAS 1, a statement of comprehensive income is renamed as a statement of profit or loss and other comprehensive income and an income statement is renamed as a statement of profit or loss.The amendments to IAS 1 retain the option to present profit or loss and other comprehensive income in either a single statement or in two separate but consecutive statements. However, the amendments to IAS 1 require additional disclosures to be made in the other comprehensive income section such that items of other comprehensive income are grouped into the following two categories: 1) Items that will not be reclassified subsequently to profit or loss (e.g. revaluation surplus on property, plant and equipment under IAS 16 Property, Plant and Equipment, and revaluation surplus on intangible assets under IAS 38 Intangible Assets) 2) Items that may be reclassified subsequently to profit or loss when specific conditions are met (e.g. fair value changes on available-for-sale investments under IAS 39, and fair value changes on hedging instruments in cash flow hedges). Income tax on items of other comprehensive income is required to be allocated on the same basis – the amendments do not change the option to present items of other comprehensive income either before tax or net of tax.
37 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 397 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Accounting Policies 1.25 Key assumptions made by management in applying accounting policies Critical accounting estimates and judgements: In preparing the annual financial statements in terms of SA GAAP, the group's management is required to make certain estimates and assumptions that may materially affect reported amounts of assets and liabilities at the date of the annual financial statements and the reported amounts of revenues and expenses during the reported period and the related disclosures. As these estimates and assumptions concern future events, due to the inherent uncertainty involved in this process, the actual results often vary from the estimates. These estimates and judgements are based on historical experience, current and expected future economic conditions and other factors, including expectations of the future events that are believed to be reasonable under the circumstances. Environmental and decommissioning provision Provision is made for environmental and decommissioning costs where either a legal or constructive obligation is recognised as a result of past events. Estimates are made in determining the present obligation of environmental and decommissioning provisions, which include the actual estimate, the discount rate used and the expected date of closure of mining activities in determining the present value of environmental and decommissioning provisions. Estimates are based upon costs that are regularly reviewed, by internal and external experts, and adjusted as appropriate for new circumstances. Other provisions For other provisions, estimates are made of legal or constructive obligations resulting in the raising of provisions, and the expected date of probable outflow of economic benefits to assess whether the provision should be discounted. Impairments and impairment reversals Impairment tests are performed when there is an indication of impairment of assets or a reversal of previous impairments of assets. Management therefore has implemented certain impairment indicators and these include movements in exchange rates, commodity prices and the economic environment its businesses operate in. Estimates are made in determining the recoverable amount of assets which include the estimation of cash flows and discount rates used. In estimating the cash flows, management base cash flow projections on reasonable and supportable assumptions that represent managements’ best estimate of the range of economic conditions that will exist over the remaining useful life of the assets, based on publicly available information. The discount rates used are pre-tax rates that reflect the current market assessment of the time value of money and the risks specific to the assets for which the future cash flow estimates have not been adjusted. Contingent liabilities Management considers the existence of possible obligations which may arise from legal action as well as the possible non-compliance of the requirements of completion guarantees and other guarantees provided. The estimation of the amount disclosed is based on the expected possible outflow of economic benefits should there be a present obligation. Evaluation of the useful life of assets On an annual basis, management evaluate the useful life of all assets. In carrying out this exercise, experience of asset's historical performance and the medium-term business plan are taken into consideration.
38 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 398 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment Group
2014 Cost
2013
Accumulated Carrying value depreciation
Cost
2012
Accumulated Carrying value depreciation
Cost
Accumulated Carrying value depreciation
Land Production assets Furniture, fittings & office equipment Motor vehicles Restoration costs Shutdown costs capitalised Assets under development
45 135 28 432 424 598 909
(19 328 035) (495 106)
45 135 9 104 389 103 803
47 434 25 941 319 563 572
(17 837 320) (454 526)
47 434 8 103 999 109 046
47 069 20 357 010 557 015
(16 794 838) (421 660)
47 069 3 562 172 135 355
55 984 2 629 754 635 928
(44 208) (1 292 534) (219 430)
11 776 1 337 220 416 498
53 493 2 981 033 -
(42 679) (836 121) -
10 814 2 144 912 -
53 584 1 753 864 -
(41 408) (723 363) -
12 176 1 030 501 -
9 143 797
(2 145 868)
6 997 929
5 453 116
(360 150)
5 092 966
2 531 848
Total
41 541 931
(23 525 181)
18 016 750
35 039 967
(19 530 796)
15 509 171
25 300 390
Company
2014 Cost
2013
Accumulated Carrying value depreciation
Cost
(17 981 269)
2 531 848 7 319 121
2012
Accumulated Carrying value depreciation
Cost
Accumulated Carrying value depreciation
Land Production assets Furniture, fittings & office equipment Motor vehicles Restoration costs Shutdown costs capitalised Assets under development
45 135 21 181 136 597 543
(18 418 245) (494 140)
45 135 2 762 891 103 403
47 434 20 863 661 561 726
(17 356 240) (453 310)
47 434 3 507 421 108 416
47 069 20 357 010 555 184
(16 794 838) (420 597)
47 069 3 562 172 134 587
54 213 2 497 505 635 928
(42 995) (1 260 574) (219 430)
11 218 1 236 931 416 498
51 722 2 840 644 -
(41 574) (809 815) -
10 148 2 030 829 -
51 813 1 753 864 -
(40 411) (723 363) -
11 402 1 030 501 -
9 143 797
(2 145 868)
6 997 929
5 453 116
(360 150)
5 092 966
2 531 848
Total
34 155 257
(22 581 252)
11 574 005
29 818 303
(19 021 089)
10 797 214
25 296 788
39 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 399 of 446
(17 979 209)
2 531 848 7 317 579
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment (continued) Reconciliation of property, plant and equipment - Group - 2014 Opening Balance Land Production assets Furniture, fittings & office equipment Motor vehicles Restoration costs Shutdown costs capitalised Assets under development
Additions
Disposals
Written back Transfers/ during year Reclassifcation
47 434 8 103 999 109 046
405 314 20 592
(630) (153)
10 814 2 144 912 -
2 732 15 614 -
5 092 966
4 837 183
(394)
15 509 171
5 281 435
(1 177)
-
(14 915) -
Foreign exchange movements
(1 669) 1 885 898 15 704
163 113 7
57 278 635 928
17 066 -
(785 958)
(14 915)
Change in estimate
1 807 181
(363 114) -
180 186
Depreciation
(363 114)
Impairment loss
Closing balance
(725 643) (41 393)
(728 292) -
45 135 9 104 389 103 803
(1 770) (130 325) (88 323)
(389 296) (131 107)
11 776 1 337 220 416 498
(2 145 868)
6 997 929
(3 394 563)
18 016 750
(987 454)
Reconciliation of property, plant and equipment - Group - 2013 Restated Opening Balance Land Production assets Furniture, fittings & office equipment Motor vehicles Restoration costs Assets under development
47 069 3 562 172 135 355
Additions
Additions through business combinations 365 535 586 4 664 369 16 750 -
Disposals
Transfers/ Reclassifcation
Foreign exchange movements
Change in estimate
Depreciation
(8) (37)
79 319 33
118 493 6
-
(855 932) (43 061)
Impairment loss
Closing balance -
47 434 8 103 999 109 046
12 176 1 030 501 2 531 848
562 618 619 2 931 901
94 458 -
(5)
(10 628)
11 227 -
634 514 -
(1 924) (244 407) -
(360 150)
10 814 2 144 912 5 092 966
7 319 121
4 103 783
4 758 827
(50)
68 724
129 726
634 514
(1 145 324)
(360 150)
15 509 171
40 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 400 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment (continued) Reconciliation of property, plant and equipment - Group - 2012 Restated Opening balance Land Production assets Furniture, fittings, office equipment & vehicles Motor vehicles Restoration costs Shutdown costs capitalised Assets under development
Additions
26 645 3 566 811 147 819
20 424 1 588 30 749
6 100 1 307 231 153 901 2 032 030
7 521 540 932
7 240 537
601 214
Disposals
Written back
Transfers/ Reclassifcation
-
494 071 -
1
7 804 -
(41 114)
-
7 804
452 957
1
(303) (574) (877)
Foreign exchange movements
Change in estimate
Depreciation -
Total
(499 995) (42 640)
47 069 3 562 172 135 355
(104 196) -
(1 445) (180 338) (153 901) -
12 176 1 030 501 2 531 848
(104 196)
(878 319)
7 319 121
Reconciliation of property, plant and equipment - Company - 2014
Land Production assets Furniture, fittings & office equipment Motor vehicles Restoration costs Shutdown costs capitalised Assets under development
Opening Balance 47 434 3 507 421 108 416 10 148 2 030 829 5 092 966 10 797 214
Additions
Disposals
4 959 20 592 2 732 4 837 183
(630) (33) (394)
4 865 466
(1 057)
Written back Transfers/ during year Reclassifcation (1 669) 312 516 15 704 (4) 635 928 (785 958) (4)
176 521
Change in estimate (276 571) -
(333 713) (41 276) (1 662) (128 027) (88 323) -
(728 292) (389 296) (131 107) (2 145 868)
Closing balance 45 135 2 762 891 103 403 11 218 1 236 931 416 498 6 997 929
(276 571)
(593 001)
(3 394 563)
11 574 005
41 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 401 of 446
Depreciation
Impairment loss
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 2.
Property, plant and equipment (continued) Reconciliation of property, plant and equipment - Company - 2013 Restated Opening Balance 47 069 3 562 172 134 587 11 402 1 030 501 2 531 848
Land Production assets Furniture, fittings & office equipment Motor vehicles Restoration costs Assets under development
7 317 579
Additions
Disposals
365 427 415 16 750 562 618 619 2 931 901
Transfers/ Reclassifcation (8) 79 319 (37) 33 (5) (10 628)
3 995 612
(50)
68 724
Change in estimate
Depreciation
Impairment loss
619 261 -
(561 477) (42 917) (1 816) (237 552) -
(360 150)
Closing balance 47 434 3 507 421 108 416 10 148 2 030 829 5 092 966
619 261
(843 762)
(360 150)
10 797 214
Reconciliation of property, plant and equipment - Company - 2012 Restated
Land Production assets Furniture, fittings, office equipment & vehicles Motor vehicles Restoration costs Shutdown costs capitalised Assets under development
Opening balance 26 645 3 566 811 146 291 5 218 1 307 231 153 901 2 032 030 7 238 127
Additions
Disposals
Written back
20 424 1 588 30 718 7 521 540 932
(303) (9) -
7 804 -
601 183
(312)
7 804
Transfers/ Reclassifcation 494 071 (41 114) 452 957
Change in estimate
Depreciation
Total
(104 196) -
(499 995) (42 413) (1 337) (180 338) (153 901) -
47 069 3 562 172 134 587 11 402 1 030 501 2 531 848
(104 196)
(877 984)
7 317 579
Restoration expenditure relates to the provision for restoration costs and is amortised on a unit of production basis. The unit of production method is used in calculating depreciation on producing assets. Due to the nature of the business, the gas and oil reserves at the end of each financial year differ from the previous year. This necessitates a change in the estimated remaining useful lives of these assets at the end of each financial year. The effect on the current year is a decrease of R91 million in profit. Due to the number of variables involved in the depreciation calculation it is not practicable to estimate the effect in future years. Due to the volatile macroeconomic environment and creep in project costs relating primarily to delays in first gas from Ikhwezi drilling programme, an impairment review was performed on the GTL refinery, which is the company's main cash-generating unit (CGU). The outcome of the review necessitated an impairment of R3.395 billion. This was determined by comparing the CGU's carrying value at year-end against the expected present value of the free cash flows from this CGU, based on a 5-year business plan approved by the Board of Directors. These cash flows are management’s best estimate taking into account past experience and future economic assumptions, such as forward curves for crude oil, product prices and exchange rates and discounted using the company WACC of 12.5%. The impairment loss was recorded as part of operating expenses. PetroSA will continue to review the recoverable amount of the CGU in the event of future changes in reserves and relevant macroeconomic indicators. 42 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 402 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 3.
Intangible assets Group
2014 Cost
2013
Accumulated Carrying value amortisation
Cost
2012
Accumulated Carrying value amortisation
Cost
Accumulated Carrying value amortisation
Patents Exploration & evaluation assets Software Restoration costs
7 211 1 496 276 38 730 20 651
(2 197) (934) (18 678) -
5 014 1 495 342 20 052 20 651
6 934 3 010 739 28 090 98 749
(1 643) (11 966) -
5 291 3 010 739 16 124 98 749
6 934 1 002 819 12 063 -
(1 365) (79 162) (9 578) -
5 569 923 657 2 485 -
Total
1 562 868
(21 809)
1 541 059
3 144 512
(13 609)
3 130 903
1 021 816
(90 105)
931 711
Company
2014 Cost
2013
Accumulated Carrying value amortisation
Cost
2012
Accumulated Carrying value amortisation
Cost
Accumulated Carrying value amortisation
Patents, trademarks and other rights Exploration & evaluation assets Software
7 211 1 109 592 38 730
(2 197) (934) (18 678)
5 014 1 108 658 20 052
6 934 1 017 233 28 090
(1 643) (11 966)
5 291 1 017 233 16 124
6 934 923 657 12 063
(1 365) (9 578)
5 569 923 657 2 485
Total
1 155 533
(21 809)
1 133 724
1 052 257
(13 609)
1 038 648
942 654
(10 943)
931 711
43 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 403 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 3.
Intangible assets (continued) Reconciliation of intangible assets - Group - 2014 Opening Balance Patents Exploration & evaluation assets Software Restoration costs
Additions
5 291 3 010 739
133 475
16 124 98 749
10 640 6 958
3 130 903
151 073
Disposals
Written back
(145 243) (145 243)
Transfers
136
Foreign exchange movements
Change in estimate
Amortisation
(1 573 382)
70 551
-
(277) -
(36 170)
(57 278)
14 364
(5 972)
(6 712) -
(36 034)
(1 630 660)
84 915
(5 972)
(6 989)
Impairment loss
Total
(934) (934)
5 014 1 495 342 20 052 20 651 1 541 059
Reconciliation of intangible assets - Group - 2013 Restated Opening Balance Patents Exploration & evaluation assets Software Restoration costs
Additions
5 569 923 657 2 485 -
154 268 15 676 4 167
Additions through business combinations 1 885 000 129 722
931 711
174 111
2 014 722
Transfers
Foreign exchange movements
Change in estimate
Amortisation
Total
8 -
47 814 15 934
(51 074)
(278) (2 045) -
5 291 3 010 739 16 124 98 749
8
63 748
(51 074)
(2 323)
3 130 903
Reconciliation of intangible assets - Group - 2012 Restated Opening balance Patents, trademarks and other rights Exploration & evaluation assets Software
Additions
Amortisation
Impairment loss
Total
665 586 1 111
6 934 337 233 2 500
(1 365) (1 126)
(79 162) -
5 569 923 657 2 485
666 697
346 667
(2 491)
(79 162)
931 711
44 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 404 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 3.
Intangible assets (continued) Reconciliation of intangible assets - Company - 2014 Opening Balance 5 291 1 017 233 16 124
Patents Exploration & evaluation assets Software
1 038 648
Additions
Amortisation
Impairment loss
Total
92 359 10 640
(277) (6 712)
(934) -
5 014 1 108 658 20 052
102 999
(6 989)
(934)
1 133 724
Reconciliation of intangible assets - Company - 2013 Restated Opening Balance 5 569 923 657 2 485
Patents Exploration & evaluation assets Software
931 711
Additions
Transfers
Amortisation
Total
93 576 15 676
8
(278) (2 045)
5 291 1 017 233 16 124
109 252
8
(2 323)
1 038 648
Reconciliation of intangible assets - Company - 2012 Restated Opening balance Patents, trademarks and other rights Exploration & evaluation assets Software
Additions
Amortisation
Total
586 424 1 111
6 934 337 233 2 500
(1 365) (1 126)
5 569 923 657 2 485
587 535
346 667
(2 491)
931 711
45 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 405 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
4.
Company
2013 R '000 Restated
2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
Deferred tax Deferred tax liability Accelerated capital allowances for tax purposes Tax losses available for set off against future taxable income Provisions
(1 992 006) (1 728 498)
-
-
-
-
179 718
-
-
-
-
-
20 731
-
-
-
-
-
(1 791 557) (1 728 498)
-
-
-
-
At beginning of the year Originating temporary difference on assets Increase (decrease) in tax losses available for set off against future taxable income Originating temporary difference on provisions Reversing temporary difference on fair value adjustment
(1 728 498) (360 592) (1 807 796)
-
-
-
-
Balance at end of year
(1 791 557) (1 728 498)
Reconciliation of deferred tax liability
5.
179 718
-
-
-
-
-
20 731
-
-
-
-
-
97 084
79 298
-
-
-
-
-
-
-
-
Investments in subsidiaries The carrying amounts of subsidiaries are shown net of impairment losses. PetroSA Synfuel International SOC Ltd (100%) Shares: Balance at the beginning of the year Provision for impairment
-
-
-
501
501
501
-
-
-
(501)
(501)
(501)
-
-
-
-
-
-
(0.12)
(0.12)
(0.12)
Shares: Balance at the beginning of the year
-
-
-
0.12
0.12
0.12
Loans Shares
-
-
-
(0.12) 0.12
(0.12) 0.12
(0.12) 0.12
Carrying amount of investment
-
-
-
Balance at the end of the year PetroSA Sudan SOC Ltd (100%) Loans: Balance at the beginning of the year
-
-
46 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 406 of 446
-
-
-
-
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
5.
2013 R '000 Restated
Company 2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
Investments in subsidiaries (continued) Petroleum Oil & Gas Corporation of South Africa (Namibia) SOC Ltd (100%) Loans: Balance at the beginning of the year
-
-
-
(0.12)
(0.12)
(0.12)
Shares: Balance at the beginning of the year
-
-
-
0.12
0.12
0.12
Loans Shares
-
-
-
(0.12) 0.12
(0.12) 0.12
(0.12) 0.12
Carrying amount of investment
-
-
-
-
-
-
(0.10)
(0.10)
(0.10)
Shares: Balance at the beginning of the year
-
-
-
0.10
0.10
0.10
Loans Shares
-
-
-
(0.10) 0.10
(0.10) 0.10
(0.10) 0.10
Carrying amount of investment
-
-
-
-
-
-
-
-
-
-
-
1 913
-
-
-
-
-
(1 913)
-
-
-
-
-
1 235
-
-
-
-
-
(1 235)
-
-
-
-
-
PetroSA Egypt SOC Ltd (100%) Loans: Balance at the beginning of the year
PetroSA Nigeria Limited (100%) Loans: Balance at the beginning of the year Advances/ (repayments) during the year Shares: Balance at the beginning of the year Disposal of shares Balance at the end of the year
-
47 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 407 of 446
-
-
-
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000 5.
2013 R '000 Restated
Company 2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
Investments in subsidiaries (continued) PetroSA Europe BV (100%) Shares: Balance at the beginning of the year
-
-
-
166
166
166
Share premium: Balance at the beginning of the year
-
-
-
2 965
2 965
2 965
Shares Share premium
-
-
-
166 2 965
166 2 965
166 2 965
Carrying amount of investment
-
-
-
3 131
3 131
3 131
-
-
-
(0.06)
(0.06)
(0.06)
Shares Balance at the beginning of the year
-
-
-
0.06
0.06
0.06
Loans Shares
-
-
-
(0.06) 0.06
(0.06) 0.06
(0.06) 0.06
Carrying amount of investment
-
-
-
-
-
-
(0.06)
(0.06)
(0.06)
Shares: Balance at the beginning of the year
-
-
-
0.06
0.06
0.06
Loans Shares
-
-
-
(0.06) 0.06
(0.06) 0.06
(0.06) 0.06
Carrying amount of investment
-
-
-
-
-
-
(0.06)
(0.06)
(0.06)
Shares: Balance at the beginning of the year
-
-
-
0.06
0.06
0.06
Loans Shares
-
-
-
(0.06) 0.06
(0.06) 0.06
(0.06) 0.06
Carrying amount of investment
-
-
-
PetroSA Brass SOC Ltd (100%) Loans: Balance at the beginning of the year
PetroSA Gryphon Marin Permit SOC Ltd (100%) Loans: Balance at the beginning of the year
PetroSA Iris SOC Ltd (100%) Loans: Balance at the beginning of the year
48
-
-
-
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 408 of 446
-
-
-
-
-
-
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
5.
Investments in subsidiaries (continued) PetroSA Themis SOC Ltd (100%) Loans: Balance at the beginning of the year
2013 R '000 Restated
Company 2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
-
-
-
(0.12)
(0.12)
(0.12)
Shares: Balance at the beginning of the year
-
-
-
0.12
0.12
0.12
Loans Shares
-
-
-
(0.12) 0.12
(0.12) 0.12
(0.12) 0.12
Carrying amount of investment
-
-
-
-
-
-
(0.06)
(0.06)
(0.06)
Shares: Balance at the beginning of the year
-
-
-
0.06
0.06
0.06
Loans Shares
-
-
-
(0.06) 0.06
(0.06) 0.06
(0.06) 0.06
Carrying amount of investment
-
-
-
-
-
-
-
-
-
-
-
-
PetroSA Equatorial Guinea SOC Ltd (100%) Loans: Balance at the beginning of the year
-
-
-
PetroSA Ghana Ltd (100%) Shares: Balance at the beginning of the year Shares purchased
-
-
-
3 880 651
3 880 651
-
Balance at the end of the year
-
-
-
3 880 651
3 880 651
-
Carrying amount of investment
-
-
-
3 880 651
3 880 651
-
-
-
-
(1) 3 881 319 2 965 (501)
(1) 3 881 319 2 965 (501)
(1) 668 2 965 (501)
-
-
-
3 883 782
3 883 782
3 131
Total Loans Shares Share premium Provision for impairment Carrying amount of investment
49 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 409 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 6.
Investments in associates Group Name of company
Country of incorporation
GTL.F1 AG
Switzerland
% % % Carrying Carrying Carrying holding holding holding amount 2014 amount 2013 amount 2012 2014 2013 2012 50.00 % 50.00 % 50.00 % -
Switzerland
% % % Carrying Carrying Carrying holding holding holding amount 2014 amount 2013 amount 2012 2014 2013 2012 50.00 % 50.00 % 50.00 % 29 625 29 625 29 625
Company Name of company GTL.F1 AG
Associates with different reporting dates The reporting date of the associate is not the same as that of the group. GTL.F1 AG's year end is 31 December 2013. Unrecognised share of losses of associate The group has discontinued recognising its share of the losses of GTL.F1 AG, as the investment at a group level is held at R nil and the group has no obligation for any losses of the associate. The total unrecognised losses for the current period amount to R34.1 million (2013: R16 million). The accumulated unrecognised losses to date amount to R78.9 million (2013: R 44.8million). Associates equity accounted for Summary of the associate’s financial information: GTL.F1 AG
2014
Total assets Total liabilities Revenue Loss/(Profit)
134 601 (278 978) 12 891 79 392
2013 117 896 (170 756) 1 465 34 509
50 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 410 of 446
2012 90 871 (106 949) 3 723 (22 608)
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group
7.
Company
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
2014 R '000
2013 R '000 Restated
1 725 000
2 594 000
126 839
2012 R '000 Restated
-
1 725 000
2 594 000
-
79 166
68 724
126 839
79 166
68 724
169 651
136 140
116 873
169 651
136 140
116 873
-
-
-
1 795 917
1 598 885
1 412 475
-
-
-
-
1 141 482
1 142 457
-
-
-
740 759
1 517 538
-
296 490 -
215 306 -
185 597 2 833 166 4 473 211 2 740 529 - (1 795 917) (2 740 367) (2 554 932)
296 490
215 306
185 597
1 037 249
1 732 844
185 597
Non-current assets Current assets
296 490 1 725 000
215 306 2 594 000
185 597 -
296 490 2 465 759
215 306 4 111 538
185 597 -
Total other financial assets
2 021 490
2 809 306
185 597
2 762 249
4 326 844
185 597
Other financial assets Cash at bank Restricted cash Restricted cash at bank is interest bearing and its use is restricted as a reserve for the servicing of debt under the group’s financing agreements in relation to the PetroSA Ghana Ltd investment. Loans and receivables GTL.F1 AG The loan accrues interest at EURIBOR + 0.75%. This loan is repayable on the commencement of profit generation by the company. Lurgi The amount owing by Lurgi is in respect of a purchase of 12.5% share in the PetroSA Statoil Joint Venture. The loan accrues interest at EURIBOR + 0.75%. The loan is repayable based on dividends receivable by Lurgi from the GTL.F1 AG technology company. PetroSA Equatorial Guinea The loan has no fixed repayment terms and interest accrues at prime + 2% PetroSA Egypt The loan has no fixed repayment terms and interest accrues at prime + 2% PetroSA Ghana Ltd The loan is unsecured. The loan accrues interest at USD LIBOR plus a percentange ranging between 0.585% and 1.025%. Interest is compounded quarterly. The loan repayment period was extended from 13 September 2013 to 30 June 2014. Subtotal Loans and receivables (impairments)
A decision was taken to impair PetroSA's loans to PetroSA Egypt and PetroSA Equatorial Guinea of Rnil (2013: R1,142 million) and R1,796 million (2013: R1,599 million) respectively, due to its irrecoverability. At 31 March 2014, PetroSA waived its claim against PetroSA Egypt and the loan was written off. PetroSA has subordinated the loans to various subsidiaries in favour of other creditors of the subsidiaries until such time as its assets fairly valued, exceed its liabilities.
51 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 411 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
8.
2013 R '000 Restated
Company 2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
Amounts held by holding company This deposit is held by CEF (SOC) Ltd as security for guarantees issued by itself to third parties on behalf of PetroSA. CEF (SOC) Ltd
9.
489 021
489 021
489 021
489 021
489 021
489 021
2 647 819 11 156 314 798
2 143 654 182 990 472 192
1 836 949 24 712 438 546
2 647 819 8 909 308 647
2 143 654 182 990 463 190
1 836 949 24 712 426 694
2 973 773
2 798 836
2 300 207
2 965 375
2 789 834
2 288 355
Inventories The amounts attributable to the different categories are as follows: Petroleum fuels Crude oil Consumable stores, spares and catalysts
10. Trade and other receivables Trade receivables Prepayments Deposits VAT Statutory receivables Provision for doubtful debts Sundry receivables
2 848 741 2 839 204 2 878 581 2 737 507 2 737 674 2 877 734 174 211 186 675 103 720 173 760 186 374 99 590 235 190 163 269 046 120 770 120 866 268 214 120 023 120 393 48 014 78 439 1 528 48 014 78 439 1 528 (31 976) (31 680) (34 587) (31 976) (31 680) (34 587) 203 191 333 138 329 239 205 921 342 981 335 344 3 511 462
3 526 736
3 399 510
3 401 440
3 433 811
3 400 002
Trade receivables past due but not impaired Trade receivables which are less than 3 months past due are not considered to be impaired. At 31 March 2014, R39.7 million (2013: R985.6 million) were past due but not impaired. The ageing of amounts past due but not impaired is as follows: 1 month past due 2 months past due 3 months past due
28 735 5 045 5 914
285 351 207 986 492 240
25 812 7 8 768
28 735 5 045 5 914
285 351 207 986 492 240
25 812 7 8 768
Reconciliation of provision for impairment of trade receivables Opening balance Impairment losses recognised on receivables Written off Transferred Amounts recovered during the year
31 680 4 307
34 587 468
49 768 5 169
31 680 4 307
34 587 468
49 768 5 169
(2 761) (1 250)
(920) (2 455)
(6 593) (10 566) (3 191)
(2 761) (1 250)
(920) (2 455)
(6 593) (10 566) (3 191)
31 976
31 680
34 587
31 976
31 680
34 587
The provision for doubtful debts consists of a number of customer account balances. The balance is aged as R31.9 million (2013: R31.2 million) at over 120 days and Rnil (2013: R0.48 million) as current.
52 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 412 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000 Restated
2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
11. Cash and cash equivalents Cash and cash equivalents consist of cash on hand and balances with banks and investments in money market instruments. Cash and cash equivalents included in the statement of financial position comprise the following: Short-term investments in money market and cash on hand Bank balances Term deposits Bank overdraft
4 813 588
645 642 1 070 142 30 673 28 772 (357 655) 5 132 248
Current assets Current liabilities
6 343 569 12 746 399 75 263 27 181 -
7 442 483 12 848 843
4 813 002
6 344 190 12 743 277
67 615 (357 655) 4 522 962
197 052 -
40 586 -
6 541 242 12 783 863
5 489 903 7 442 483 12 848 843 (357 655) -
4 880 617 6 541 242 12 783 863 (357 655) -
5 132 248
4 522 962
7 442 483 12 848 843
6 541 242 12 783 863
A term deposit of R30.7 million (2013: R28.7 million) is held in the company Energy Africa Rehabilitation (NPC), and is committed solely for the abandonment expenditure for the Oribi/Oryx field. 12. Share capital Authorised 5000 Ordinary par value shares of R1 each Issued 1,914 Ordinary par value shares of R1 each Share premium
5
5
5
5
5
5
2
2
2
2
2
2
2 755 934
2 755 934
2 755 934
2 755 934
2 755 934
2 755 934
2 755 936
2 755 936
2 755 936
2 755 936
2 755 936
2 755 936
53 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 413 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 13. Provisions Reconciliation of provisions - Group - 2014 Opening balance Abandonment / Environmental Post-retirement medical aid benefits Rehabilitation Social investment Bonus Contingent consideration
7 904 598 60 465 7 477 40 622 206 168 321 294
Additions/ Utilised (Reversals) during the year 61 914 (51 081) 5 566 (33 114) 7 551 (1 191) (3 759) 166 111 (202 253) (170 067) (151 227)
8 540 624
71 075
(442 625)
Interest expense
Change in estimate
Total
532 858 13 074 -
(369 086) 8 079 203 45 991 13 837 36 863 (3 914) 166 112 -
545 932
(373 000) 8 342 006
Reconciliation of provisions - Group - 2013 Opening balance Abandonment / Environmental Post-retirement medical aid benefits Rehabilitation Social investment Bonus Contingent consideration
Additions
Utilised during the year
Interest expense
Change in estimate
5 857 911 70 168 7 500 256 055 -
656 167 40 368 40 622 206 332 519 694
(50 071) (23) (256 219) (221 923)
548 078 26 329
583 440 (2 806)
6 191 634
1 463 183
(528 236)
574 407
580 634
Additions Total through business combinations 259 002 7 904 598 60 465 7 477 40 622 - 206 168 - 321 294 259 002 8 540 624
Reconciliation of provisions - Group - 2012 Opening balance Abandonment / Environmental Post-retirement medical aid benefits Rehabilitation Bonus
Additions
5 506 257 143 588 7 500 355 602
1 609 26 444 106 838
6 012 947
134 891
54 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 414 of 446
Utilised Interest Change in Total during the expense estimate year 454 241 (104 196) 5 857 911 (99 864) 70 168 7 500 (206 385) 256 055 (306 249)
454 241
(104 196) 6 191 634
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 13. Provisions (continued) Reconciliation of provisions - Company - 2014 Opening balance Abandonment / Environmental Post-retirement medical aid benefits Rehabilitation Social investment Bonus Contingent consideration
Additions/ Utilised Interest Change in Total (Reversals) during the expense estimate year 526 675 (276 571) 7 864 962 5 566 (33 114) 13 074 45 991 7 551 (1 191) 13 837 (3 759) 36 863 165 600 (201 773) (3 914) 165 601 (170 067) (151 227) -
7 614 858 60 465 7 477 40 622 205 688 321 294 8 250 404
8 650
(391 064)
539 749
(280 485) 8 127 254
Reconciliation of provisions - Company - 2013 Opening balance Abandonment / Environmental Post-retirement medical aid benefits Rehabilitation Social investment Bonus Contingent consideration
Additions
5 829 884 70 168 7 500 255 413 -
618 615 40 368 40 622 205 852 519 694
6 162 965
1 425 151
Utilised Interest Change in during the expense estimate year 547 098 619 261 (50 071) (23) (255 577) (221 923) 26 329 (2 806) (527 594)
573 427
Interest expense
Total 7 614 858 60 465 7 477 40 622 205 688 321 294
616 455
8 250 404
Change in estimate
Total
Reconciliation of provisions - Company - 2012 Opening balance Abandonment/Environmental Post-retirement medical aid benefits Rehabilitation Bonus
Additions
5 479 839 143 588 7 500 355 101
26 444 106 697
Utilised during the year (99 864) (206 385)
5 986 028
133 141
(306 249)
55 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 415 of 446
454 241 -
(104 196) 5 829 884 70 168 7 500 255 413
454 241
(104 196) 6 162 965
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group
Company
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
8 125 194 216 812
8 286 357 254 267
5 928 079 263 555
7 910 953 216 301
7 996 617 253 787
5 900 052 262 913
8 342 006
8 540 624
6 191 634
8 127 254
8 250 404
6 162 965
13. Provisions (continued) Non-current liabilities Current liabilities
Post-retirement medical aid benefits PetroSA contributes to a medical aid scheme for retired and medically unfit employees. Refer to note 27 for more information. Rehabilitation This amount is for the rehabilitation of the land at the Voorbaai terminal. Social investment This provision is for commitments to community investment projects as a pre-condition for the issuing of exploration licences. Bonus The provision is for incentives for PetroSA employees who qualify in terms of their performance during the financial year. Contingent consideration The provision was raised to account for the financial implication of production target and approvals which may be met in term of the Sabre share purchase agreement. Refer to note 26. Abandonment/Environmental In the prior year, the purchase of 100% equity in PetroSA Ghana and a 45% increase in the South Coast Gas joint venture shareholding to 100%, PetroSA assumed additional abandonment liabilities. The additions were ascribed as follows, PetroSA Ghana (R259 million) and South Coast Gas joint venture (R619 million). Major assumptions included in the calculation of provisions is that the South African inflation increased from 5.3% to 6.1% and US inflation decreased from 1.59% to 1.30%. A sensitivity analysis indicates that an increase of 1% in the inflation and risk-free rates will result in a movement in the interest charge and a change in estimate of the abandonment provision. The quantitative effect would be an increase of R55.7 million (2013: R44.8 million) with respect to the inflation rate and a decrease of R503.3 million (2013: R383.9 million) for the risk-free rate. The resulting provision could also be influenced by changing technologies and political, environmental, safety, business and statutory considerations. PetroSA commissioned additional research into the requirements to fully close or decommission redundant exploration wells. No reliable estimate of the cost can currently be made. Therefore no amounts have been provided for these items. The total cost of future restoration is estimated at R8 079 million. This cost includes the net expenditure to abandon and to rehabilitate both the onshore and offshore facilities as well as other related closure costs. The costs are expected to be incurred as follows: Financial year - within one year - in second to fifth year inclusive
R'million 8 079
56 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 416 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
2013 R '000 Restated
Company 2012 R '000 Restated
2014 R '000
2013 R '000 Restated
2012 R '000 Restated
13. Provisions (continued) Funding of abandonment/environmental rehabilitation The group has set aside funds towards the cost of abandonment/environmental rehabilitation. These funds are not available for the general purposes of the group. The funds are comprised of the following investments: Rand millions Portion of cash deposit with CEF (SOC) Ltd (Holding company) (refer to note 8) Cash in escrow account Financial guarantee (refer to note 28)
2014 477
2013 477
477
31 180
29 180
27 180
688
686
684
14. Other financial liabilities Bank loan The US Dollar denominated loan balance outstanding is secured by a cash collateral of R1 725 million (2013: R2 594 million). The loan accrues interest at LIBOR plus a margin percentage. This margin percentage amounted to 0.58500% throughout the financial year (2013: ranged between 0.96% and 0.585%). All interest payable accrues from day to day at the relevant rate of interest, is calculated on the basis of the actual number of days elapsed and a 360 day year and is compounded quarterly. The loan is repayable in full on 30 June 2014.
1 591 050
2 037 200
-
1 591 050
2 037 200
-
15. Trade and other payables Trade payables Statutory payables Accrued leave pay Accrued expenses Deposits received Other payables
1 984 788 704 201 84 964 669 885 23 40 165
1 864 534 627 038 76 259 808 727 23 62 056
1 249 413 404 000 73 674 535 032 23 10 835
1 991 400 704 201 83 118 547 157 23 40 039
1 898 221 627 038 75 899 797 791 23 20 973
1 251 674 404 000 73 260 537 609 23 10 644
3 484 026
3 438 637
2 272 977
3 365 938
3 419 945
2 277 210
57 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 417 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group As Adjustment previously reported
Company Restated
As Adjustment previously reported
Restated
16. Comparative figures Certain comparative figures in the group annual financial statements have been restated and/or reclassified. The effects of these changes are as follows: 2012 Restatements Production assets Restoration costs Exploration & evaluation assets Consumable stores, spares and catalysts Retained earnings
2 998 528 987 548 710 993
563 644 3 562 172 42 953 1 030 501 923 657 923 657 (272 447) 438 546
2 998 528 987 548 699 141
563 644 3 562 172 42 953 1 030 501 923 657 923 657 (272 447) 426 694
(15 257 464) (1 257 807)(16 515 271)(15 245 446) (1 257 807)(16 503 253)
2013 Restatements Production assets Restoration costs Exploration & evaluation assets Consumable stores, spares and catalysts Abandonment provision Retained earnings
7 727 876 1 875 740 1 993 506 716 171
376 123 8 103 999 269 172 2 144 912 1 017 233 3 010 739 (243 979) 472 192
3 131 298 1 761 657 707 169
376 123 3 507 421 269 172 2 030 829 1 017 233 1 017 233 (243 979) 463 190
(7 762 556) (142 042) (7 904 598) (7 472 816) (142 042) (7 614 858) (15 850 916) (1 276 507)(17 127 420)(15 610 828) (1 276 507)(16 887 335)
Further to the restatements disclosed above, the comparative figures in the statement of financial position, statement of comprehensive income and statement of cash flows have been reallocated to more accurately reflect the nature of the expenses and underlying balances. The restatements to the financial information of the 2012 and 2013 financial years are as a result of the following: Production assets, Restoration costs and Abandonment Provision Reclassification of certain items included in consumable stores, spares and catalyst to production assets as these items were in the past considered to be inventory. These items should have been classified as production assets in terms of IAS 16 (AC 123) Property, Plant and Equipment, as they will be used in the process of production during more than one accounting period; Revision to the application of the unit of production method in determining depreciation, depletion and amortisation and the consequential impact on restoration costs Revision of the method of determining changes in estimate and unwinding of the discount factor accounting for the abandonment provision and the consequential impact on restoration costs. Exploration and evaluation asset In terms of IFRS 6 (AC 143) Exploration for and Evaluation of Mineral Resources and the "successful efforts" method of accounting an entity shall measure exploration and evaluation assets at cost, and that possible costs to be capitalised include; acquisition of rights to explore, geological studies, exploratory drilling, trenching, sampling and costs associated with evaluating the technical feasibility of the mineral resource. Expenditures incurred on exploration and evaluation assets were prematurely expensed despite ongoing exploration and appraisal activities. Revenue and cost of sales Revenue and cost of sales should be recognised net of taxes and levies in terms of IAS 18 (AC 111) Revenue and IAS 2 (AC108) Inventories. Consequently, revenue and cost of sales have been restated by the same amount in order to adjust for - Duty at Source (DAS) and CEF levies which were included in these balances.
58 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 418 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
17. Revenue Gross revenue represents the invoiced value of crude oil, fuel sales and other goods and services supplied, excluding value added tax. Major classes of revenue comprise: Fuel production sales Crude oil sales
19 989 357 1 209 937
18 141 547 739 268
19 989 357 202 562
18 141 547 256 267
21 199 294
18 880 815
20 191 919
18 397 814
18. Operating (loss) profit Operating (loss) profit for the year is stated after accounting for the following: Income from administration and management activities Administration and management fees
1 773
4
3 887
4 377
Operating lease charges Premises Contractual amounts
3 486
4 417
1 691
2 676
Profit (loss) on sale of property, plant and equipment Profit on sale of intangible assets Bad debts recovered Stock provision Profit on foreign exchange Impairment of trade receivables Impairment of property, plant and equipment Impairment of intangible assets Impairment/write-off of loans to group companies Amortisation of intangible assets Depreciation of property, plant and equipment Salaries and wages Pension and medical costs
116 138 361 (1 250) 22 316 (599 341) 4 307 3 394 563 934 6 989 987 454 996 114 176 584
(2 455) (14 735) (91 560) 468 360 150 2 322 1 145 324 929 826 135 991
(1 250) 22 316 (599 341) 4 307 3 394 563 934 197 631 6 989 593 001 979 240 176 584
(2 455) (14 735) (91 560) 468 360 150 185 436 2 322 843 762 920 624 135 991
439 273
4 732 950
618 939
864 675
439 273
732 954
618 939
864 675
18 348 868 448 532 578 251 838
12 557 7 220 574 356 222 860
18 301 868 526 675 251 838
12 557 1 592 573 427 222 860
804 080
816 993
797 682
810 436
1 106 0.88%
1 418 16.70%
-
19. Investment income Interest income Bank Investments
20. Finance costs Non-current borrowings Bank Current borrowings Unwinding of discount Foreign exchange difference on revaluation of foreign loans
Borrowing costs capitalised Borrowing costs capitalised to qualifying assets Capitalisation rate used to determine the amount of borrowing costs eligible for capitalisation
59 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 419 of 446
-
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
21. Taxation Major components of the tax expense (income) Current Local income tax - current period Local income tax - recognised in current tax for prior periods Foreign income tax or withholding tax - current period Foreign income tax or withholding tax - recognised in current tax for prior periods
Deferred Originating and reversing temporary differences Arising from previously unrecognised tax loss / tax credit / temporary difference Benefit of unrecognised tax loss
4 504 -
836 201
-
-
11 -
4 880 11
-
-
4 515
5 928
-
-
(32 014) (85 830)
(79 298) -
-
-
173 458
-
-
55 614
(79 298)
-
-
-
60 129
(73 370)
-
-
Reconciliation of the tax expense Reconciliation between applicable tax rate and average effective tax rate. Applicable tax rate Under/over accrual for previous tax year
28.00 %
28.00 %
28.00 %
28.00 %
-%
1.00 %
-%
-%
28.00 %
29.00 %
28.00 %
28.00 %
PetroSA is an oil and gas company as defined in the Tenth Schedule to the Income Tax Act. As an oil and gas company, PetroSA qualifies for additional tax deductions in respect of its capital expenditure on exploration and production activities. This assessed loss position is directly attributable to PetroSA’s oil and gas activities. PetroSA continued with its development programme of the F-O field, known as project Ikhwezi. Project Ikhwezi will contribute toward further increasing PetroSA’s assessed loss position. As it is unlikely that the assessed loss will be utilised in the foreseeable future, no deferred tax asset has been recognised. The current tax value of the unrecognised estimated tax loss/assessed loss is R3.3 billion (2013: R2.2 billion). The unused estimated/assessed tax loss at year-end is R11.8 billion (2013: R7.9 billion). 22. Auditors' remuneration Audit fee Expenses
7 674 283
5 445 107
6 605 283
4 904 107
7 957
5 552
6 888
5 011
60 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 420 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
23. Cash generated from operations (Loss) profit before taxation Adjustments for: Depreciation and amortisation Loss on sale of assets Unwinding of discount Interest received Finance costs Impairment loss Movements in provisions Movement in restoration costs Foreign exchange gain Changes in working capital: (Increase) / decrease in inventories (Increase) / decrease in trade and other receivables (Increase) / decrease in prepayments (Decrease) / increase in trade and other payables
(1 588 582)
538 779
(1 966 918)
864 118 138 477 (532 578) (439 273) 804 080 3 398 347 (47 391) 496 494 (248 527)
903 239 (574 356) (732 954) 816 993 363 000 2 089 988 (988 980) (86 149)
471 963 (526 675) (618 939) 797 682 3 593 128 (123 150) 404 602 (27 366)
608 532 (573 427) (864 675) 810 436 545 586 2 087 439 (1 000 327) (8 823)
(354 308) 15 274 45 389
(562 666) (124 720) 243 869 1 147 478
(352 062) 32 371 (54 007)
(570 211) (33 809) 243 869 1 142 736
2 551 384
3 033 521
384 081
1 630 629
2 771 407
73 370 (79 299) 5 546
22 452
4 262
(383)
22 452
4 262
24. Tax refunded Charge to profit or loss Movement in deferred taxation Movement in taxation balance
(60 129) 63 059 21 831
Amounts refunded/(payments made)
24 761
25. Government grants PetroSA receives a government grant for training on projects. In terms of the signed agreement, PetroSA will receive a refund based on the cost incurred in order to provide specialised training on the project. Grants received
6 906
4 495
61 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 421 of 446
6 906
4 495
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
2013 R '000
Company 2014 R '000
2013 R '000
26. Business combinations PetroSA Ghana Ltd On 14 September 2012 the group acquired 100% of the voting equity interest of PetroSA Ghana Ltd which resulted in the group obtaining control over PetroSA Ghana Ltd for a purchase price of US$500 million. This was partly financed by a back-to-back bank loan facility of US$220 million. PetroSA Ghana Ltd is principally involved in the oil and gas industry with minority interests in assets offshore Ghana. As a result of the acquisition, the group is expecting to increase its share in those markets. It is also expecting to reduce costs through economies of scale. Acquisition-related costs of R6 million were charged to administrative expenses in the consolidated statement of comprehensive income. Under the contingent consideration arrangement, the group was required to pay $15 million should the Enyenra/Tweneboa delevopment plan be approved and additional amounts should each of the following production targets be met for 75 consecutive days before 30 June 2014: $10 million if production exceeds 90,000 barrels per day, $15 million if production exceeds 100,000 barrels per day and $20 million if production exceeds 110,000 barrels per day.The fair value of the contingent consideration arrangement of R321.3 million was estimated by using a present value calculation. The fair value estimates are based on a discount rate of 11% and assumed production targets and approvals that would be reached based on the most reliable information available. The reporting date of the company is 31 December which is not the same as that of the group. The group results include the performance of PetroSA Ghana Ltd for the intervening period until 31 March. Proforma revenue and profit of PetroSA Ghana Ltd In the prior year, revenue of R483 million and profit of R366.6 million of PetroSA Ghana Ltd was included in the group's results since the date of acquisition. Had the business combination been effective from 1 April 2012, the contribution to revenue and profit of the group would be R837.5 million and R38.4 million respectively. The following table summarises the consideration paid for PetroSA Ghana Ltd, the fair value of assets acquired and liabilities assumed at the acquisition date. Aggregated business combinations Property, plant and equipment Intangible assets Deferred tax Inventories Trade and other receivables Cash and cash equivalents Provisions Loans from shareholder Trade and other payables
Net cash outflow on acquisition Cash consideration paid Cash acquired
-
4 758 827 2 014 722 (1 807 796) 7 545 2 506 525 027 (259 002) (1 342 997) (18 181)
-
-
-
3 880 651
-
-
(151 227) -
(3 880 651) 525 027
-
-
(151 227)
(3 355 624)
-
-
62 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 422 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
27. Employee benefits It is the policy of the group to provide retirement benefits for all its eligible permanent employees. All eligible permanent employees are members of the PetroSA Retirement Fund, a defined contribution fund, subject to the Pension Funds Act, 1956. Pensions and Retirement Funds Defined contribution pension plan PetroSA Retirement Fund The company operates a defined contribution retirement plan for the benefit of employees. All employees who commenced employment after 1 April 1996 qualify for membership of this fund. The amount recognised as an expense during the year under review was R107.9 million (2013: R74.1 million) for the retirement fund. Medical benefits Post-employment medical benefits The group has provided for an amount of R147.9 million of which R101.9 million was funded (2013: R167.4 million of which R107 million was funded). This is the funding of post-retirement medical scheme costs for all employees and pensioners. The commitment is actuarially valued annually, with the most recent valuation performed as at 31 March 2014. The post-employment medical arrangement provides health benefits to retired employees and certain dependants. The benefit was applicable and on offer only to employees in the service of PetroSA before 1 May 2012. During the 2013 financial year, PetroSA funded a portion of the post-retirement medical liability through the purchase of a company-funded annuity policy. As this annuity policy is CPI linked, the company is exposed to revaluation risks if medical inflation is higher than the CPI increases granted. During the current year, the group paid a top-up amount of R3.1 million to cover the revaluation and received a refund of R1.4 million in respect of terminated medical scheme membership. The current value of the annuity policy is R101.9 million. The net defined benefit obligation in respect of promised post-retirement medical scheme costs as at 31 March 2014 is R46 million. The obligation is partially funded and was valued using the "projected unit method". A discount rate of 9.0% and a health care cost inflation of 7.25% were assumed. Mortality assumptions were in line with standard table SA56/62 ultimate (pre-retirement) and PA(90) rated down by two years (post-retirement). A sensitivity analysis was performed on the health care cost inflation rate assumption used in the valuation. An 8.25% and 6.25% health care cost assumption would result in a net obligation of R65.9 million and R29.5 million respectively. The combined interest and service cost vary according to the health care cost inflation and are R14.3 million (6.25%), R16.3 million (7.25%) and R18.7 million (8.25%) respectively. Furthermore, a sensitivity analysis was also performed on the post-retirement mortality rate assumption. A PA(90) and PA(90) rated down two years assumption would result in the net obligation as at 31 March 2014 being R41.7 million and R50.3 million, respectively. The combined interest and service cost vary according to the mortality assumption and are R16.7 million (PA(90)) , R16.2 million (PA(90)-2) and R18.7 million (PA(90)-3). The movement in the defined benefit obligation was as follows: Defined benefit obligation at beginning of year Current service cost Interest cost Benefits paid Settlements Actuarial (gain)/loss Defined benefit obligation at end of year
60 465 (13 886) 13 074 6 599 (20 260)
70 168 (29 028) 14 507 5 723 (22 723) 21 818
60 465 (13 886) 13 074 6 599 (20 260)
70 168 (29 028) 14 507 5 723 (22 723) 21 818
45 992
60 465
45 992
60 465
Defined benefit pension plan The company operated a defined benefit pension plan, the Mossgas Pension Fund, for the benefit of employees. The plan was governed by the Pension Funds Act, 1956 (Act no. 24 of 1956). The assets of the plan were administered by trustees in a fund independent of the company. 63 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 423 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 27. Employee benefits (continued) The fund was closed to new entrants during 1996. With effect from 1 October 2007 all in-service members were transferred out of the fund to the PetroSA Retirement Fund, and future accrual of benefits under the Pension Fund ceased. Application was made to the Registrar to transfer the accrued benefits of in-service members to the PetroSA Retirement Fund, and to transfer the pensioner liabilities to individual annuity policies with Old Mutual. The Registrar's approval was granted and all liabilities have been fully transferred. The trustees have appointed a liquidator, the Registrar approved of this appointment and the fund was placed into liquidation in October 2010. The liquidation process is not yet finalised. The last actuarial valuation was performed as at 31 January 2010 and the independent actuary was of the opinion that the fund was financially sound. As the fund as been placed into liquidation, the actuarial present value of promised retirement benefits as at 31 January 2010 was zero.
64 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 424 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
28. Contingencies Guarantees 1.The group has issued guarantees for the rehabilitation of land disturbed by mining on the Sable field. 2.The group has issued a manufacture and excisable bond in favour of the South African Revenue Service. 3.The group has issued an evergreen VAT guarantee in favour of the Dutch VAT Authorities (€0.5m)
Claims PetroSA is considering settling a claim made by a former employee PetroSA is considering settling claims made in terms of contracts
180 000
180 000
180 000
180 000
5 000
5 000
5 000
5 000
7 290
5 376
7 290
5 376
192 290
190 376
192 290
190 376
4 000
-
4 000
-
119 801
61 942
119 801
61 942
123 801
61 942
123 801
61 942
Mbizana Integrated Energy Centre PetroSA may be liable for any soil contamination resulting from the dispensing of fuel at the Mbizana Integrated Energy Centre. The estimated financial impact is R1 million. 29. Commitments Authorised capital expenditure Approved by the directors Contracted for
4 609 642
4 958 940
3 829 920
4 734 647
1 526 2 531
1 400 4 057
1 526 2 531
1 400 4 057
4 057
5 457
4 057
5 457
Operating lease commitments PetroSA - within one year - in second to fifth year inclusive
Office space is leased at 1 Protea Place in Sandton, Johannesburg, effective from 1 October 2011. The lease payment is fixed at R102 420 per month with a 9% escalation per annum. The lease period is five years and ends on 30 September 2016. PetroSA - George airport space - within one year - in second to fifth year inclusive
551 1 596
505 2 147
551 1 596
505 2 147
2 147
2 652
2 147
2 652
Office space is leased at the general avaition area of the George Airport effective from 1 October 2012. The lease payment is fixed at R40 291 per month with a 9% escalation per annum. The lease period is five years and ends on 30 September 2017. PetroSA - Mozambican office space - within one year
68
43
68
43
PetroSA leases furnished office space in Mozambique at a monthly rental fee of 48,000Mtn. The lease term is for one year starting on 1 July 2012. The lease agreement was extended for another year at a monthly rental of $2,243. PetroSA Europe BV - Office space - within one year - in second to fifth year inclusive
528 -
642 428
-
-
528
1 070
-
-
65 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 425 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
29. Commitments (continued) Office space is leased at 3011XB Willemswerf, 13th Floor, Boomjes, effective 1 December 2004. The lease payment is Euro 44,791 per annum, with an inflationary escalation per annum. The period of the lease agreement was initially for five years and was extended for a further five year period ending on 30 November 2014, at which time PetroSA Europe BV has the option to renew the lease for a further five year period. PetroSA Europe BV - motor vehicles - within one year
-
33
-
-
Motor vehicles are leased on behalf of the company's employees. The standard contract period is 48 months. The expiry dates were 18 January 2013 and 27 May 2013. The lease was not renewed. PetroSA Europe BV - apartments - within one year
-
433
-
-
PetroSA Europe BV leases apartments for its employees. The company entered into a lease for a period of 1 year commencing on 1 December 2012 to 30 November 2013. The annual rental will be adjusted in July 2013 in line with CPI - all household series. The lease was not renewed. PetroSA Equatorial Guinea - within one year
-
722
-
-
The company entered into a lease for office space in Malabo for a one year period, effective from 1 February 2013 to 31 January 2014. The monthly lease payments were CFA 4,000,000 and were paid in advance for a year. The lease was not renewed. PetroSA Egypt - within one year
-
37
-
The company entered into a lease for office space in Egypt for a period of one year commencing from 1 January 2012 to 31 December 2012. The monthly lease instalments were $1,200 with an annual escalation of 10%. The lease was renewed for three month periods ending 31 March 2013 and 30 June 2013 respectively, with monthly lease instalments of $1,320. The lease instalments were paid in advance. The lease was not renewed. 30. Financial instruments Introduction The group has a risk management and central treasury function that manages the financial risks relating to the group's operations. The group's liquidity, credit, foreign exchange, interest rate and crude oil price risks are monitored continually. Approved policies exist for managing these risks. Risk profile In the course of the group's business operations it is exposed to liquidity, credit, foreign exchange, interest rate and crude oil price risk. The risk management policy of the group relating to each of these risks is discussed below. Risk management objectives and policies The group's objective in using financial instruments is to reduce the uncertainty over future cash flows arising from movements in foreign exchange, interest rates and crude oil prices. Throughout the year under review it has been, and remains, the group's policy that no speculative trading in derivative instruments be undertaken.
66 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 426 of 446
-
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 30. Financial instruments (continued) Foreign currency management The group is exposed to foreign currency fluctuations as it raises funding on the offshore financial markets, imports raw material and spares and furthermore exports finished product and crude oil. All local sales of finished products are sold on a foreign currency denominated basis. The group takes cover on foreign exchange transactions where there is a future currency exposure. The group also makes use of a natural hedge situation to manage foreign currency exposure. A sensitivity analysis was done for the net effect on revenue and expenses, and the weakening or strengthening of the Rand/Dollar exchange rate by R1 based on actual revenue and cost will increase or decrease profit by R593 million (2013: R910 million) respectively. Foreign currency instruments The group is mainly exposed to fluctuations in the EUR, GBP & USD. The group measures its market risk exposure by running various sensitivity analyses including 10% favourable and adverse changes in the key variables. The sensitivity analyses include only outstanding foreign currency denominated monetary items and adjusts their translation at the period end for a 10% change in foreign currency rates. Financial assets As at 31 March 2014 a 10% strengthening in ZAR against the relevant currencies would have resulted in a decrease in foreign currency denominated assets of R122 million (2013: R232 million) and a 10% weakening in ZAR against the relevant currencies would have resulted in an increase in foreign currency denominated assets of R122 million (2013: R232 million). Financial liabilities As at 31 March 2014 a 10% strengthening in ZAR against the US Dollar would have resulted in a decrease in foreign currency denominated liabilities of R261 million (2013: R59 million) and a 10% weakening in ZAR against the US Dollar would have resulted in an increase in foreign currency denominated liabilities of R261 million (2013: R59 million). Currency risk The Company has entered into certain forward exchange contracts which do not relate to specific items appearing on the Statement of Financial Position but which were entered into to cover foreign commitments not yet due and proceeds not yet received. The contracts will be utilised for purposes of trade. Exchange rates used for conversion of foreign items were: `
Closing rate: USD Euro GBP Average: USD Euro GBP
2014 10.6070 14.5792 17.6490
2013 9.2600 11.8157 14.0210
10.1139 13.5570 16.0607
8.5131 10.9609 13.4471
Forward foreign exchange contracts 2014 Total foreign currency Assets USD 8 000 000 Liabilities USD 103 217 782 USD 41 769 110
Average forward exchange rate
Maturity date
10.6752
Less than 3 months
10.6477 10.8477
Less than 3 months longer than 3 months but less than 6 months longer than 6 months but less than 9 months longer than 9 months but less than 12 months Less than 3 months
USD 53 392 625
11.0256
USD 5 594 258
11.1573
GBP 3 320 133
17.6698 67
CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 427 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 30. Financial instruments (continued) `
2013 Total foreign currency Assets EUR 9 536 327 EUR 16 520 661 GBP 17 659 056 USD 131 823 078 USD 27 887 672
Average forward exchange rate
Maturity date
11.8209 11.8232 14.0604 9.3053 9.3998
Less than 3 months Less than 3 months Less than 3 months Less than 3 months longer than 3 months but less than 6 months
As at 31 March 2014, a 10% relative change in the USD to the ZAR would have impacted profit or loss for the year by R220 million (2013: R149 million). As at 31 March 2014, a 10% relative change in the EUR to the ZAR would have impacted profit or loss for the year by R0 million (2013: R20 million). As at 31 March 2014, a 10% relative change in the GBP to the ZAR would have impacted profit or loss for the year by R6 million (2013: R25 million). Fair value R'000 Forward exchange contracts - assets Forward exchange contracts - liabilities
2014 85 401 (2 261 861)
2013 112 728 (1 932 393)
(2 176 460)
(1 819 665)
Estimated fair value gain/(loss) 2014 2013 (4 341) 285 (2 627) 43 445 (6 968)
43 730
Credit risk Financial assets, which potentially subject the group to concentrations of credit risk, pertain principally to trade receivables and investments in the South African money market. Trade receivables of R2.9 billion (2013: R2.8 billion) are presented net of the allowance for doubtful debts. The exposure to credit risk with respect to trade receivables is not concentrated due to a large customer base. The group manages counter-party exposures arising from money market and derivative financial instruments by only dealing with well-established financial institutions of a high credit rating. Losses are not expected as a result of nonperformance by these counter parties. Credit limits with financial institutions are revised and approved by the Board quarterly. Maturity profile The maturity profiles of financial assets and liabilities at the reporting date are as follows: Group At 31 March 2014 Assets Cash Other financial assets Trade and other receivables Forward exchange contracts Restricted cash Loans receivable Total financial assets
Less than 1 Between 1 Over 5 years Non-interest year and 5 years bearing 5 489 903 296 490 3 171 019 23 383 1 725 000 489 021 10 898 326
-
296 490
68 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 428 of 446
-
Total 5 489 903 296 490 3 171 019 23 383 1 725 000 489 021 11 194 816
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 30. Financial instruments (continued) Liabilities Trade and other payables Other financial liabilities Forward exchange contracts Bank overdrafts
2 749 475 1 591 050 30 351 357 655
-
-
-
2 749 475 1 591 050 30 351 357 655
Total financial liabilities
4 728 531
-
-
-
4 728 531
At 31 March 2013 Assets Cash Other financial assets Trade and other receivables Forward exchange contracts Restricted cash Loans receivable Total financial assets
Less than 1 Between 1 Over 5 years Non-interest year and 5 years bearing 7 442 483 215 306 3 280 897 46 630 2 594 000 489 021 -
Total 7 442 483 215 306 3 280 897 46 630 2 594 000 489 021
13 853 031
-
215 306
-
14 068 337
Trade and other payables Forward exchange contracts Other financial liabilities
2 808 414 3 185 2 037 200
-
-
-
2 808 414 3 185 2 037 200
Total financial liabilities
4 848 799
-
-
-
4 848 799
Company At 31 March 2014 Assets Cash Other financial assets Trade and other receivables Forward exchange contracts Restricted cash Loans receivable Total financial assets
Less than 1 Between 1 Over 5 years Non-interest year and 5 years bearing 4 880 617 1 037 249 3 061 829 23 383 1 725 000 489 021 -
Total 4 880 617 1 037 249 3 061 829 23 383 1 725 000 489 021
10 179 850
-
1 037 249
-
11 217 099
Liabilities Trade and other payables Other financial liabilities Forward exchange contracts Bank overdrafts
2 631 387 1 591 050 30 351 357 655
-
-
-
2 631 387 1 591 050 30 351 357 655
Total financial liabilities
4 610 443
-
-
-
4 610 443
At 31 March 2013 Assets Cash Other financial assets Trade and other receivables Forward exchange contracts Restricted cash Loans receivable Total financial assets
Less than 1 Between 1 Over 5 years Non-interest year and 5 years bearing 6 541 242 1 732 844 3 188 719 46 630 2 594 000 489 021 12 859 612
-
1 732 844
69 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 429 of 446
-
Total 6 541 242 1 732 844 3 188 719 46 630 2 594 000 489 021 14 592 456
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 30. Financial instruments (continued) Liabilities Trade and other payables Forward exchange contracts Other financial liabilities
2 789 722 3 185 2 037 200
-
-
-
2 789 722 3 185 2 037 200
Total financial liabilities
4 830 107
-
-
-
4 830 107
Liquidity risk The group manages liquidity risk by monitoring forecast cash flows and ensuring that adequate cash resources are available to meet cash commitments. Price risk External sales and purchases are subject to price and basis risks associated with volume and timing differences. Price risk is mitigated using various operational and financial instruments. Instruments used are liquid and can be traded and valued at any time. The hedge portfolio may consist of exchange-traded options and futures as well as non-exotic over the counter options and swaps. Options, however, are only traded within zero cost collars. The selling prices are hedged using the International Petroleum Exchange (IPE), New York Mercantile Exchange (Nymex), or Singapore Monetary Exchange (Simex). A sensitivity analysis was performed for revenue and every $1 increase or decrease in the Brent crude oil price will increase or decrease profit by R53.8 million (2013: R61.4 million) respectively, based on the 2013/14 financial results. Interest rate risk Exposure to interest rate risk on liabilities and investments is monitored on a proactive basis. The financing of the group is structured on a combination of floating and fixed interest rates. The following table sets out the carrying amount, by maturity, of the group's financial instruments that are exposed to interest rate risk and the effective interest rates applicable: At 31 March 2014 Fixed rate Less than 1 Between 1 Over 5 years year and 5 years 1 559 663 1 725 000 489 021 -
Cash and cash equivalents (5.51%) Restricted cash (5.51%) Cash on deposit (5.53%)
Floating Rate Cash and cash equivalents (5.68%) Bank overdraft (1.29%) Lurgi (1.34%) GTL.F1 (1.305%) PetroSA Ghana Ltd (0.8186%)
3 320 954 (357 655) -
-
169 651 126 839 740 759
Total 1 559 663 1 725 000 489 021
3 320 954 (357 655) 169 651 126 839 740 759
At 31 March 2013 Fixed rate Less than 1 Between 1 Over 5 years year and 5 years 6 267 727 2 594 000 489 021 -
Cash and cash equivalents (5.45%) Restricted cash (5.26%) Cash on deposit (5.26%)
Total 6 267 727 2 594 000 489 021
Floating Rate Cash and cash equivalents (4.51%) Lurgi (4.24%) GTL.F1 (1.293%) PetroSA Ghana Limited (0.8651%)
271 815 -
-
136 140 79 166 1 517 538
70 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 430 of 446
271 815 136 140 79 166 1 517 538
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 30. Financial instruments (continued) Interest rate instruments The group is mainly exposed to fluctuations in USD LIBOR, EURIBOR and ZAR interest rates. The group measures its interest rate risk exposure by running various sensitivity analyses including 10% favourable and adverse changes in the key variables. The sensitivity analyses include only interest bearing monetary items and adjust their value at the period end for a 10% change in interest rates. Financial Instruments As at 31 March 2014 a 10% relative change in the: ZAR interest rate would have impacted profit or loss for the year by R70.8 million (2013: R81 million) EURIBOR interest rate would have impacted profit or loss for the year by R0.2 million (2013: R0.2 million) USD LIBOR interest rate would have impacted profit or loss for the year by R0.3 million (2013: R0.5 million) Market risk The group's activities expose it primarily to the financial risks of changes in commodity prices and foreign currency exchange rates. Refer to note 30 for foreign currency risk management and price risk management. 31. Financial assets by category The accounting policies for financial instruments have been applied to the line items below: Group - 2014
Other financial assets Loans receivable Trade and other receivables Forward exchange contracts Cash and cash equivalents Restricted cash
Loans and receivables 296 490 489 021 3 171 019 23 383 5 489 903 1 725 000
Total 296 490 489 021 3 171 019 23 383 5 489 903 1 725 000
11 194 816
11 194 816
Group - 2013
Other financial assets Loans receivable Trade and other receivables Forward exchange contracts Cash and cash equivalents Restricted cash
Loans and receivables 215 306 489 021 3 280 897 46 630 7 442 483 2 594 000
Total 215 306 489 021 3 280 897 46 630 7 442 483 2 594 000
14 068 337
14 068 337
Company - 2014
Other financial assets Loans receivable Trade and other receivables Forward exchange contracts Cash and cash equivalents Restricted cash
Loans and receivables 1 037 249 489 021 3 061 829 23 383 4 880 617 1 725 000
1 037 249 489 021 3 061 829 23 383 4 880 617 1 725 000
11 217 099
11 217 099
71 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 431 of 446
Total
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 31. Financial assets by category (continued) Company - 2013
Other financial assets Loans receivable Trade and other receivables Forward exchange contracts Cash and cash equivalents Restricted cash
Loans and receivables 1 732 844 489 021 3 188 719 46 630 6 541 242 2 594 000
Total 1 732 844 489 021 3 188 719 46 630 6 541 242 2 594 000
14 592 456
14 592 456
32. Financial liabilities by category The accounting policies for financial instruments have been applied to the line items below: Group - 2014 Financial Fair value liabilities at through profit amortised cost or loss designated 1 591 050 2 749 475 30 351 357 655 -
Other financial liabilities Trade and other payables Forward exchange contracts Bank overdraft
4 698 180
30 351
Total
1 591 050 2 749 475 30 351 357 655 4 728 531
Group - 2013 Financial Fair value liabilities at through profit amortised cost or loss designated 2 037 200 2 808 414 3 185
Other financial liabilities Trade and other payables Forward exchange contracts
4 845 614
3 185
Total
2 037 200 2 808 414 3 185 4 848 799
Company - 2014 Financial Fair value liabilities at through profit amortised cost or loss designated 1 591 050 2 631 387 30 351 357 655 -
Other financial liabilities Trade and other payables Forward exchange contracts Bank overdraft
4 580 092
30 351
Total
1 591 050 2 631 387 30 351 357 655 4 610 443
Company - 2013 Financial Fair value liabilities at through profit amortised cost or loss designated 2 037 200 2 789 722 3 185
Other financial liabilities Trade and other payables Forward exchange contracts
4 826 922 72 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 432 of 446
3 185
Total
2 037 200 2 789 722 3 185 4 830 107
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 33. Directors' emoluments Year ended 31 March 2014 Salary/ Fee Executive Directors: NN Nokwe LE Bakoro Total
Non-executive Directors: S Mncwango ACG Molusi FE Letlape MM Zwane V Sibiya GC Smith B Madumise S Mokoena S Hlatshwayo A Mokaba A Rhoda Total
Executive Management: E September G Sweto JEP Falbe D Arendse T Kgogo B Zwane G Griessel X Hewu P Luthuli Total
Pension contributions
Other contributions
3 658 1 048
Bonuses and performance payments 1 165 -
Expenses
Acting allowance
420 187
152 48
-
-
-
5 395 1 283
4 706
1 165
607
200
-
-
-
6 678
Salary/ Fee
Pension contributions
Other contributions
1 003 993 718 903 1 099 1 196 1 001 114 21 -
Bonuses and performance payments -
-
-
39 157 136 110 101 170 116 203 140 -
Compensation for loss of office -
7 048
-
-
-
1 172
Salary/ Fee
Pension contributions
Other contributions
1 764 1 953 2 639 1 515 2 324 1 178 3 293 117 922
Bonuses and performance payments 541 767 878 607 894 425 1 000 -
299 144 176 204 153 214 463 13 112
144 147 158 74 105 159 141 3 69
15 705
5 112
1 778
1 000
Expenses
Other
Total
Other
Total
-
39 1 160 1 129 828 101 1 073 1 215 1 399 1 141 114 21 -
-
-
8 220
Expatriate allowance
354 5 -
Long service/Reloca tion allowance 2 1 267 -
359
270
Acting allowance
73 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 433 of 446
Total
735 -
2 750 3 011 4 586 2 401 3 476 2 330 5 164 138 1 103
735
24 959
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 33. Directors' emoluments (continued) Year ended 31 March 2013 Salary/ Fee Executive Directors: NN Nokwe NG Nika Total
Non-executive Directors: AMB Mokaba ACG Molusi FE Letlape MM Zwane V Sibiya GC Smith B Madumise S Mokoena A Rhoda S Mncwango GN Jiyane DR Zihlangu Z Rustomjee Y Tenza L Makatini N Medupe Total
Pension contributions
Other contributions
3 549 1 955
Bonuses and performance payments 1 491
408 217
116 142
5 -
-
-
4 078 3 805
5 504
1 491
625
258
5
-
-
7 883
Salary/ Fee
Pension contributions
Other contributions
729 422 357 390 142 113 95 167 298 228 219 101 89 254
Bonuses and performance payments -
-
-
41 44 58 90 46 45 42 43 33 14 43 54 68 21 6 27
Compensation for loss of office -
3 604
-
-
-
675
Salary/ Fee
Bonuses and performance payments
Pension contributions
Other contributions
2 024 2 021 2 519 1 852 2 601 187 840
1 131 1 140 1 292 909 -
332 129 160 248 12 -
164 145 147 90 87 8 6
12 044
4 472
881
647
Executive Management: E September G Sweto JEP Falbe D Arendse K Nyatsumba T Kgogo Y Tenza (acting CEO) Total
Expenses
Acting allowance
Expenses
Other
Total
Other
Total
-
770 466 415 480 46 187 155 138 200 14 341 282 287 122 95 281
-
-
4 279
Expatriate allowance
-
Payment for conversion of fixed term contract 2 465 -
-
2 465
Acting allowance
74 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 434 of 446
Total
667 -
3 651 3 435 4 785 3 099 2 688 2 672 846
667
21 176
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
34. Related parties Related party transactions CEF (SOC) Ltd Cash on call Interest paid Services received Interest received Recoveries Trade receivables Trade payable
489 021 2 285 65 25 648 500 96 43
489 021 89 23 828 2 710 91 73
489 021 2 285 65 25 648 500 96 43
489 021 89 23 828 2 710 91 73
PASA Services received Royalties paid Trade payable
51 4 660 4 115
49 55 816 40 821
51 4 660 4 115
49 55 816 40 821
SFF Trade payable Trade receivable Training Product Rental
3 638 3 3 192 5 908
981 24 602 101 (193) 27 069
3 638 3 3 192 5 908
981 24 602 101 (193) 27 069
Subsidiaries Loan to Loan impairment Loan forgiveness Loans owing Management fee Recoveries Interest received Commission paid Trade receivable Trade payable
-
-
3 678 757 1 795 917 1 142 081 1 2 114 9 525 189 467 32 141 4 628 6 781
4 258 042 2 740 504 1 5 462 8 766 168 356 34 208 9 853 35 731
The above transactions were carried out on commercial terms and conditions. All outstanding balances are payable in cash. 35. Public finance management act Fruitless and wasteful expenditure Items individually < R50 000 Interest for late payment of cargo dues Fraudulent transaction written off Legal/consulting fees incurred Repudiation of disability claim Interest loss due to early or over-payments Additional costs from contract not cancelled timeously Depot stock losses Penalties
66 338 155 107 3 052 2 295
11 881 30 313 142 -
66 338 155 107 3 052 -
11 881 30 313 142 -
6 013
31 347
3 718
31 347
Refer to the Directors' Report, note 7 for further details. The appropriate corrective and/or disciplinary actions have been taken (where necessary). Gross misconduct by employees from PetroSA and a supplier resulted in fraudulent activities amounting to R0.338 million. The employee was dismissed. The interest loss (opportunity cost) of R0.155 million was a result of either early or over-payments. Respective personnel have been addressed accordingly and processes were amended to mitigate reoccurence. The request to cancel a company contract was not actioned timeously resulting in additional costs to the company. Action pending. 75 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 435 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Group 2014 R '000
Company
2013 R '000
2014 R '000
2013 R '000
PetroSA accepts stock losses of 0.25% on throughput volumes from depots. Lack of due care exercised at the depots, resulted in stock losses of R3.052 million, which is above the tolerable level. Action pending. PetroSA Equatorial Guinea received notification from the Ministry of Mines, Industry and Energy in Equatorial Guinea that a fine of $224 000 (R2.295 million) was imposed for non-compliance to the PSC due to the late submission of the 2014 work plan. Fruitless and wasteful expenditure movement Incurred during the year Recognised as expense during the year
6 013 (6 013)
Closing balance Irregular transactions Contravention of company policy Contravention of legislation
31 347 (31 347)
3 718 (3 718)
31 347 (31 347)
-
-
-
-
5 060 1 584 058
260 930 605 000
5 060 1 584 058
260 930 605 000
1 589 118
865 930
1 589 118
865 930
Contravention of company policy The use of consultants at R2.16 million were not in terms of the procurement procedure. A manager acted outside of his delegated authority for an amount of R2.9 million. Legal proceedings have been initiated, where necessary, to recover irregular expenditure that was incurred in contravention of company policy. Contravention of legislation Tenders for the purchases of product were awarded in contravention of the Preferential Procurement Policy Framework Act (PPPFA). An application was put before National Treasury requesting an exemption from all the provisions of the PPPFA. Subsequent to year end, the Minister of Finance granted PetroSA exemption from the PPPFA in respect of the procurement of hydrocarbons for resale. The implication is that the procurement activity will not be regarded as irregular in the future. Irregular expenditure movement Opening balance Incurred during the year Incurred during the year - prior year Condoned during the year
865 930 1 589 118 (1 358)
862 649 3 281 -
865 930 1 589 118 (1 358)
862 649 3 281 -
Closing balance
2 453 690
865 930
2 453 690
865 930
36. Subsequent events On 3 July 2014, PetroSA Equatorial Guinea received a letter (dated 10 June 2014) to terminate the Block Q Licence from the Ministry of Mines, Industry and Energy of Equatorial Guinea. This will impact the potential liability (estimated at $60 million) that would have arisen as a penalty had PetroSA Equatorial Guinea retained the licence up to December 2014. Enquiries are currently being made from the country manager in Equatorial Guinea as well as from our own parent Ministry to seek further clarification on the matter. Consequently, no contingent liability nor commitment has been disclosed.
76 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 436 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Notes to the Audited Annual Financial Statements Figures in Rand thousand 37. Interest in joint operating agreements The group's proportionate share in the assets and liabilities of unincorporated joint ventures, which are included in the financial statements are as follows: 2014
24% Block 2A
Partners:
Sunbird 76%
Nature of project
Percentage Holding / Tracts 35% 10% 50% 20% Block 2C NAMIBIA Block3A/4A Block 1711 5/6/7
40% Block 1
Anadarko Nakor 70% Sasol 50% Anadarko Cairn 60% 65% Energulf 10 80% % Kunene Ene rgy 3% Namcor 7% Exploration Exploration Exploration Exploration Exploration Exploration
As at 31 March 2014, PetroSA along with the other current joint venture partners, namely Forest Oil and Anschutz, had withdrawn from Block 2C. A simultaneous application for a new exploration right over Block 2C was made, with Anadarko as operator, with an equity split of 35% for PetroSA and 65% for Anadarko. Percentage Holding / Tracts 24% 24% 10% 20% Block 2A Block 2C NAMIBIA Block 1711 5/6/7
2013
Partners:
Nature of project
40% Block 1
Anschutz Anschutz Nakor 70% Anadarko Cairn 60% 22.80% 22.80% Energulf 10 80% Forest 53.2 Forest 53.2 % 0% 0% Kunene Ene rgy 3% Namcor 7% Exploration Exploration Exploration Exploration Exploration
77 CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 437 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Fields in production and under development 1.
Movement in net remaining proved and probable reserves
At beginning of year Revisions of previous estimates Production Additions At end of year 2.
17.30
Gas Bscf 2014 288.20 124.60 (32.50) -
Crude oil/ Condensate MMbbl 2013 3.80 2.20 (2.40) 7.70
380.30
Gas Bscf 2013 514.90 (205.70) (40.20) 19.20
11.30
288.20
Proved and probable reserve by type of field Fields in production Fields under development
3.
Crude oil/ Condensate MMbbl 2014 11.30 3.50 (1.70) 4.20
16.90 0.40
177.60 202.70
11.30 -
133.50 154.70
17.30
380.30
11.30
288.20
Proved Proved and probable
4.00 17.30
171.20 380.30
2.60 11.30
173.90 288.20
Total proved and probable reserves at end of year
17.30
380.30
11.30
288.20
Reserves by category
Notes Oil Fields in production and under development comprise the Jubilee (2.73%), Oribi (100%) and Oryx (100%) oil fields. Gas Fields in production and under development comprise the F-A and F-A Satellite, E-M and E-M Satellite and FO gas fields respectively. Fields under appraisal comprise discoveries. The reserves shown are either all oil or all gas, excluding gas liquids. Oil includes condensate and LPG. Reserves and production are shown on a working interest basis (100%). Reserves were generated using a reservoir simulator that incorporated PetroSA’s production philosophy. Oil and gas reserves cannot be measured exactly since the estimation of reserves involves subjective judgement and arbitrary determinations and therefore all estimations are subject to revision. The gas and oil reserves reflected above have been determined by an independent surveyor. Definitions Proved reserves Proved reserves are quantities of petroleum anticipated to be commercially recoverable from known accumulations from a given date forward under the following conditions: Discovered, recoverable, commercial and remaining. Means the amount of petroleum which geophysical, geological and engineering data indicate to be commercially recoverable to a high degree of certainty. For the purposes of this definition, there is a 90% chance that the actual quantity will be more than the amount estimated as proved and a 10% chance that it will be less. Proved and probable reserves Proved and probable reserves are quantities of petroleum anticipated to be commercially recoverable from known accumulations from a given date forward under the following conditions: Discovered, recoverable, commercial and remaining. Means proved reserves plus the amount of petroleum which geophysical, geological and engineering data indicate to be commercially recoverable but with a greater element of risk than in the case of proved. For the purposes of this definition, there is a 50% chance that the actual quantity will be more than the amount estimated as proved and probable and a 50% chance that it will be less. 78 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 438 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Fields in production and under development Reserves under appraisal Comprise quantities of petroleum, which are considered, on the basis of information currently available and current economic forecasts, to be commercially recoverable by present producing methods from fields that have been discovered but which require further appraisal prior to commerciality being established.
79 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 439 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Definition of financial terms Below is a list of definitions of financial terms used in the annual report of PetroSA (SOC) Limited and the group: Accounting policies The specific principles, bases, conventions, rules and practices applied in preparing and presenting annual financial statements. Accrual accounting The effects of transactions and other events are recognised when they occur rather than when the cash is received. Acquiree The business or businesses that the acquirer obtains control of in a business combination. Acquirer The entity that obtains control of the acquiree. Acquisition date This is the date on which the acquirer obtains control of the acquiree. Actuarial gains and losses The effects of differences between the previous actuarial assumptions and what has actually occurred as well as changes in actuarial assumptions. Amortisation (depreciation) The systematic allocation of the depreciable amount of an asset over its useful life. Amortised cost The amount at which a financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, and minus any reduction for impairment or uncollectibility. Asset A resource controlled by the entity as a result of a past event from which future economic benefits are expected to flow. Assets under construction A non-current asset which includes expenditure capitalised for work in progress in respect of activities to develop, expand or enhance items of property, plant and equipment, intangible assets and exploration assets. Associate An entity over which the investor 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 financial and operating policy decisions of the associate but has no control or joint control over those policies. Borrowing costs Interest and other costs incurred in connection with the borrowing of funds. Business combination A transaction or other event in which an acquirer obtains control of one or more businesses. Carrying amount The amount at which an asset is recognised after deducting any accumulated depreciation or amortisation and accumulated impairment losses. 80 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 440 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Definition of financial terms Cash and cash equivalents Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. Cash flow hedge A hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with an asset, or a liability that could affect profit or loss or a highly probable forecast transaction that could affect profit or loss. Change in accounting estimate An adjustment to the carrying amount of an asset, liability or the amount of the periodic consumption of an asset that results from new information or new developments. Consolidated annual financial statements The annual financial statements of a group presented as those of a single economic entity. Contingent asset A possible asset that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity. Contingent consideration Usually, an obligation of the acquirer to transfer additional assets or equity interests to the former owners of an acquiree as part of the exchange for control of the acquiree if specified future events occur or conditions are met. However, contingent consideration also may give the acquirer the right to the return of previously transferred consideration if specified conditions are met. Contingent liability A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or nonoccurrence of one or more uncertain future events not wholly within the control of the entity, or a present obligation that arises from past events but is not recognised because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation, or the amount of the obligation cannot be measured with sufficient reliability. Date of transaction The date on which the transaction first qualifies for recognition in accordance with South African Statements of Generally Accepted Accounting Practice. Deferred tax assets The amounts of income taxes recoverable in future periods in respect of deductible temporary differences, the carry forward of unused tax losses and the carry forward of unused tax credits. Deferred tax liabilities The amounts of income taxes payable in future periods in respect of taxable temporary differences. Depreciation (or amortisation) The systematic allocation of the depreciable amount of an asset over its useful life. The depreciable amount of an asset is the cost of an asset, or other amount substituted for cost, less its residual value. Derecognition The removal of a previously recognised asset or liability from the Statement of Financial Position.
81 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 441 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Definition of financial terms Derivative A financial instrument whose value changes in response to an underlying item, requires no initial or little net investment in relation to other types of contracts that would be expected to have a similar response to changes in market factors and is settled at a future date. Development The application of research findings or other knowledge to a plan or design for the production of new or substantially improved materials, devices, products, processes, systems or services before starting commercial production or use. Discontinued operation A component that has either been disposed of or is classified as held for sale and represents a separate major line of business or geographical area of operations, or is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operation, or a subsidiary acquired exclusively with a view to resale. Employee benefits All forms of consideration (excluding share options granted to employees) given in exchange for services rendered by employees. Equity instrument A contract or certificate that evidences a residual interest in the total assets after deducting the total liabilities. Equity method A method in which the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in the share of net assets of the investee. Profit or loss includes the investor's share of the profit or loss of the investee. Expenses The decreases in economic benefits in the form of outflows or depletions of assets or incurrence's of liabilities that result in decreases in equity, other than those relating to distributions to equity participants. Fair value The amount for which an asset could be exchanged or a liability settled, between knowledgeable and willing parties in an arm’s length transaction. Fair value hedge A hedge of exposure to changes in fair value of a recognised asset, liability or firm commitment. Finance lease A lease that transfers substantially all the risks and rewards incidental to ownership of an asset. Title may or may not eventually be transferred. Financial asset Any asset that is cash, an equity instrument of another entity, a contractual right to receive cash or another financial asset from another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially favourable to the entity, or a contract that will or may be settled in the entity’s own equity instruments and is a non-derivative for which the entity is or may be obliged to receive a variable number of the entity’s own equity instruments or a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. Financial asset or liability at fair value through profit or loss A financial asset or financial liability that is classified as held for trading or is designated as such on initial recognition other than investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. 82 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 442 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Definition of financial terms Financial instrument A contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. Financial liability Any liability that is a contractual obligation to deliver cash or another financial asset to another entity or to exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the entity, a contract that will or may be settled in the entity’s own equity instruments and is a non-derivative for which the entity is or may be obliged to deliver a variable number of the entity’s own equity instruments or a derivative that will or may be settled other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of the entity’s own equity instruments. Financial risk The risk of a possible future change in one or more of a specified interest rate, financial instrument price, commodity price, foreign exchange rate, index of prices or rates, credit rating or credit index or other variable, provided in the case of a nonfinancial variable that the variable is not specific to a party to the contract. Firm commitment A binding agreement for the exchange of a specified quantity of resources at a specified price on a specified future date or dates. Forecast transaction An uncommitted but anticipated future transaction. Foreign operation An entity that is a subsidiary, associate, joint venture or branch of the reporting entity, the activities of which are based or conducted in a country or currency other than those of the reporting entity. Functional currency The currency of the primary economic environment in which the group operates. Going concern basis The assumption that the entity will continue in operation for the foreseeable future. The financial statements are prepared on a going concern basis unless management either intends to liquidate the entity or to cease trading, or has no realistic alternative but to do so. Gross investment in lease The aggregate of the minimum lease payments receivable by the lessor under a finance lease and any unguaranteed residual value accruing to the lessor. Hedged item An asset, liability, firm commitment, highly probable forecast transaction or net investment in a foreign operation that exposes the entity to risk of changes in fair value or future cash flows and is designated as being hedged. Hedging instrument A designated derivative or non-derivative financial asset or non-derivative financial liability whose fair value or cash flows are expected to offset changes in the fair value or cash flows of a designated hedged item. Hedge effectiveness The degree to which changes in the fair value or cash flows of the hedged item that are attributable to a hedged risk are offset by changes in the fair value or cash flows of the hedging instrument.
83 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 443 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Definition of financial terms Held for trading financial asset or financial liability One that is acquired or incurred principally for the purpose of selling or repurchasing it in the near term or as part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking or a derivative (except for a derivative that is a designated and effective hedging instrument). Held-to-maturity investment A non-derivative financial asset with fixed or determinable payments and fixed maturity where there is a positive intention and ability to hold it to maturity. Immaterial If individually or collectively it would not influence the economic decisions of the primary users of the annual financial statements. Impairment loss The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. Impracticable Applying a requirement is impracticable when the entity cannot apply it after making every reasonable effort to do so. Income Increase in economic benefits in the form of inflows or enhancements of assets or decreases in liabilities that result in increases in equity, other than those relating to contributions from equity participants. Joint venture A contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control. Key management personnel Those persons having authority and responsibility for planning, directing and controlling the activities of the entity. ie. the members of the Board of Directors of PetroSA and within the individual companies, the Board of Directors and Executive Management committees. Lease An agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time. Legal obligation An obligation that derives from a contract, legislation or other operation of law. Liability A present obligation of the entity arising from a past event, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits. Loans and receivables Non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Material Omissions or misstatements of items are material if they could, individually or collectively, influence the economic decisions that users make on the basis of the financial statements. Materiality depends on the size and nature of the omission or misstatement judged in the surrounding circumstances. The size or nature of the item, or a combination of both, could be the determining factor. 84 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 444 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Definition of financial terms Minimum lease payments Payments over the lease term that the lessee is or can be required to make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor including in the case of a lessee, any amounts guaranteed by the lessee or by a party related to the lessee or in the case of a lessor, any residual value guaranteed to the lessor by the lessee, a party related to the lessee or a third party unrelated to the lessor that is financially capable of discharging the obligations under the guarantee. Net assets Net operating assets plus cash and cash equivalents. Operating lease Any lease other than a finance lease. Other comprehensive income Comprises items of income and expense (including reclassification adjustments) that are not recognized in profit or loss and includes the effect of translation of foreign operations, cash flow hedges, available-for-sale financial assets and changes in revaluation reserves. Owner-occupied property Property held by the owner or by the lessee under a finance lease for use in the production or supply of goods or services or for administrative purposes. Past service cost The increase or decrease in the present value of the defined benefit obligation for employee service in prior periods resulting from the introduction of, or changes to, post-employment benefits or other long-term employee benefits. Post-employment benefits Employee benefits (other than termination benefits) that are payable after the completion of employment. Post-employment benefit plans Formal or informal arrangements under which an entity provides post-employment benefits to employees. Defined contribution benefit plans are where there are no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employee benefits relating to employee service in the current and prior periods. Defined benefit plans are post-employment benefit plans other than defined contribution plans. Presentation currency The currency in which the annual financial statements are presented. Prior period error An omission from or misstatement in the annual financial statements for one or more prior periods arising from a failure to use, or misuse of, reliable information that was available when annual financial statements for those periods were authorised for issue and could reasonably be expected to have been obtained and taken into account in the preparation of those annual financial statements. Prospective application Applying a new accounting policy to transactions, other events and conditions occurring after the date the policy changed or recognising the effect of the change in an accounting estimate in the current and future periods. Recoverable amount The amount that reflects the greater of the fair value less costs to sell and the value in use that can be attributed to an asset or cash generating unit as a result of its ongoing use by the entity. In determining the value in use, expected future cash flows are discounted to their present values using the discount rate. 85 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 445 of 446
The Petroleum Oil and Gas Corporation of South Africa SOC Ltd Audited Annual Financial Statements for the year ended 31 March 2014
Definition of financial terms Related party A person or entity that is related to the entity that is preparing its financial statements. a) • • • b) • • • • • • •
A person or a close member of that person’s family is related to a reporting entity if that person: has control or joint control over the reporting entity; has significant influence over the reporting entity; or is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. An entity is related to a reporting entity if any of the following conditions applies: The entity and the reporting entity are members of the same group. One entity is an associate or joint venture of the other entity (or an associate or joint venture of a member of a group of which the other entity is a member). Both entities are joint ventures of the same third party. One entity is a joint venture of a third entity and the other entity is an associate of the third entity. The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is itself such a plan, the sponsoring employers are also related to the reporting entity. The entity is controlled or jointly controlled by a person identified in (a). A person identified in (a) has significant influence over the entity or is a member of the key management personnel of the entity (or of a parent of the entity).
Research The original and planned investigation undertaken with the prospect of gaining new scientific or technical knowledge and understanding. Residual value The estimated amount which an entity would currently obtain from disposal of the asset, after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. Restructuring A programme that is planned and controlled by management, and materially changes either the scope of a business undertaken by an entity or the manner in which that business is conducted. Retrospective application Applying a new accounting policy to transactions, other events and conditions as if that policy had always been applied. Retrospective restatement Correcting the recognition, measurement and disclosure of amounts as if a prior period error had never occurred. Tax base The tax base of an asset is the amount that is deductible for tax purposes if the economic benefits from the asset are taxable or is the carrying amount of the asset if the economic benefits are not taxable. The tax base of a liability is the carrying amount of the liability less the amount deductible in respect of that liability in future periods. The tax base of revenue received in advance is the carrying amount less any amount of the revenue that will not be taxed in future periods. Temporary differences The differences between the carrying amount of an asset or liability and its tax base. Transaction costs Incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or financial liability, i.e. those that would not have been incurred if the entity had not acquired, issued or disposed of the financial instrument. Useful life The period over which an asset is expected to be available for use or the number of production or similar units expected to be obtained from the asset. 86 The supplementary information presented does not form part of the audited annual financial statements and is unaudited CEF GROUP ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 MARCH 2014 Page 446 of 446
CEF SOC Ltd Tel: 010 201 4700 Fax: 010 201 4820 Physical Address: CEF House, Block C, Upper Grayston Office Park 152 Ann Crescent, Strathavon, Sandton, 2031 Johannesburg South Africa Postal Address: PO Box 786141 Sandton 2146 RP262/2014 ISBN: 978-0-621-42997-8 Title of Publication: Companies in the CEF SOC Ltd. Group, Annual Report 2013/2014.
