omnia holdings annual report 2010 omnia holdings annu

88 OMNIA ANNUAL REPORT 2010 FINANCIAL STATEMENTS continued
NOTES TO THE GROUP FINANCIAL STATEMENTS continued
for the year ended 31 March 2010
provide returns for shareholders and benefits for other
stakeholders and to maintain an optimal capital structure to
reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders, return
capital to shareholders, issue new shares or sell assets to
reduce debt.
Consistent with others in the industry, the Group monitors
capital on the basis of the gearing ratio. This ratio is calculated
as net debt divided by equity. Net debt is calculated as total
borrowings (including current and non-current borrowings
as shown in the consolidated balance sheet) less cash
and cash equivalents. Equity is shown as in the
consolidated balance sheet.
During 2010, the Group’s strategy, which was unchanged from
2009, was to maintain the gearing ratio within 20 to 50%.
The Group also has specific financial covenants in place with
various financial institutions to govern its debt. The gearing
ratios at 31 March 2010 and 2009 were as follows:
2010
Rm
2009
Rm
Total borrowings 967 1 111
Less: cash and cash
equivalents (563) (159)
Net debt 404 952
Total equity 1 971 2 137
Gearing ratio 20% 45%
The decrease in the gearing ratio during 2010 resulted primarily
from the decrease in call loans.
1.22.3 Fair value estimation
The fair value of financial instruments traded in active markets
(such as trading and available-for-sale securities) is based on
quoted market prices at the balance sheet date. The quoted
market price used for financial assets held by the Group is the
current bid price at 31 March 2010. The Group had no financial
instruments traded in active markets on its balance sheet.
The fair value of financial instruments that are not traded in an
active market (for example, over-the-counter derivatives) is
determined by using valuation techniques. The Group uses a
variety of methods and makes assumptions that are based on
market conditions existing at each balance sheet date. Quoted
market prices or dealer quotes for similar instruments are used
for long-term debt. Other techniques, such as estimated
discounted cash flows, are used to determine fair value for the
remaining financial instruments. The fair value of interest rate
swaps is calculated as the present value of the estimated future
cash flows. The fair value of forward foreign exchange contracts
is determined using quoted forward exchange rates at the
balance sheet date.
The carrying value less impairment provision of trade receivables
and payables is assumed to approximate their fair values. The
fair value of financial liabilities for disclosure purposes is
estimated by discounting the future contractual cash flows at
the current market interest rate that is available for the Group for
similar financial instruments.
Critical accounting estimates and judgements
Estimation and judgements are continually evaluated and are
based on historical experience and other factors, including
expectations of future events that are believed to be reasonable
under the circumstances.
The Group makes estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The estimates and
assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities
within the next financial year are discussed below.
Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any
impairment, in accordance with the accounting policy stated in
note 1.7.1. The recoverable amounts of cash-generating units
have been determined based on value-in-use calculations. These
calculations require the use of estimates. (Refer note 3).
Impairment of trade and other receivables
A provision for impairment of trade receivables is made when
there is objective evidence that the Group will not collect the
amount as per the original terms of receivables. Significant
financial difficulties of the debtor, probability that the debtor will
enter bankruptcy or financial reorganisation and default or
delinquency in payments are considered indicators that a trade
receivable has been impaired. The provision is the difference
between the assets’ carrying value and the present value of
future cash flows, discounted at the effective interest rate. This
provision requires the use of management judgement.
Share-based payment
Share-based compensation transactions are subject to significant
assumptions and judgements. Please refer to note 36 for further
details.
Retirement benefit obligations
The present value of the pension obligations depends on a
number of factors that are determined on an actuarial basis
using a number of assumptions. The assumptions used in
determining the net cost (income) for pensions include the
discount rate. Any changes in these assumptions will impact the
carrying amount of pension obligations.
The Group determines the appropriate discount rate at the end
of each year. This is the interest rate that should be used to
determine the present value of estimated future cash outflows
expected to be required to settle the pension obligations. In
determining the appropriate discount rate, the Group considers
the interest rates of high quality corporate bonds that are
denominated in the currency that benefits will be paid and that
have terms to maturity approximating the terms of the related
pension liability.
Other key assumptions for pension obligations are based on
past and current market conditions. Additional information is
disclosed in note 32.