Annual Report - SABMiller

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76 Notes to the consolidated financial statements SABMiller plc Annual Report 2010Notes to the consolidated financial statements continued1. Accounting policies continuedManagement considers the following to be areas of significantjudgement and estimation for the group due to greater complexityand/or particularly subject to the exercise of judgement:(i) Impairment reviewsGoodwill arising on business combinations is allocated to the relevantcash generating unit (CGU). Impairment reviews in respect of therelevant CGUs are performed at least annually or more regularly ifevents indicate that this is necessary. Impairment reviews are basedon future cash flows discounted using the weighted average cost ofcapital for the relevant country with terminal values calculated applyingthe long-term growth rate. The future cash flows which are based onbusiness forecasts, the long-term growth rates and the discount ratesused are dependent on management estimates and judgements.Future events could cause the assumptions used in these impairmentreviews to change with a consequent adverse impact on the resultsand net position of the group. Details of the estimates used in theimpairment reviews for the year are set out in note 10.(ii) TaxationThe group operates in many countries and is subject to taxes in numerousjurisdictions. Significant judgement is required in determining theprovision for taxes as the tax treatment is often by its nature complex,and cannot be finally determined until a formal resolution has beenreached with the relevant tax authority which may take several yearsto conclude. Amounts provided are accrued based on management’sinterpretation of country specific tax laws and the likelihood of settlement.Actual liabilities could differ from the amount provided which couldhave a significant impact on the results and net position of the group.(iii) Pension and post-retirement benefitsPension accounting requires certain assumptions to be made in orderto value the group’s pension and post-retirement obligations in thebalance sheet and to determine the amounts to be recognised in theincome statement and in other comprehensive income in accordancewith IAS 19. The calculations of these obligations and charges arebased on assumptions determined by management which includediscount rates, salary and pension inflation, healthcare cost inflation,mortality rates and expected long-term rates of return on assets.Details of the assumptions used are set out in note 31. The selectionof different assumptions could affect the net position of the group andfuture results.(iv) Property, plant and equipmentThe determination of the useful economic life and residual values ofproperty, plant and equipment is subject to management estimation.The group regularly reviews all of its depreciation rates and residualvalues to take account of any changes in circumstances, and anychanges that could affect prospective depreciation charges andasset carrying values.(v) Business combinationsOn the acquisition of a company or business, a determination of thefair value and the useful life of intangible assets acquired is performed,which requires the application of management judgement. Futureevents could cause the assumptions used by the group to changewhich would have a significant impact on the results and net positionof the group.(vi) Exceptional itemsExceptional items are expense or income items recorded in a periodwhich have been determined by management as being material bytheir size or incidence and are presented separately within the resultsof the group. The determination of which items are disclosed asexceptional items will affect the presentation of profit measuresincluding EBITA and adjusted earnings per share, and requires adegree of judgement. Details relating to exceptional items reportedduring the year are set out in note 4.(vii) MillerCoors joint ventureThe determination of the valuation of the Coors business contributedto the MillerCoors joint venture was a specific area of judgement for thegroup during the previous financial year. The valuation was determinedusing recognised valuation techniques based upon specific assumptions.If alternative assumptions had been used then the value of the investmentand gain recognised on disposal would have been different.d) Segmental reportingOperating segments reflect the management structure of the groupand the way performance is evaluated and resources allocated basedon group revenue and EBITA by the group’s chief operating decisionmaker, defined as the executive directors. The group is focusedgeographically and as a result of the implementation of IFRS 8, Africaand Asia are now presented as separate segments. Comparativeinformation has been restated accordingly. While not meeting thedefinition of reportable segments, the group reports separately assegments Asia, South Africa Hotels and Gaming and Corporate asthis provides useful additional information.e) Basis of consolidationSABMiller plc (the company) is a public limited company incorporatedin Great Britain and registered in England and Wales. The consolidatedfinancial statements include the financial information of the subsidiary,associate and joint venture entities owned by the company.(i) SubsidiariesSubsidiaries are entities controlled by the company, where control isthe power directly or indirectly to govern the financial and operatingpolicies of the entity so as to obtain benefit from its activities, regardlessof whether this power is actually exercised. Where the company’sinterest in subsidiaries is less than 100%, the share attributable tooutside shareholders is reflected in minority interests. Subsidiaries areincluded in the financial statements from the date control commencesuntil the date control ceases.Intra-group balances, and any unrealised gains and losses or incomeand expenses arising from intra-group transactions, are eliminated inpreparing the consolidated financial statements. Unrealised losses areeliminated unless the transaction provides evidence of an impairmentof the asset transferred.Some of the company’s subsidiaries have a local statutory accountingreference date of 31 December. These are consolidated using managementprepared information on a basis coterminous with the company’saccounting reference date.(ii) AssociatesAssociates are entities in which the group has a long-term interest andover which the group has directly or indirectly significant influence,where significant influence is the ability to influence the financial andoperating policies of the entity.The associate, Distell Group Ltd, has a statutory accounting referencedate of 30 June. In respect of each year ending 31 March, this companyis included based on financial statements drawn up to the previous31 December, but taking into account any changes in the subsequentperiod from 1 January to 31 March that would materially affect theresults. All other associates are included on a coterminous basis.(iii) Joint venturesJoint ventures are contractual arrangements which the group hasentered into with one or more parties to undertake an economicactivity that is subject to joint control. Joint control is the contractuallyagreed sharing of control over an economic activity, and exists onlywhen the strategic, financial and operating decisions relating to theactivity require the unanimous consent of the parties sharing the control.
SABMiller plc Annual Report 2010 Notes to the consolidated financial statements 771. Accounting policies continuedf) Foreign exchange(i) Foreign exchange translationItems included in the financial statements of each of the group’s entitiesare measured using the currency of the primary economic environmentin which the entity operates (the functional currency). The consolidatedfinancial statements are presented in US dollars which is the group’spresentational currency. The exchange rates to the US dollar used inpreparing the consolidated financial statements were as follows:Year ended Year ended31 March 2010 31 March 2009Average rateSouth African rand (ZAR) 7.78 8.87Colombian peso (COP) 2,031 2,061Euro (€) 0.71 0.69Czech koruna (CZK) 18.45 17.54Peruvian nuevo sol (PEN) 2.92 3.01Polish zloty (PLN) 2.99 2.51Closing rateSouth African rand (ZAR) 7.30 9.61Colombian peso (COP) 1,929 2,561Euro (€) 0.74 0.76Czech koruna (CZK) 18.87 20.57Peruvian nuevo sol (PEN) 2.84 3.15Polish zloty (PLN) 2.86 3.52The average exchange rates have been calculated based on theaverage of the exchange rates during the relevant year which have beenweighted according to the phasing of revenue of the group’s businesses.(ii) Transactions and balancesThe financial statements for each group company have been preparedon the basis that transactions in foreign currencies are recorded intheir functional currency at the rate of exchange ruling at the date ofthe transaction. Monetary items denominated in foreign currencies areretranslated at the rate of exchange ruling at the balance sheet datewith the resultant translation differences being included in operatingprofit in the income statement other than those arising on financialassets and liabilities which are recorded within net finance costsand those which are deferred in equity as qualifying cash flow hedgesand qualifying net investment hedges. Translation differences on nonmonetaryassets such as equity investments classified as availablefor sale assets are included in other comprehensive income.(iii) Overseas subsidiaries, associates and joint venturesOne-off items in the income and cash flow statements of overseassubsidiaries, associates and joint ventures expressed in currenciesother than the US dollar are translated to US dollars at the rates ofexchange prevailing on the day of the transaction. All other itemsare translated at weighted average rates of exchange for the relevantreporting period. Assets and liabilities of these undertakings aretranslated at closing rates of exchange at each balance sheet date.All translation exchange differences arising on the retranslation ofopening net assets together with differences between income statementstranslated at average and closing rates are recognised as a separatecomponent of equity. For these purposes net assets include loansbetween group companies that form part of the net investment, forwhich settlement is neither planned nor likely to occur in the foreseeablefuture. When a foreign operation is disposed of, any related exchangedifferences in equity are reclassified to the income statement as partof the gain or loss on disposal.Goodwill and fair value adjustments arising on the acquisition of aforeign entity are treated as assets and liabilities of the foreign entityand translated at the closing rate.g) Business combinations(i) SubsidiariesThe purchase method is used to account for the acquisition ofsubsidiaries. The identifiable net assets (including intangibles) areincorporated into the financial statements on the basis of their fairvalue from the effective date of control, and the results of subsidiaryundertakings acquired during the financial year are included in thegroup’s results from that date.Control is presumed to exist when the group owns, directly or indirectlythrough subsidiaries, more than half of the voting power of an entityunless, in exceptional circumstances, it can be clearly demonstratedthat such ownership does not constitute control. Control also existswhere the group has the ability to direct or dominate decision-makingin an entity, regardless of whether this power is actually exercised.On the acquisition of a company or business, fair values reflectingconditions at the date of acquisition are attributed to the identifiableassets (including intangibles), liabilities and contingent liabilitiesacquired. Fair values of these assets and liabilities are determinedby reference to market values, where available, or by reference tothe current price at which similar assets could be acquired or similarobligations entered into, or by discounting expected future cash flowsto present value, using either market rates or the risk-free rates andrisk-adjusted expected future cash flows.The cost of an acquisition is measured as the fair value of the assetsgiven, equity instruments issued and liabilities incurred or assumed atthe date of the acquisition plus costs directly attributable to the acquisition.It also includes the group’s estimate of any deferred considerationpayable. Where the business combination agreement provides for anadjustment to the cost that is contingent on future events, contingentconsideration is included in the cost of an acquisition if the adjustmentis probable (that is, more likely than not) and can be measured reliably.The difference between the costs of acquisition and the share of thenet assets acquired is capitalised as goodwill.Where the group purchases additional shares in subsidiaries suchpurchases are reflected as separate acquisition processes and norevised fair valuation is required. The difference between the costsof acquisition and the share of the net assets acquired is capitalisedas goodwill.On the subsequent disposal or termination of a previously acquiredbusiness, the results of the business are included in the group’s resultsup to the effective date of disposal. The profit or loss on disposal ortermination is calculated after charging the amount of any relatedgoodwill to the extent that it has not previously been taken to theincome statement.(ii) Associates and joint venturesThe group’s share of the recognised income and expenses ofassociates and joint ventures are accounted for using the equitymethod from the date significant influence or joint control commencesto the date it ceases based on present ownership interests. The datesignificant influence or joint control commences is not necessarily thesame as the closing date or any other date named in the contract.The group recognises its share of associates’ and joint ventures’post-tax results as a one line entry before profit before tax in theincome statement and its share of associates’ and joint ventures’equity movements as a one line entry under other comprehensiveincome in the statement of comprehensive income.When the group’s interest in an associate or joint venture has beenreduced to nil because the group’s share of losses exceeds its interestin the associate or joint venture, the group only provides for additionallosses to the extent that it has incurred legal or constructive obligationsto fund such losses, or make payments on behalf of the associate orjoint venture. Where the investment in an associate or joint venture isdisposed, the investment ceases to be equity accounted.Overview Business review Governance Financial statements Shareholder information
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164 Cautionary statement SABMiller
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Annual Report - SABMiller

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