Annual Report - SABMiller

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148 Notes to the company financial statements SABMiller plc Annual Report 2010Notes to the company financial statements continued1. Accounting policies continuedi. Dividend distributionsIn accordance with FRS 21, dividend distributions to equity holdersare recognised as a liability in the financial statements of the companyin the period in which the dividends are approved by the company’sshareholders. Interim dividends are recognised when paid. Dividendsdeclared after the balance sheet date are not recognised, as there isno present obligation at the balance sheet date.j. Share-based compensationThe company operates several equity-settled share-based compensationschemes. These include option plans (with and without non-marketperformance conditions attached).In accordance with FRS 20, an expense is recognised to spread thefair value at date of grant of each award granted after 7 November2002 over the vesting period on a straight-line basis, after allowing foran estimate of the share awards that will eventually vest. A correspondingadjustment is made to equity over the remaining vesting period. Theestimate of the level of vesting is reviewed at least annually, with anyimpact on the cumulative charge being recognised immediately. Thecharge is based on the fair value of the award at the date of grant, ascalculated by binomial model calculations and Monte Carlo simulations.The charge is not reversed if the options have not been exercisedbecause the market value of the shares is lower than the option price atthe date of grant. The proceeds received net of any directly attributabletransaction costs are credited to share capital (nominal value) andshare premium when the options are exercised, unless the optionsare satisfied by treasury or EBT shares.The issuance by the company to its subsidiaries of a grant overthe company’s options represents additional capital contributionsby the company to its subsidiaries, except to the extent the companyis reimbursed. An additional investment in subsidiaries results in acorresponding increase in shareholders’ equity. The additional capitalcontribution is based on the fair value of the grant issued allocatedover the underlying grant’s vesting period.k. Hedge accountingThe derivative instruments used by the company, which are usedsolely for hedging purposes (i.e. to offset foreign exchange andinterest rate risks), comprise interest rate swaps and forward foreignexchange contracts. Such derivative instruments are used to alterthe risk profile of an existing underlying exposure of the companyin line with the company’s risk management policies.Derivatives are initially recorded at fair value on the date a derivativecontract is entered into and are subsequently re-measured at their fairvalue. The method of recognising the resulting gain or loss dependson whether the derivative is designated as a hedging instrument, andif so, the nature of the hedging relationship.In order to qualify for hedge accounting, the company is required todocument the relationship between the hedged item and the hedginginstrument. The company is also required to document and demonstratethat the relationship between the hedged item and the hedginginstrument will be highly effective. This effectiveness test is re-performedat each period end to ensure that the hedge has remained and willcontinue to remain highly effective.The company designates certain derivatives as hedges of the fairvalue of recognised assets or liabilities or a firm commitment (fairvalue hedge) or hedges of highly probable forecast transactions orcommitments (cash flow hedge).Where a derivative ceases to meet the criteria of being a hedginginstrument or the underlying exposure which it is hedging is sold,matures or is extinguished, hedge accounting is discontinued andamounts previously recorded in equity are recycled to the incomestatement. A similar treatment is applied where the hedge is of afuture transaction and that transaction is no longer likely to occur.When the hedge is discontinued due to ineffectiveness, hedgeaccounting is discontinued prospectively.Certain derivative instruments, whilst providing effective economichedges under the company’s policies, are not designated as hedges.Changes in the fair value of any derivative instruments that do notqualify or have not been designated as hedges are recognisedimmediately in the profit and loss account. The company does nothold or issue derivative financial instruments for speculative purposes.(i) Fair value hedgesFair value hedges comprise derivative financial instruments designatedin a hedging relationship to manage the company’s interest rate riskto which the fair value of certain assets and liabilities are exposed.Changes in the fair value of the derivative offset the relevant changesin the fair value of the underlying hedged item attributable to thehedged risk in the profit and loss account in the period incurred.Gains or losses on fair value hedges that are regarded as highlyeffective are recorded in the profit and loss account together withthe gain or loss on the hedged item attributable to the hedged risk.(ii) Cash flow hedgesCash flow hedges comprise derivative financial instruments designatedin a hedging relationship to manage currency and interest rate riskto which the cash flows of certain liabilities are exposed. The effectiveportion of changes in the fair value of the derivative that is designatedand qualifies for hedge accounting is recognised as a separatecomponent of equity. The ineffective portion is recognised immediatelyin the profit and loss account. Amounts accumulated in equity arerecycled to the profit and loss account in the period in which thehedged item affects profit or loss. However, where a forecastedtransaction results in a non-financial asset or liability, the accumulatedfair value movements previously deferred in equity are included in theinitial cost of the asset or liability.Details of the group’s financial risk management objectives andpolicies are provided on pages 107 to 113.l. Operating leasesRentals paid on operating leases are charged to the incomestatement on a straight-line basis over the lease term.m. Pension obligationsThe company operates a defined contribution scheme. Contributionsto this scheme are charged to the income statement as incurred.
SABMiller plc Annual Report 2010 Notes to the company financial statements 1492. Tangible fixed assetsAssets in Short leasehold Officecourse of land and equipmentconstruction buildings and software TotalUS$m US$m US$m US$mCostAt 1 April 2008 6 16 46 68Additions 14 2 2 18Transfers (3) – 3 –At 31 March 2009 17 18 51 86Additions 35 1 4 40Transfers (13) – 13 –At 31 March 2010 39 19 68 126Accumulated depreciationAt 1 April 2008 – 5 11 16Depreciation – 2 12 14At 31 March 2009 – 7 23 30Depreciation – 3 14 17At 31 March 2010 – 10 37 47Net book amountAt 1 April 2008 6 11 35 52At 31 March 2009 17 11 28 56At 31 March 2010 39 9 31 793. Investment in subsidiary undertakingsShares Loans TotalUS$m US$m US$mAt 1 April 2008 9,605 3,824 13,429Exchange adjustments – (37) (37)Additions 182 94 276Capital contribution relating to share-based payments 29 – 29Disposals (2,015) (56) (2,071)At 31 March 2009 7,801 3,825 11,626Exchange adjustments – 3 3Additions 4,976 163 5,139Capital contribution relating to share-based payments 31 – 31Disposals (11) (364) (375)At 31 March 2010 12,797 3,627 16,424The investment in subsidiary undertakings is shown as follows (all interests are 100% unless stated otherwise):2010 2009Name Country of incorporation Principal activity US$m US$mSABMiller Holdings Ltd United Kingdom Group holding company 5,435 5,435Miller Brands (UK) Ltd United Kingdom Sales and distribution 39 39SAB Finance (Cayman Islands) Ltd Cayman Islands Finance company – –Safari Ltd Jersey Finance company – –SAB Holdings AG Switzerland Holding company – –SABMiller Management BV Netherlands Management servicesto fellow group companies – –SABMiller Africa & Asia BV Netherlands Holding company 168 168Appletiser International BV Netherlands Holding company – –SABMiller Safari United Kingdom Finance company 506 506Pilsner Urquell International BV Netherlands Holding company – –SABMiller Holdings Europe Ltd United Kingdom Holding company 1,561 1,572SABMiller Africa BV 1 Netherlands Holding company – –SABMiller Botswana BV 1 Netherlands Holding company – –SABMiller Asia Ltd Hong Kong Holding company – –Racetrack Colombia Finance SA Colombia Finance company – –SABMiller Poland BV 2 Netherlands Holding company 4,976 –SABMiller Horizon Ltd United Kingdom Agent company – –12,685 7,720Capital contribution relating to share-based payments 112 8112,797 7,8011 62% effective interest in ordinary share capital.2 SABMiller plc acquired its interest in SABMiller Poland BV from a group undertaking on 29 May 2009 and through its subsidiary SABMiller Poland BV acquired theremaining 28.1% minority interest in its Polish subsidiary, Kompania Piwowarska SA, in exchange for 60 million ordinary shares of SABMiller plc. At 31 March 2010,SABMiller plc held a 100% interest in SABMiller Poland BV.Overview Business review Governance Financial statements Shareholder information
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Page 146 and 147: 144 Independent auditors’ report
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Page 158 and 159: 156 Five-year financial review SABM
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Page 164 and 165: 162 Shareholders’ diary SABMiller
Page 166 and 167: 164 Cautionary statement SABMiller
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Annual Report - SABMiller

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