Principal Accounting Policies

BASIS OF PREPARATION

The financial statements incorporate the following principal accounting policies for the Group financial statements and the financial statements of Peregrine Holdings Limited (“the Company”), which are consistent with those applied in the previous year. All relevant International Financial Reporting Standards and interpretations effective 31 March 2018 have been applied in the preparation of these financial statements, except for those standards and amendments to standards, discussed below, that have been adopted for the first time in the 2018 financial statements.

Basis of preparation

These financial statements are prepared in accordance with, and comply with International Financial Reporting Standards (“IFRS”), SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, the requirements of the Companies Act of South Africa and the JSE Listings Requirements. These financial statements are prepared in accordance with the going concern principle under the historical cost basis other than financial assets designated as at fair value through profit or loss and held-for-trading instruments, which are measured at fair value.

The preparation of financial statements in accordance with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise judgement in the process of applying the Group’s accounting policies. The areas involving a high degree of judgement or areas where assumptions and estimates are significant to the financial statements are disclosed in note 40.

1. Principles of consolidation

Subsidiaries are entities, including unincorporated entities, controlled by the Group. The Group controls an entity when it has power over and is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are consolidated from the date on which the Group acquires control up to the date that control ceases.

The acquisition method of accounting is used to account for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus the value of any non-controlling interest measured in accordance with IFRS 3 plus the acquisition-date fair value of the Group’s previously held equity interest in the acquiree. Costs attributable to such acquisitions are expensed when incurred. Identifiable assets acquired (including intangible assets) and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values, with the exception of those assets classified as held-for-sale in terms of IFRS 5, which are recognised at their fair value less costs to sell, at the acquisition date, irrespective of the extent of any non-controlling interest.

The excess of the cost of an acquisition over the fair value of identifiable net assets acquired is recorded as goodwill and accounted for in terms of accounting policy note 6. If the cost of the acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference, referred to as a gain from a bargain purchase, and is recognised directly in profit or loss. On an acquisition-by-acquisition basis, the Group recognises any non-controlling interest in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s net assets.

Intercompany transactions, balances and unrealised gains and losses on transactions between Group companies are eliminated on consolidation. Investments in subsidiaries are accounted for at cost less impairment by the company in its separate financial statements. The carrying amount of these investments are reviewed annually and written down for impairment where considered necessary. Cost is adjusted to reflect changes in consideration arising from contingent consideration amendments arising from additional information about facts and circumstances that existed at acquisition date. However, if the change is due to any other reason, the change is recognised consistent with the classification of the contingent consideration.

Transactions with non-controlling interest holders are accounted for as transactions with external third parties. Changes in the Group’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions when the Group already has control.

During the course of the year, the Group reorganised its surplus non-operating net assets into a separate entity, which at the time was a wholly owned subsidiary of the Group, following which the fair value of the said net assets were unbundled to the Company’s shareholders in the form of a distribution in specie. The reorganisation entailed the transfer of surplus cash, investment in hedge funds and other proprietary investments at fair value into the separate entity. Certain of the Group’s proprietary hedge fund investments, which are required to be consolidated in terms of IFRS 10, were derecognised with effect from the 2 October 2017 in terms of accounting policy notes 8 and 10.

2. Equity accounted investees

Equity accounted investees include associates, which are those entities over which the Group has the ability to exercise significant influence, but not control, over the financial and operating policies and investments in joint ventures. A joint venture is an arrangement in which the Group has joint control, whereby the Group has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. Equity accounting involves recognising the investment initially at cost, including goodwill, and subsequently adjusting the carrying value for the Group’s share of equity accounted investees profit or loss and other comprehensive income recognised in the statement of comprehensive income. When the Group’s share of losses exceeds its interest in an associate/joint venture, the carrying amount of the associate/joint venture, including any long term investments, is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of an associate/joint venture.

Unrealised gains and losses arising from intercompany transactions are eliminated in determining the Group’s share of equity accounted profits. Unrealised losses are eliminated to the extent that there is no evidence of impairment.

The requirements of IAS 39 are applied to determine whether it is necessary to recognise any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with IAS 36 Impairment of Assets as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposals) with its carrying amount. Any impairment loss is recognised in accordance with IAS 36 to the extent that the recoverable amount of the investment subsequently increases.

3. Joint operations

A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Those parties are called joint operators.

A joint operator recognises in relation to its interest in a joint operation:

its assets, including its share of any assets held jointly;

its liabilities, including its share of any liabilities incurred jointly;

its share of the revenue from the joint operation; and

its expenses, including its share of any expenses incurred jointly.

The Group accounts for its 33.33% undivided share of land and buildings, and associated leases, as a joint operation.

4. Foreign currencies

Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (functional currency). The financial statements are presented in South African Rand which is the company’s functional currency and the Group’s presentation currency. All amounts are rounded off to the nearest thousand Rand.

Transactions and balances

Transactions in foreign currencies are translated into the functional currency at the exchange rate ruling at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation, at year-end exchange rates, of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss, except for qualifying cash flow hedges to the extent the hedge is effective which are recognised in other comprehensive income.

Non-monetary assets and liabilities, measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the foreign exchange rates at the dates the fair value was determined.

Foreign operations

The results and financial position of foreign operations (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the Group’s presentation currency are translated into the Group’s presentation currency as follows:

Assets and liabilities are translated at the foreign exchange rate ruling at the financial year-end date; and

Income and expenses are translated at average exchange rates for the year, to the extent that such average rates approximate rates ruling at the dates of the transactions.

Exchange differences arising on the translation are recognised directly in a separate component of other comprehensive income and presented in equity (foreign currency translation reserve). The relevant proportionate share of the translation difference is allocated to non-controlling interest. When a foreign operation is sold, such exchange differences are recognised in profit or loss as part of the gain or loss on sale.

5. Property, plant and equipment

Property, plant and equipment are stated at historic cost less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the property, plant and equipment. The cost of self-constructed property, plant and equipment includes the cost of materials and direct labour, any other costs directly attributable to bringing the property, plant and equipment to a working condition for its intended use and capitalised borrowing costs.

Property, plant and equipment are depreciated on the straight-line basis to write off the cost of the asset to its expected residual value over its estimated useful life. The depreciation method, residual value, if not insignificant, and useful lives are reassessed at each financial year-end. Where the residual value equals or exceeds the carrying amount of an asset no depreciation is recognised. Where a component of an asset has a cost that is significant in relation to the cost of the asset as a whole, that component is depreciated separately.

Estimated useful lives are as follows for the current and comparative period:

Buildings 50 years

Computer software and hardware 2-3 years

Furniture, fittings and office equipment 4-5 years

Motor vehicles 4 years

Leasehold improvements 3 years

Land is not depreciated.

Subsequent costs are included in the asset’s carrying value or recognised as a separate asset as appropriate, only when it is probable that future economic benefits associated with the specific asset will flow to the Group and the cost can be measured reliably. Repairs and maintenance costs are charged to profit or loss in the financial period in which they are incurred.

6. Intangible assets

Goodwill

Goodwill is tested annually for impairment and whenever there is an indicator of impairment. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the cash generating unit sold.

In respect of associates/joint ventures, the carrying amount of goodwill is included in the carrying amount of the investment.

Other intangible assets

Other intangible assets are recorded at cost less accumulated amortisation and accumulated impairment losses. Intangible assets with a finite life are amortised on a straight-line basis to write off the cost of the asset to its expected residual value over its estimated useful life. The amortisation period, useful life and residual value are reassessed at each financial year-end.

Estimated useful lives are as follows for the current and comparative period:

Customer relationships 2-20 years

Trade name 20 years

Subsequent costs are included in the asset’s carrying value or recognised as a separate asset as appropriate, only when it is probable that future economic benefits associated with the specific asset will flow to the Group and the cost can be measured reliably.

Costs associated with the maintenance of intangible assets are recognised in profit or loss when incurred.

7. Impairment of non-financial assets

The carrying amount of the Group’s assets, other than deferred tax assets and goodwill, are assessed at each financial year-end to determine whether there is any indication of impairment. If any such indication exists, the recoverable amount is estimated and the carrying value is reduced to the estimated recoverable amount and the impairment loss is recognised in profit or loss.

For goodwill, intangible assets that have an indefinite useful life and intangible assets that are not yet available for use, are assessed annually for indicators of impairment.

For impairment testing, assets are grouped together into the smallest Group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or cash generating units. Goodwill is allocated to the cash generating unit expected to benefit from the business combination from which it arose. Where a reasonable and consistent basis of allocation can be identified, corporate assets are allocated to individual cash generating units, or they are allocated to the smallest Group of cash generating units for which a reasonable and consistent basis of allocation can be identified. In most instances, a proportionate method of allocation is applied. Impairment losses recognised in respect of cash generating units are allocated first to reduce the carrying amount of any goodwill allocated to cash generating units (Group of units) and then, to reduce the carrying amount of the other assets in the unit (Group of units) on a pro-rata basis.

The recoverable amount of assets is the greater of their fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax 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 inflows, the recoverable amount is determined for the cash generating unit to which the asset belongs.

An impairment loss (the difference between the carrying amount and the recoverable amount) in respect of goodwill is not reversed.

In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount.

An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

8. Financial assets

Classification

The Group classifies its financial assets in the following categories: at fair value through profit or loss and loans and receivables. The classification is dependent on the purpose for which the asset is acquired. Management determines the classification of its investments at the time of purchase.

Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held-for-trading and those designated at fair value through profit or loss at inception. Included in these sub-categories are the Group’s investment into hedge and property funds, securities held as part of the Group’s stockbroking activities, and debt and equity instruments held by the hedge funds meeting the criteria for consolidation.

All financial assets that are held by the Group to back life assurance and investment contract liabilities are designated by the Group on initial recognition as at fair value through profit and loss in order to reduce an accounting mismatch, if they do not meet the requirements in terms of IAS 39 to be classified as held-for-trading.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than those which the Group has classified upon initial recognition as at fair value through profit or loss. Included in this category are loans and receivables, trade and other receivables, amounts receivable in respect of stockbroking and cash and cash equivalents.

8. Financial assets (continued)

Measurement

Purchases and sales of ‘regular way’ financial assets are recognised on the trade date, which is when the Group commits to purchase or sell the assets. Other financial assets are recognised when the entity becomes party to the contractual provisions of the agreement.

All financial assets are initially measured at fair value plus, in the case of financial assets not measured at fair value through profit or loss, transaction costs that are directly attributable to their acquisition. Transaction costs incurred in the acquisition of financial assets measured at fair value through profit or loss are expensed in profit or loss.

After initial recognition, the Group measures financial assets held-for-trading or designated at fair value through profit or loss, at fair values without any deduction for transaction costs it may incur on their disposal.

The fair value of quoted financial assets is their mid-price at the financial year-end. If the market for a financial asset is not active or the instrument is an unlisted instrument, the fair value is estimated using valuation techniques. These include the use of prices and other relevant information generated by market transactions involving identical or similar assets, liabilities or a group of assets and liabilities and discounted cash flow analysis. Where discounted cash flow analyses are used, estimated future cash flows are based on management’s best estimates and the discount rate is a market related rate at the financial year-end for a financial asset with similar terms and conditions. Where other pricing models are used, inputs are based on observable market indicators at the financial year-end. If the value of unlisted equity instruments cannot be reliably measured, which would be the case in very limited circumstances, they are measured at cost.

Realised and unrealised gains and losses arising from changes in the fair value of financial assets at fair value through profit or loss are included in profit or loss in the period in which they arise.

Loans and receivables

Loans and receivables are subsequently measured at amortised cost using the effective interest method, less impairment losses which are recognised in profit or loss. In the case of short term and trade receivables, the impact of discounting is not material and cost approximates amortised cost.

Impairment

Financial assets, other than those held-for-trading and designated as at fair value through profit or loss are reviewed at each financial year-end to determine whether there is objective evidence of impairment. If any such indication exists, the recoverable amount is estimated and the carrying value is reduced to the estimated recoverable amount and the impairment loss is recognised in profit or loss.

Loan and receivables

Loans and receivables carried at amortised cost are impaired if there is objective evidence that the Group will not receive cash flows according to the original contractual terms. Default or delinquency in payment and significant financial difficulties are considered indicators that the receivable is impaired. The impairment is calculated as the difference between the carrying value of the asset and the expected cash flows discounted at the original effective rate. The resulting loss is accounted for as an impairment in profit or loss. With regards to trade and other receivables an allowance for impairment is established when there is objective evidence that the Group will not be able to collect all amounts due according to the terms of the receivables. The amount of the allowance is the difference between the asset’s carrying value and the present value of the estimated future cash flows discounted at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the amount of the loss is recognised in profit or loss. When a trade receivable is uncollectible, it is written off against the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are recognised in the profit or loss as bad debts recovered.

Derecognition

Financial assets are derecognised if the Group’s contractual rights to cash flows from the financial assets expire or if the Group transfers the financial asset to another party without retaining control or substantially all of the risks and rewards of the asset or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control over the financial asset.

Offsetting

Financial assets and liabilities are offset and the net amounts presented in the statement of financial position when and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Transfers

The Group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

9. Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral part of the Group’s cash management are included as a component of cash and cash equivalents. Cash and cash equivalents are initially recognised at fair value including transaction costs and subsequently measured at amortised cost using the effective interest method.

10. Financial liabilities

All financial liabilities are initially recognised at fair value plus transaction costs incurred other than financial liabilities classified as at fair value through profit or loss at inception.

Classification and measurement

Financial liabilities at fair value through profit or loss

This category has two sub-categories: financial liabilities held-for-trading and those designated at fair value through profit or loss at inception:

10. Financial liabilities (continued)

Held-for-trading

These comprise securities held as part of the Group’s stockbroking activities and debt and equity instruments held by the hedge funds meeting the criteria for consolidation. These financial liabilities are subsequently measured at fair value with all fair value movements recognised in profit or loss.

Designated at inception

Included in this category of financial liabilities are net assets attributable to outside investors of the hedge funds meeting the criteria for consolidation.

The net assets attributable to outside investors of the hedge funds represent their share of the net asset value of the underlying funds.

The business of one of the Group’s subsidiaries is that of a linked business with investors. The investor holds units in a pooled portfolio of assets via a linked policy issued by the subsidiary. The assets are beneficially held by the subsidiary. Due to the nature of the linked policy, the subsidiary’s liability to the policyholder is equal to the market value of the assets underlying the policy.

Investment contracts are recognised as financial liabilities in the statement of financial position when the Group becomes party to their contractual provisions. Contributions received from policyholders are not recognised in profit or loss but are accounted for as deposits.

All investment contracts issued by the Group are designated by the Group on initial recognition as at fair value through profit or loss. This designation eliminates or significantly reduces a measurement inconsistency that would otherwise arise if these financial liabilities were not measured at fair value since the assets held to back the investment contract liabilities are also measured at fair value.

Changes in the fair value of investment contracts are included in profit or loss in the period in which they arise.

Fair value measurement of investment contract liabilities is based on the fair value of the financial assets held within the appropriate unit-linked funds less the tax anticipated to be paid on investment gains.

Financial liabilities measured at amortised cost

These comprise loans and payables and trade and other payables. These financial liabilities are initially recognised at fair value, net of transaction costs and subsequently measured at amortised cost using the effective interest method. In the case of short-term payables, the impact of discounting is not material and cost approximates amortised cost.

Included within the loans and other payables are written put options over which the Group does not have the unconditional right to avoid the delivery of cash. The Group has classified these shares as a liability and the value has been assessed based on the price determined in a signed agreement between the parties. The value of the liability has been discounted to the exercise date based on the cost of borrowing, which discount will be released back to profit or loss as an interest expense over the period to the exercise date.

Derecognition

Financial liabilities are derecognised if the Group’s obligations specified in the contract expire or are discharged or cancelled.

11. Share capital

Ordinary shares are classified as equity. Costs directly attributable to the issue of new shares are shown in equity as a deduction from proceeds, net of tax.

Shares in the Company held by Group companies and the share incentive trusts are classified as treasury shares. The consideration paid for treasury shares, including any directly attributable costs (net of income taxes) is deducted on consolidation from total shareholders’ equity.

Fair value changes recognised in subsidiary financial statements in respect of treasury shares are reversed on consolidation and dividends received are eliminated against dividends paid. Profits/losses realised on the application of treasury shares are credited/debited directly to equity. Where treasury shares are subsequently sold or issued, the consideration received (net of incremental cost and attributable taxes) is recognised in equity.

12. Segment reporting

Operating segments have been identified using the management approach as required by IFRS 8, in terms of which segment classification is determined according to the basis on which management and the board review the operating results.

13. Employee benefits and share-based payments

Post-retirement benefits

The Group operates two defined contribution plans based on a percentage of pensionable earnings funded by employees. In the case of one of the plans, the plan assets are held in separate trustee administered funds. Contributions to the plans are charged to profit or loss in the period in which they become payable. A defined contribution plan is a plan under which the Group pays fixed contributions. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised as an employee benefit expense as the related services is provided.

Leave entitlements

Employee benefits in the form of annual and sick leave entitlements are provided for when they accrue to employees with respect to services rendered up to the financial year-end.

Short term employee benefits

The Group recognises a liability and an expense for all short term bonuses and profit sharing where contractually obliged or where there is a past practice that has created a constructive obligation and the obligation can be estimated reliably. These are recognised in the year in which they are declared (i.e. the year in which the services are rendered).

13. Employee benefits and share-based payments (continued)

Long term remuneration schemes

There are various long-term deferred remuneration schemes (“LTI”) in place throughout the Group. The classification as an employee benefit or a share-based payment depends on what benefit ultimately vests with the participants. If the benefit is linked-to or based-on Peregrine shares, the arrangement will be treated as a share-based payment. In other cases, the arrangement will be treated as a long-term employee benefit.

IAS 19 long-term employee benefit

IFRS 2 equity-settled scheme

Citadel 2013 deferred remuneration scheme ("LTI Scheme 1")

Yes

Yes

Citadel 2015 deferred remuneration scheme ("LTI Scheme 2")

Yes

Yes

Citadel 2017 deferred remuneration scheme ("LTI Scheme 3")

Yes

Yes

Peregrine Holdings share scheme (pre-2016)

No

Yes

Peregrine Holdings long term executive remuneration scheme

Yes (2017)

No (2018)

No (2017)

Yes (2018)

Other subsidiaries

Yes

No

IAS 19 long-term employee benefits

There is currently a long term deferred remuneration scheme (“LTI”) in place in Citadel Holdings Proprietary Limited (“CHL”) whereby employees who qualify are entitled to a deferred portion of each year’s bonus pool with amounts payable over an applicable vesting period if the employees are still in the employment of the Group. The directors of Citadel will determine the investment composition of the scheme and each participant will be allocated a portion of these assets.

The liability due to participants is recognised over the required service/vesting period and reflects what has been promised to the participants at the end of that period. The liability is measured using the fair value movements in the assets invested, with the corresponding expense recognised over the service period.

During the course of the 2016 financial year, a Peregrine Holdings Limited (“PHL”) long term executive remuneration incentive scheme was implemented (“PHL LTI plan”). The benefit promised to the qualifying employees (PHL executive directors) is an agreed amount calculated in the year in which the profits are earned, based on the agreed formula (“LTI award”). 25% of the LTI award will vest at the end of years 2 and 3, with the remaining 50% portion at the end of year 4, with the single exception being applicable to the 2016 financial year, where 25% of the LTI vested as at the 31 March 2016 financial year and thereafter 25% each year at the end of the 2017, 2018 and 2019 financial years respectively (with payment to be made in June of such years). Should a PHL executive director resign before the June vesting dates, they would not be entitled to receive any payment. The amount to be recognised as an expense and corresponding liability at the reporting date is determined on a straight-line basis over the vesting period. The awards previously took the form of cash payments, however shortly before the end of the financial year the LTI plan was modified from a long-term employee benefit (IAS 19) to an equity settled share-based payment (IFRS 2) with the award values being converted to a quantum of shares and such quantum of shares being purchased by the Company to meet such obligations. The unvested LTI awards relating to 2016 and 2017 financial years as well as the 2018 LTI award will be equity settled.

Other subsidiaries in the Group operate profit participation schemes, which includes a long term incentive award ("LTI"). The amount to be recognised as an expense and corresponding liability at the reporting date is determined on a straight-line basis over the vesting period.

IFRS 2 Share-based payments

The Group operates equity-settled, share-based compensation plans, under which the entity receives services from the employees as consideration for equity instruments (shares or options) of the Group.

The grant date fair value of equity-settled share-based payment awards granted to employees is recognised as an employee expense, with a corresponding increase in equity (share-based payment reserve), over the period in which the employees become entitled to the awards. The amount recognised as an expense is adjusted to reflect the number of share awards for which the related service and non-market performance vesting conditions are expected to be such that the amount ultimately recognised as an expense is based on the number of share awards that meet the related service and non-market performance conditions at the vesting date.

To the extent that the grant date has not yet been achieved, the grant date fair value must be estimated and revised on each reporting date until the grant date is achieved.

In its separate financial statements, the grant by the company of shares and/or options over its equity instruments to the employees of subsidiary undertakings in the Group is treated as a capital contribution if the scheme is classified as equity settled. The fair value of employee services rendered, measured by reference to the grant date fair value, is recognised over the vesting period as an increase to investment in subsidiary undertakings, with a corresponding credit to equity.

14. Financial guarantee contracts

A financial guarantee contract is a contract that requires the Group (issuer) to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee liabilities are initially recognised at fair value, which is generally equal to the premium received, and then amortised over the life of the financial guarantee.

Subsequent to initial recognition, the financial guarantee liability is measured at the higher of the present value of any expected payment, when a payment under the guarantee has become probable, and the unamortised premium.

15. Revenue

Revenue comprises the fair value of the consideration received or receivable as a result of services performed in the ordinary course of the Group’s activities.

Principal sources of revenue comprises:

fees and profit participations charged for fund management activities;

fees on financial structuring advice and related services;

brokerage and commissions arising on the purchase and sale of equities and other financial instruments;

net interest earned on scrip lending, equity swaps and other prime broking products and services; and

rental received from external tenants.

Other income includes:

gains on sale of financial investments;

changes in the fair value of assets classified as at fair value through profit or loss;

interest earned on loans made as part of the Group’s investing activities; and

dividend income.

Revenue is recognised net of value added tax.

Revenue from service-based activities is recognised either as the service is provided or on completion of the service depending on the nature of the service provided. Interest income is recognised on a basis that reflects the effective yield on the underlying instruments. Dividends are brought into account as at the last date of registration in respect of listed shares and when declared in respect of unlisted shares. Rental received under operating leases is recognised on a straight-line basis over the term of the lease.

The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or, when appropriate, a shorter period to the net carrying amount of the financial asset. When calculating the effective interest rate, the Group estimates the cash flows considering all contractual terms of the financial asset and does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs, and all other premiums or discounts. When it is not possible to estimate reliably the cash flows or the expected life of a financial asset, the Group uses the contractual cash flows over the full contractual term of the financial asset.

Revenue for the company comprises dividends received from its investment in subsidiaries.

16. Operating lease payments

Leases in terms of which the Group does not assume substantially all of the benefits and risks of ownership are classified as operating leases.

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.

17. Finance costs

Interest costs are recognised in profit or loss using the effective interest method, except when they are capitalised to a qualifying asset.

Borrowing costs directly related to the financing of a qualifying capital project under construction are capitalised to the project cost during the construction, until such a time as the related asset is substantially ready for its intended use, i.e. when it is capable of commercial production. Where funds are available in the short term from money borrowed specifically to finance a project, the income generated from such short-term investments is also capitalised and deducted from the total capitalised borrowing costs. Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average rate application to the relevant general borrowings of the Group during the period. The Group classifies cash flows relating to capitalised interest as cash flows from investing activities if the cash payments to acquire the qualifying asset are reflected as investing activities.

18. Taxation

The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss except to the extent that it relates to items recognised in other comprehensive income or equity, in which case it is recognised in other comprehensive income or directly in equity.

Current tax expense is based on the results for the period as adjusted for items that are not taxable or deductible. The Group’s liability for current taxation is calculated using tax rates and laws that have been enacted or substantively enacted by financial year-end.

Deferred taxation is recognised in respect of temporary differences arising from differences between the carrying amount of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable income. Deferred tax is not accounted for if it arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Nor is deferred tax accounted for in respect of temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future. Deferred tax is determined using tax rates (and laws) enacted or substantively enacted at the financial year-end and expected to apply when the deferred tax asset is realised and deferred tax liability settled. Deferred tax assets are recognised to the extent that it is probable that a taxable profit will be available in future years against which the tax asset can be recovered.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle the current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

19. Earnings per share

Basic earnings per share is calculated on the weighted average number of shares in issue, net of treasury shares in respect of the current year, and is based on the profit attributable to the ordinary shareholders. Undistributed earnings are allocated to shares not yet vested in accordance with their respective rights to participate in dividends. Headline earnings per share is calculated in terms of the requirements set out in Circular 02/2015 issued by SAICA.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding assuming conversion of all dilutive potential ordinary shares. Diluted headline earnings per share is calculated in terms of the requirements set out in Circular 02/2015 issued by SAICA.

20. Dividends

Dividends are recognised in equity when declared.