Annual Report 2008 - samro
Annual Report 2008 - samro
Annual Report 2008 - samro
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SAMRO BOARD OF DIRECTORSSAMRO BOARD OF DIRECTORSA E Emdon (Chairman)J S M Khumalo (Vice Chairman)C G de VilliersJ E EdmondR I KallenbachT S Kekana
SAMRO BOARD OF DIRECTORSS C P MabuseY MhingaSAMRO BOARD OF DIRECTORSM N Motsatse (CEO)G G Trefusis-Paynter (British)J Zaidel-RudolphG J Zoghby (Executive)J J Baloyi (Secretary)
CHAIRMAN’S FOREWORD(ECOWAS), which will see free movement of goods and services. It is against this background that we have refined ourapproaches with regard to supporting collective administration in Africa.The apparent political upheaval in our country, while raising some concerns, has signalled the maturing of our democracy.The body politic is showing the robustness that can only augur well in the long term. As we approach the elections in 2009,we are confident that South Africans from all walks of life will show strength of character in making their choice about theleadership of the country.While not insulated from the financial crises that have dogged many developed countries, the South African financial systemhas shown greater resilience due to the sound macro-economic policies that have been a feature of the ‘new’ South Africa. Weare cognisant of the challenges that still lie ahead, such as the declining strength of the Rand against major currencies, thehigh inflation rate due to food and oil prices (although the latter has been declining in recent times) and the falling prices ofcommodities. Our Management team is also alert to these challenges and appropriate steps are being taken in order to ensurethat your society does not only survive the ‘tidal waves’, but emerges stronger and poised for the future.CHAIRMAN’S FOREWORDThe need for some legislative reform is increasing with every introduction of new technologies and ways of exploiting and usingmusic. Of particular concern is the absence of the “communication to the public right” in our copyright law. This has resultedin unnecessary and protracted negotiations with the telecommunications companies. The result has been the deprivation ofcreators of musical works. There is no doubt that these works have added extensive value to these businesses. We therefore callon the Department of Trade and Industry (DTI) to give this matter priority attention. Of course, we believe that accession tothe “WIPO Internet Treaties” would be an expeditious way in which these deficiencies in our local law can be addressed.Given all the challenges and the toughening operating environment outlined above, I am pleased to report that the overallfinancial performance over the period under review was in line with forecast which, in itself, was ambitious. Following therecord performance of the previous year, Management set ambitious revenue and distribution goals. Gross Income grewby 12.3% for the Company and 11.0% for the Group. The other three important measures were the growth in licence androyalty income, growth in distributions as well as growth in expenses. The growth in licence and royalty income was of theorder of 16.6%, compared to 19.1% in the previous year for the Company and 17.8%, compared to 18.1% for the Group. TheCompany’s distributions increased by 18.8%, a significantly modest increase compared to last year’s record of 35.0%, but anacceptable performance if compared to other previous years, discounting the last one. The Group’s distributions increasedby 17.4% in comparison to 35.5% over the same period the previous year. Administration Expenses grew by 10.6% for theCompany compared to 23.3% over the same period in the previous year. The Group’s administrative expenses increased by14.8%, compared to 29.1% in the previous year. This significant drop in the expenses growth was attributable to specific costcontainment measures as the three year capacity-building period, which had been communicated to you over the last fouryears, had come to an end.My colleagues and I, together with the Executive Management team, continued to focus our attention on maintaining thehighest standards of corporate governance. Besides holding all four meetings of the Board during the period under review, wedeveloped and adopted a Board Charter and have commenced with the process of setting up the various committees underthis Charter. As with the previous year, we conducted an evaluation of the Board’s performance. We are pleased that theBoard has continued to effectively fulfill its mandate.Your society has continued to carve its role as an exemplary corporate citizen. Through the Endowment for the NationalArts (the Endowment) we have made significant contributions to music education through our highly successful bursaryprogramme and the trend-setting overseas scholarships. For the year under review, eighty students received bursaries. TheEndowment has also continued to play a role in supporting music industry initiatives such as the Moshito Music Conferenceand Exhibitions with skills and human capacity. In addressing the social welfare of our members, the Board of Directorsreviewed the benefits that members stood to gain through the Funeral Benefit Scheme. That was in line with the requestsfrom members spread throughout the country.3
CHAIRMAN’S FOREWORDCHAIRMAN’S FOREWORDIn conclusion, I would like to acknowledge the efforts of the management and staff of SAMRO, as well as my colleagues onthe Board of Directors, especially Prof. Mzilikazi Khumalo as Vice-Chairman, Mr. Robbie Kallenbach as Chairman of theSAMRO Risk and Audit Committee and Mr. Sipho Mabuse who, for the greater part of the year under review, chaired theSAMRO Retirement Annuity Fund. I also would like to welcome Adv. Steve Kekana who takes over from Mr. Mabuse asthe Chairman of the SAMRO Retirement Annuity Fund.ANNETTE EMDONCHAIRMAN4
Our values: The thread that weaves us togetherConvenienceExcellenceRelationshipTrust“On a group of theories one can found a school;but on a group of values one can found a culture,a civilization, a new way of living together among men”- Ignazio Silone5
CHIEF EXECUTIVE REPORTCHIEF EXECUTIVE REPORTIt is with pleasure that I report the overall satisfactory performance in the key areas of the organisation.We have continued to build on the solid foundation that was laid over the last forty six years. OurExecutive and General Management teams, together with the more than one hundred and ninety(190) staff members, once again dedicated their energy to ensuring that we achieve overall revenuegrowth and growth in distributions that were not only above average inflation, but also yieldeddouble-digit growth on last year’s figures. What makes this performance stand out for us is thatit comes amidst an economic climate which will probably go down in history as one of the mostturbulent in global economic terms.Nick Motsatse: CEOKEY MEASURES OF PERFORMANCEThe Directors’ <strong>Report</strong>, a section of this annual report, gives a detailed breakdown of revenue and distributions, as well as otherimportant financial measures. It is, however, important for me to comment on the three key measures of our performance -revenue, distributions and expenses.Group IncomeOur total group income exceeded the R350 million mark and grew by 12,3%, an effective real growth of around 3.3% aboveaverage inflation. Licence and royalty income grew by 16,6% compared to the previous year’s growth of 19.1%. Real growthwas negatively impacted by a sharp and sudden increase in the inflation rate. Broadcast income showed an increase of 10.8%despite the tightening economic conditions faced by some of our key customers. General licensing income increased by 14.3%over that of the previous year. While the growth was slower than that of the previous year, we were pleased with the sustainedgrowth.SAMRO’s growth over the years is depicted in the charts – “Group Gross Income” – “Five-Year View “and “Twenty-YearView”.GROUP GROSS INCOMEFive-Year ViewTwenty-Year View400350400350300300250250R Millions20015010050-2004 2005 2006 2007 <strong>2008</strong>YearR Millions20015010050-1988 1993 1998 2003 <strong>2008</strong>YearSources of licence and royalty income for the group have remained largely consistent with the previous year as depicted inthe charts – “Sources of Licence and Royalty Income”SOURCES OF LICENCE AND ROYALTY INCOME<strong>2008</strong>2007Mechanical Rights3%Community Radio1%General Licensing23%Other Licenses1% Public Radio12%Affiliated Societies3%Private Radio14%Other LicensesPublic RadioAffiliated SocietiesPrivate RadioPublic TelevisionCinemaCommunity Radio1%General Licensing23%Other Licenses1%Public Radio13%Affiliated Societies2%Private Radio14%Reprographic Reproduction8%Private Television13%Cinema1%Public Television21%Private TelevisionReprographic ReproductionCommunity RadioMechanical RightsGeneral LicensingReprographic Reproduction9%Private Television14%Cinema1%Public Television22%6
CHIEF EXECUTIVE REPORTInvestment income for the year declined by 3,3% from last year’s income. This was however in line with expectations andconsiderably above forecast. We are mindful of the turbulence in the financial markets and the economy in general and believethat we may continue to see a drop in investment income in the current year. We are keeping a close watch on the situationand, together with our external advisors, will do anything possible to avert any major and significant impact on the long-termvalue and sustainability of the funds.DistributionsDistributable revenue for the group grew by 17,4% for the period under review, up by R40,7 million to R274,1 million. TheRoyalty distributions made during the year under review, based on the amount for distribution in the previous year, increasedfrom R96,3 million in 2007 to R153,8 million in <strong>2008</strong>, or 59,7%, whereas the Non-Royalty distributions increased by R27,4million to R59,8 million (2007 – R32,4, million). The total amount distributed to SAMRO members and members ofAffiliated Societies showed an overall increase of 34,8% during the year. The growth in Group Royalty and Non-Royaltydistributions to rights’ holders is depicted in the chart.CHIEF EXECUTIVE REPORTROYALTY AND NON-ROYALTY DISTRIBUTION – A FIVE YEAR VIEW250200150R Millions100SAMRO RoyaltySAMRO Non-RoyaltyDALRO Royalty5002004 2005 2006 2007 <strong>2008</strong>YearA significant proportion of SAMRO’s membership participated in this year’s royalty distributions, as was the case previously,which indicates that the beneficiaries of distributions are reasonably broad-zbased.A total of 6,139 SAMRO members and 98 Affiliated Societies earned royalties during the year under review (2007 - 5330SAMRO members and 89 Affiliated Societies). It has again been decided to publish statistics relating to the royalty earnings ofSAMRO Members and Affiliated Societies in distribution income bands. The details for the past two royalty distributions arereflected below:-Distribution 46 Distribution 45Income BandSAMROMembers65811381531593255218AffiliatedSocieties174423959SAMROMembers51751061081452964549AffiliatedSocieties154410857Over R100 000R50 001 to R100 000R25 001 to R50 000R15 001 to R25 000R10 001 to R15 000R 5 000 to R10 000Below R 5 000Members will recall from our distribution letters, that income from SAMRO’s distributions is declared to the South AfricanRevenue Service (SARS) by SAMRO. Members are aware that SARS continues to encourage compliance by all taxpayers,including members of SAMRO and, with this in mind, SARS has the full authority to demand that SAMRO shouldforward statements of earnings of members for prior and current periods. <strong>Annual</strong>ly, members are provided with a statementof earnings which they must include with their declaration of other earnings to SARS.One of our goals is to, as far as possible, promote the demand for South African music abroad and ensure that membersreceive foreign royalties due to them. Our International Affairs Division is actively engaged in this endeavour and encourages7
CHIEF EXECUTIVE REPORTCHIEF EXECUTIVE REPORTmembers to keep us informed as to the activity and performance of their works abroad. It is also in the members’ best interestto provide us with their foreign tour performance schedules if they are performing works of South African origin, so as tominimise the risk of forfeiting foreign royalty income.For members whose works are active abroad, we provide a graph depicting regional breakdown of Foreign Income below:FOREIGN INCOME REGIONAL BREAKDOWN6,0005,0004,000R Thousands 3,0002,0001,000EuropeNorth AmericaAsia PacificAfricaSouth AmericaOceania02004 2005 2006 2007 <strong>2008</strong>YearDistributions in ProgressMembers are aware from previous annual reports that at each distribution there are credits allocated to works that have beenperformed, but which could not be distributed because the works or rights’ holder shares are not clearly documented, identifiedor substantiated by the relevant agreements. At times, information provided by users is insufficient or sometimes SAMRO’smembers fail to notify SAMRO in time, or provide us with the full details of all their works. We urge you to notify SAMROas soon as new works are written or once you have acquired a new catalogue of works and ensure that full details are providedon the prescribed “Notification of Works” form which is supplied for this purpose. While progress has been made, we continueto experience some difficulties with the supply of, and quality of, programme information from certain users. This year, inparticular, two main distributions were delayed as a result of insufficient usage reporting from some large broadcasters.A portion of royalties which has not been distributed for a number of years, and for which no further claims have beenreceived, have once again been allocated to current revenue for redistribution. This year the figure amounts to R29,4 millionas compared to R5,3 million for last year. The big increase is due to a correction in policy implementation.ExpensesGroup administration expenses for the period under review increased by 14.8%. The rapid increase in the cost of livingis likely to result in a higher increase in the cost of employment as well as other operating costs. Management is thereforefocussed on the containment of costs.International AffairsSAMRO participates actively in the organisation and meetings of the international bodies with which it is affiliated. CISAC(Confédération Internationale des Sociétés d’Auteurs et Compositeurs) is the international confederation of copyright societiesof which SAMRO and DALRO are members. SAMRO is also a member of the international association of MechanicalRights societies (BIEM) while DALRO is actively involved as a member of IFRRO (International Federation of ReproductionRights Organisations). Both SAMRO and DALRO remain committed to the African activities of CISAC and IFRRO. Wealso continued our participation in the CSB (Common Information Systems Supervisory Board), DTC (Distribution TechnicalCommittee) as well as the Legal Committee, which SAMRO hosted for its meeting in Cape Town this year.SubsidiariesAll the subsidiary companies have performed to expectation and the review of their results is contained within the Directors’ <strong>Report</strong>. Itis noteworthy, however, that with the purchase of new accommodation premises, SAMRO Place, the subsidiary companies, SAMROHouse (Pty) Ltd and SAMRO House Holdings (Pty) Ltd, will experience greater activity as there are a number of tenants still housedon the unutilised floors of the new building.8
CHIEF EXECUTIVE REPORTHighlights of the restructuring during the Year under reviewThere was some further restructuring during the year under review in order to streamline operations and create an ExecutiveManagement layer. Having done away with the role of the Deputy CEO, a position of a Chief Operating Officer (COO),which is also a Board position, was created and Gregory Zoghby was appointed to this role with effect from 1 March <strong>2008</strong>.Subsequent to this, the business was reorganised into three Strategic Business Units (SBUs), namely Performing Rights(including all the group support services), Mechanical Rights and International Affairs. The following is the diagrammaticalrepresentation of the current group structure.CEON. MotsatseCHIEF EXECUTIVE REPORTEGM: MechanicalsJ. SchultenCOOG. ZoghbyMD: DALROG. RobinsonCompany SecretaryJ.J. BaloyiEGM: InternationalAffairsL. van WykGM: NeedletimeP. LishivhaGM: FinanceB. HartyGM: MarketingY. MaduraiGM: OperationsT. WindischGM: Sales (PR)VacantGM: InformationManagement &ServicesI. NapierPerforming Rights UnitPerforming Rights remained the core of SAMRO’s operations for the year under review with revenue contribution being justunder 90% of the group’s revenue. Apart from the licensing, membership, documentation and distribution activities, the unitprovided general support services to other units and subsidiary companies.Mechanical Rights UnitSAMRO took the decision to go into the administration of Mechanical Rights in 2006 and, following that decision, aconsiderable amount of time was spent on pre-establishment and establishment phases. At the beginning of <strong>2008</strong>, with theappointment of Joyce Schulten as the Executive General Manager (EGM), a fully-fledged unit was established. Licensingactivities for individual works, as well as Mechanical Rights for phonographic reproductions, have been on the increasesince the inception of the unit. Negotiations with broadcasters have also commenced in earnest and it is anticipated thatan agreement will be concluded during the course of the current year. A number of distributions, based on the licence feesreceived, were run during the year under review.Public Playing Rights (Needletime)SAMRO took a decision to apply for accreditation to administer these rights on behalf of performers after a considerableamount of time was spent in deliberations. Accreditation was received from the Companies and Intellectual PropertyRegistration Office (CIPRO) during the third quarter of the year under review. A separate organisation which is whollyownedby SAMRO is being set up with a view to administering these rights in a focussed and dedicated manner. A number ofperformers throughout the country have already granted SAMRO the permission to administer these rights on their behalf.9
CHIEF EXECUTIVE REPORTCHIEF EXECUTIVE REPORTThe FutureThe world’s economy is experiencing one of the greatest challenges in history. Started by the sub-prime mortgage lending crisisin the United States of America, the financial markets and institutions have gone through serious turmoil. This has resultedin a drop in confidence which is beginning to show in the slowdown in consumer spending. This, coupled with a skyrocketinginflation rate, fueled by increases in the costs of food and energy, has the potential to affect the performance of your society inthe short to medium term. Added to that is the fact that it has become a lot more difficult to forecast accurately into the future.We are however confident that your society will be able to ride out the storms and contend with the upheavals.Particular attention will be focussed on containing costs, encouraging innovation and promoting customer satisfaction. Incontaining costs, however, care will be taken not to weaken the capacity of the organisation to deliver and to prepare itself forthe turn in the economy.A number of studies have shown that businesses that have survived some of the most difficult economic times are those thathave continued to be innovative during difficult times. While not entirely due to the current economic challenge, innovationis one of the key strategic focal areas of our five-year strategic plan. To this end, we shall be presenting some significant valuecreating projects at the <strong>Annual</strong> General Meeting (AGM), which we shall roll out over the next three years in order to createa secure future for our members. Over and above these projects, we shall be exploring innovative solutions in a number of thefunctional areas in the business.Customer satisfaction remains a top priority for the year ahead. Based on the experience gained since the elaboraterestructuring programme, there will be some further refinement of the structure in order to facilitate a more efficient andeffective approach.CONCLUSIONI conclude by thanking you our members and affiliates for your continued support and faith in the management team. YourBoard, as your mouth piece, eyes and ears, have continued to be supportive while holding us accountable by insisting on thehighest forms of corporate governance and legal compliance.I am also grateful to the staff of SAMRO for their hard work and openness to changes that have defined our business overthe last few years. More importantly they are true believers in the purpose for which SAMRO exists, which is “TO CREATEVALUE FOR THE CREATORS AND USERS OF MUSIC”.NICHOLAS MOTSATSECHIEF EXECUTIVE10
CHIEF EXECUTIVE REPORTCHIEF EXECUTIVE REPORTConvenience11
NOTICE OF ANNUAL GENERAL MEETINGNOTICE OF ANNUAL GENERAL MEETINGNOTICE IS HEREBY GIVEN that the forty-seventh <strong>Annual</strong> General Meeting of SAMRO will be held on Friday, 21November <strong>2008</strong>, at 14h30, at SAMRO Place, Ground Floor, 20 de Korte Street, Braamfontein, Johannesburg, for thefollowing purposes:-1. To resolve that the <strong>Report</strong> of the Independent Auditors be taken as read.2. To receive and consider the annual financial statements and group annual financial statements of SAMRO and itssubsidiaries for the year ended 30 June <strong>2008</strong> including the Directors’ <strong>Report</strong> and the <strong>Report</strong> of the IndependentAuditors.3. To elect two publisher directors, Ms Annette Eileen Emdon and Mr Glenn Geoffrey Trefusis-Paynter, who retireby rotation but are eligible and offer themselves for re-election.4. To fix the remuneration of SAMRO’s independent auditors, Messrs Ernst and Young Inc., for the past year’s auditand to re-appoint them as auditors until the next <strong>Annual</strong> General Meeting.5. To transact such other business as may be transacted at an <strong>Annual</strong> General Meeting.A member entitled to attend and vote at the meeting is entitled to appoint a proxy to attend and speak, and on a poll, tovote in the member’s stead. A proxy need not also be a member of SAMRO. Proxy forms must be forwarded to reachthe registered office of the Organisation not less than twenty-four (24) hours before the time for holding the meeting, oradjourned meeting.By order of the BoardCOMPANY SECRETARYJOHANNESBURG22 October <strong>2008</strong>12
CERTIFICATE OF THE COMPANY SECRETARYIn my capacity as Company Secretary, I hereby certify, in terms of the Companies Act 1973, that for the year ended 30 June<strong>2008</strong> the Society has lodged with the Registrar of Companies all such returns as are required of a public company in terms ofthis Act and that all such returns are, to the best of my knowledge and belief, true, correct and up to date.COMPANY SECRETARYJOHANNESBURG22 October <strong>2008</strong>CERTIFICATE OF THE COMPANY SECRETARY13
APPROVAL OF ANNUAL FINANCIAL STATEMENTSDIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTINGAPPROVAL OF ANNUAL FINANCIAL STATEMENTSDIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTINGThe Board of SAMRO Limited (Limited by Guarantee) accepts responsibility for group and company financial statementsof SAMRO. Adequate accounting records have been maintained. The Directors endorse the principle of transparency infinancial reporting.The responsibility of the external auditors, Ernst and Young Inc., is to express an independent opinion on the fair presentationof the financial statements based on their audit of SAMRO and its subsidiaries.The Risk and Audit Committee has confirmed that adequate internal financial control systems are being maintained. Therewere no material breakdowns in the functioning of the internal financial control systems during the year. The Directorsare satisfied that the financial statements fairly present the financial position, the results of operations and cash flows inaccordance with relevant accounting policies, based on International Financial <strong>Report</strong>ing Standards (IFRS).The Board of Directors of SAMRO accepts responsibility for the integrity, objectivity and reliability of the reports on theSAMRO Group. It is also of the opinion that SAMRO is financially sound and operates as a going concern.Pages<strong>Report</strong> of the Independent Auditors 15Directors’ <strong>Report</strong> 16Income Statement 23Balance Sheet 24Statement of Changes in Funds and Reserves 25Cash Flow Statement 26Notes to the <strong>Annual</strong> Financial Statements 27-58DIRECTORSANNETTE EMDONCHAIRMANMOLEFI NICHOLAS MOTSATSECHIEF EXECUTIVE14 November <strong>2008</strong>14
REPORT OF THE INDEPENDENT AUDITORS<strong>Report</strong> on the <strong>Annual</strong> Financial StatementsWe have audited the annual financial statements and group annual financial statements of SAMRO, which comprise thedirectors’ report, the balance sheet as at 30 June <strong>2008</strong>, the income statement, the statement of changes in funds and reservesand cash flow statement for the year then ended, a summary of significant accounting policies and other explanatory notes,as set out on pages 16 to 58.Directors’ Responsibility for the Financial StatementsThe company and group’s directors are responsible for the preparation and fair presentation of these financial statements inaccordance with International Financial <strong>Report</strong>ing Standards, and in the manner required by the Companies Act of SouthAfrica. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation andfair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting andapplying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.Auditor’s ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit inaccordance with International Standards on Auditing. Those standards require that we comply with ethical requirementsand plan and perform the audit to obtain reasonable assurance whether the financial statements are free from materialmisstatement.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 misstatementof the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internalcontrol relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’sinternal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness ofaccounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.REPORT OF THE INDEPENDENT AUDITORSWe believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinionOpinionIn our opinion, these financial statements present fairly, in all material respects, the financial position of the company andgroup as of 30 June <strong>2008</strong>, and of the financial performance and its cash flows for the year then ended in accordance withInternational Financial <strong>Report</strong>ing Standards, and in the manner required by the Companies Act of South Africa.ERNST & YOUNG INC.REGISTERED AUDITORJohannesburg14 November <strong>2008</strong>15
DIRECTORS’ REPORTDIRECTORS’ REPORTTo the membersYour directors have pleasure in submitting their forty-seventh <strong>Annual</strong> <strong>Report</strong> and SAMRO’s Audited Financial Statementsfor the year ended 30 June <strong>2008</strong>.PRINCIPAL ACTIVITIES OF THE GROUPThe SAMRO Group is the largest copyright collective administration group in Southern Africa. During the year underreview, SAMRO was accredited by CIPRO for the purposes of administering the so called Needletime Rights on behalfof Performers of music. This is a material change to the traditional administration of authors’ rights but it is still in linewith the Memorandum of Association of SAMRO. The actual business activities relating to these rights and accompanyingassignments from performers have not commenced due to the difficulty in licensing users by the producers’ association, whichin terms of the Regulations, has an exclusive right to license users. For this reason, Needletime is excluded from the financialreporting contained herein.FINANCIAL REVIEWFINANCIAL HIGHLIGHTSGroup Income• Total Income – R360,3 million (2007 – R322,2 million) +11.8%• Licence & Royalty – R288,4 million (2007 – R249,6 million) +15.6%• Investments – R 61,1 million (2007 – R63,2 million) -3,3%Music Rights Income• Licence and Royalty – R263,5 million (2007 – R226,1 million) +16.5%• Broadcast – R176,2 million (2007 – R159,0 million) +10,8%• General – R 70,5 million (2007 – R61,7 million) +14.3%• Foreign – R 7,3 million (2007 – R5,4 million) +35,6%Literary Rights Income• Reprographic Reproduction – R 22,4 million (2007 – R21,5 million) +4,2%• Other Licence – R 2,5 million (2007 – R2,0 million) +24,9%GROUP REVIEWINCOMETotal Group Income for the year increased from R322,2 million for the year ended June 2007 to R360,3 million for the yearended June <strong>2008</strong>, an increase of R38,1 million or 11,8%. Group Licence and Royalty Income for the year amounted to R288,4million as compared to R249,6 million in 2007, an improvement of R38,8 million or 15,6%.Once again the largest contribution to overall Group Income was from Music Rights, especially the broadcasting of musicalworks. The contribution to Gross Income from Television, both free-to-air and pay services amounted to R97,2 million (2007– R89,3 million) and from Radio R78,6 million (2007 – R69,6 million). General Licence Income, which represents diffusionand public performance of musical works (including cinema) amounted to R70,5 million (2007 – R61,7 million).ADMINISTRATION EXPENSESGroup Administration Expenses in <strong>2008</strong> amounted to R79,5 million as compared to R69,3 million in 2007, an increase of 14,8%.16
DIRECTORS’ REPORTDISTRIBUTIONAmount Distributable for the year under review, before taxation, social and cultural deductions and transfers to reserves,reached R310,3 million as compared to R258,4 million in 2007, an increase of R51,9 million or 20%. Distributions for thegroup for the year after taking into account income tax, social and cultural deductions and amounts transferred to reserveswas determined at R274,1 million compared to R233,4 million in 2007, an increase of R40,7 million or 17,4%.REVIEW OF OPERATIONS FOR SAMRO AND SUBSIDIARIESINCOMEDIRECTORS’ REPORT- SAMRO – MUSIC RIGHTSTotal Licence and Royalty Income of SAMRO for the past year increased by R37,4 million to R263,5 million from R226,1million in 2007. Domestic Licence Income for the year increased by R35,5 million to R256,2 million from R220,7 millionin 2007, an improvement of 16,1%. Income from Broadcasting this year increased by R16,9 million to R175,9 million fromR159,0 million in 2007. General Licence Income (excluding cinema) increased by R8,3 million to R68,2 million from R59,9million in 2007.Income from Foreign Affiliates for the year increased by R1, 9 million to R7,3 million from R5,4 million in 2007. TotalNon-Royalty Income decreased by R0,7 million to R71,9 million from R72,6 million in 2007. Income from Investmentsdecreased by R4,5 million to R58,7 million from R63,2 million in 2007, still better performance compared to forecast. Thisyear, Administration Expenses represent 21,8% (2007 – 22,3%) of SAMRO’s Total Income.- DALRO – LITERARY RIGHTSThe Dramatic Artistic and Literary Rights Organisation (Pty) Ltd (DALRO) continued to show good growth as the turbulencein the tertiary education sector settles. The organisation has turned around its business model as revenue derived from blanketlicensing activities has surpassed that derived from its traditional transactional licences. This year, the wholly owned subsidiaryhas again increased its revenue. DALRO’s Total Licence Income for the past financial year increased by R1,4 million toR24,9 million from R23,5 million in 2007, an improvement of 5,9%. The Reprographic Reproduction Income of DALROcontinued to show growth during the year. Blanket licensing as opposed to transactional licensing, represented 65% of DALROReprographic Reproduction Income, as compared with 57% in 2007. Total Other Licence Income of DALRO for the yearunder review increased by 24,9% to R2,5 million in comparison to R2,0 million in 2007. Administration Expenses represented32,3% of Licensing Income compared with 21,0% in 2007. Reprographic reproduction represents 73,6% of DALRO’s TotalLicence Income.- SAMRO HOUSE HOLDINGSSAMRO House Holdings (Pty) Ltd is the property holding company with its asset being SAMRO House (Pty) Ltd.During the middle of the year under review, SAMRO House (Pty) Ltd acquired a new building, SAMRO Place. While theacquisition of the building was specifically for SAMRO’s accommodation needs, close to 40% of the capacity accommodationis let out to tenants. This will result in increased trading activity for the company.- SAMRO HOUSESAMRO House (Pty) Ltd remains the property company that owns the Braamfontein headquarters of SAMRO. Rentalrevenue grew by 115,6% but operating income decreased for the year under review, due to the purchase of the planned newheadquarters of SAMRO at SAMRO Place, 20 de Korte Street Braamfontein.- GRATIA ARTISGratia Artis (Pty) Ltd remains dormant and no commercial activity took place within this wholly owned subsidiary.17
DIRECTORS’ REPORTDIRECTORS’ REPORT- FIFTEEN MELLE STREETSAMRO holds 59% of the shares in the property company Fifteen Melle Street (Pty) Ltd. The company declared no dividendin the financial year under review. Rental income for the year was R0,13 million down from the previous year by some 15,1%.The year end for 15 Melle Street has been changed to 30 June from 28 February, and financial results to 30 June <strong>2008</strong> havebeen included in the Group Financial Statements.AMOUNT DISTRIBUTABLE- SAMROAmount available for distribution to SAMRO members and affiliated societies for this year is R250,7 million compared withR211,0 million in 2007, an increase of 18,8%. During the year, SAMRO processed its Distribution 46 out of distributionrevenue determined at the 2007 financial year end including Distributions in Progress, resulting in royalty credits distributedto its own members as well as members of affiliated societies of R182,8 million.- DALRODuring the past year, the distribution of royalties to rights holders and affiliates by DALRO was made by way of fourdistributions. This year DALRO’s distributions to rights holders in literary and dramatic works reached R19,3 million ascompared to R16,1 million in 2007, an improvement of R3,2 million or 19,9%.TAXATIONTaxation for the year amounted to R6,9 million (2007 – R2,0 million).DIVIDENDSSAMRO has no share capital and thus does not declare dividends.REVIEW OF GROUP’S FINANCIAL POSITIONThere has been no significant change in the nature of the group’s assets or liabilities during the year.SHARE CAPITALSAMRO, being a Company Limited by Guarantee, has no share capital, and no shares can therefore be issued. No debentureshave been issued, and no wholly owned subsidiary issued any shares or debentures during the accounting period.FIXED ASSETSApart from ongoing investment in SAMRO’s information technology and equipment, the building to house the planned newheadquarters of the Group at 20 de Korte Street Braamfontein was purchased. A fleet of motor vehicles was purchased forthe Sales Representatives.REVALUATION – OTHER INVESTMENTSOther Investments have been valued at market values (unrealised as at the date of this report) in compliance with InternationalFinancial <strong>Report</strong>ing Standards (IFRS).18
DIRECTORS’ REPORTSIGNIFICANT EVENTSMr. Alan Johnston, Deputy CEO and member of the Board of Directors retired in September 2007. Mr. Gregory Zoghbywas appointed as Chief Operating Officer and a member of the Board of Directors with effect from March <strong>2008</strong>.EVENTS SUBSEQUENT TO BALANCE SHEET DATEThere were no significant events subsequent to the balance sheet date.SUBSIDIARY AND ASSOCIATE COMPANIESDIRECTORS’ REPORTThe following figures reflect the nature of business, issued share capital and the effective holding in subsidiary and associatecompaniesName of CompanyNature of BusinessIssued Share Capital<strong>2008</strong> 2007Effective Holding<strong>2008</strong> 2007SubsidiariesRR% %SAMRO House Holdings (Pty) LtdInvestment Holding1 000 1 000100 100SAMRO House (Pty) LtdProperty Holding200 200100 100DALRO (Pty) LtdRights Administration100 100100 100Gratia Artis (Pty) LtdDormant2 2100 100Fifteen Melle Street (Pty) LtdProperty Holding600 60059 59SAMRO IP Technologies(Pty) LtdHolding1 000 1 000100 10019
DIRECTORS’ REPORTDIRECTORS’ INTEREST IN CONTRACTSDIRECTORS’ REPORTNo material contracts involving directors’ interests were entered into in the year under reviewMANAGEMENT BY THIRD PARTYNo part of the business or any subsidiary is managed by a third person or company in which a director has an interest.Dramatic, Artistic and Literary Rights Organisation (Pty) Limited (DALRO) and SAMRO House (Pty) Limited pay servicefees to SAMRO for administrative, accounting, secretarial and management services rendered by SAMRO.COMPOSITION OF SAMRO’S BOARD AND OTHER COMMITTEESComposition of the Risk and Audit, Remuneration and Executive Committees of SAMRO’s Board, as well as that of theCommittee of Trustees of the SAMRO Retirement Annuity Fund and the Board of Trustees of the SAMRO Endowmentfor the National Arts is reflected elsewhere in this <strong>Annual</strong> <strong>Report</strong>.DIRECTORSDuring the year under review Prof. Walter Mony and Mr. Joseph Shabalala resigned and were replaced by Prof. JeannieZaidel-Rudolph and Adv. Steven Kekana respectively.Composers / Lyricists:J S M Khumalo (Vice Chairman)Y MhingaT S KekanaC G de VilliersS C P MabuseJ. Zaidel-RudolphJ E EdmondPublishers:A E Emdon (Chairman)G G Trefusis-Paynter (British)R I KallenbachExecutive Directors:M N Motsatse A M Johnston (resigned 30 August 2007)G J Zoghby (appointed 01 March <strong>2008</strong>)SecretaryJ J Baloyi5th Floor, SAMRO Place P O Box 3160920 de Korte Street 2017 BRAAMFONTEINBRAAMFONTEIN2001 JohannesburgJOHANNESBURG14 November <strong>2008</strong>20
Excellence21
SECTION | TWOIncome StatementBalance SheetStatement of Changes in Funds and ReservesCash Flow StatementNotes to the <strong>Annual</strong> Financial Statements22
INCOME STATEMENTREVENUEIncomeBequests and Donations ReceivedAdministration ExpensesFinance ChargesNet Operating IncomeDistribution Adjustment prior yearsAmount Distributable before TaxationDistributionNet Income before TaxationTaxationNet Income before Social and Cultural AllocationSocial and Cultural AllocationNet Surplus before Transfer to Funds and ReservesNote2.523.13.245678<strong>2008</strong>R’000COMPANY299 364328 858151(71 678)(378)256 95329 422286 375(250 686)35 689(6 373)29 316(14 627)14 6892007R’000252 577292 676107(65 141)-227 6425 342232 984(210 967)22 017(768)21 249(12 952)8 297<strong>2008</strong>R’000330 811360 305151(77 407)(2 138)280 91129 422310 333(274 109)36 224(6 899)29 325(15 042)14 283GROUP2007R’000282 106322 213107(69 305)-253 0155 342258 357(233 449)24 908(1 958)22 950(13 218)9 732INCOME STATEMENTAttributable to:SAMRO LimitedMinority Interest in Fifteen Melle Street (Pty) Ltd14 1831009 6389423
BALANCE SHEETBALANCE SHEETASSETSNon-Current AssetsProperty and EquipmentInvestment PropertyInvestment in SubsidiariesDeferred TaxInvestment in AssociatesAvailable for Sale InvestmentsTotal Non-Current AssetsNote101112.1141315<strong>2008</strong>R’00015 622-17512 066-299 680327 543COMPANY2007R’00011 444-1754 204-332 688348 511<strong>2008</strong>R’00022 89063 110-12 066-299 703397 769GROUP2007R’00018 8862 850-4 2042 500332 711361 151Current AssetsTrade and Other ReceivablesInventoryTaxationCash and Cash EquivalentsLoans to SubsidiariesTotal Current Assets1617262912.245 245123-167 98545 266258 61919 260-1 263148 90712 380181 81048 052343-198 846-247 24120 001192596179 242-200 031Total Assets586 162530 321645 010561 182FUNDS AND LIABILITIESFunds and ReservesGeneral ReserveTechnological Development FundUnrealised Gains ReserveNon Distributable ReserveSocial and Cultural FundsMinority Shareholders InterestTotal Funds and Reserves2238 24920 01897 546-23 028178 841-178 84122 38719 549130 609-20 155192 700-192 70040 59320 01897 5463 30126 581188 039468188 50725 23719 549130 6093 30123 158201 854368202 222Non Current LiabilitiesPost-Employment Medical BenefitLoansTotal Non Current Liabilities181918 443-18 44317 726-17 72618 44328 35246 79517 72673418 460Current LiabilitiesFor DistributionTaxationDistributions in ProgressTrade and Other PayablesProvisionsTotal Current Liabilities2026212324272 1892 50487 10422 7564 325388 878219 082-88 4909 0513 272319 895289 3233 69887 10424 6404 943409 708237 588-88 49010 5323 890340 500Total Funds and Liabilities586 162530 321645 010561 18224
STATEMENT OF CHANGES IN FUNDS AND RESERVES COMPANYSTATEMENT OF CHANGES IN FUNDS AND RESERVES COMPANYBalance at 30 June 2006Surplus for the YearRevaluation of investmentsTransfer to Social and Cultural FundsCorrection prior year deferred taxTransfer from unrealised gainsBalance at 30 June 2007Surplus for the YearTransfer to Social and Cultural FundsPrior year deferred tax adjustmentMechanical Rights Special DistributionRevaluation of investmentsBalance at 30 June <strong>2008</strong>Note8822GeneralReserve15 6442 797--3 72821822 3879 189-6 673--38 249TechnologicalDevelopmentFund14 0495 500----19 5495 500--(5 031)-20 018UnrealisedGainsReserve103 756-27 071--(218)130 609----(33 063)97 546Social andCulturalFunds15 964--4 191--20 155-2 873---23 028Total149 4138 29727 0714 1913 728-192 70014 6892 8736 673(5 031)(33 063)178 841STATEMENT OF CHANGES IN FUNDS ANDRESERVES COMPANYSTATEMENT OF CHANGES IN FUNDS AND RESERVES GROUPNoteGeneralReserveTechnologicalDevelopmentFundUnrealisedGainsReserveSocial andCulturalFundsNDRTotalMinorityInterestsTotal FundsandReservesBalance at 30 June 200617 35014 049103 63117 104-152 134195152 329Surplus for the YearRevaluation of investmentsTransfer to Social and Cultural FundsCorrection prior year deferred taxRevaluation of land and buildingsReallocation from equityBalance at 30 June 20078104 138--3 728-2125 2375 500-----19 549-27 071---(93)130 609--6 054---23 158----3 301-3 3019 63827 0716 0543 7283 301(72)201 85494---128(49)3689 73227 0716 0543 7283 429(121)202 222Surplus for the YearRevaluation of investmentsTransfer to Social and Cultural FundsMechanical Rights special distributionPrior year deferred tax adjustmentBalance at 30 June <strong>2008</strong>8228 683---6 67340 5935 500--(5 031)-20 018-(33 063)---97 546--3 423--26 581-----3 30114 183(33 063)3 423(5 031)6 673188 039100----46814 283(33 063)3 423(5 031)6 673188 50725
CASH FLOW STATEMENTCASH FLOW STATEMENTCASH FLOWS GENERATED FROMOPERATING ACTIVITIESCash Generated from Licensing OperationsFinance CostsInterest from SubsidiariesDividends receivedInterest receivedOtherCash Flow from OperationsTaxation PaidRoyalty Non-Royalty and Social Distributions to Members andAffiliated SocietiesApplied to Social and Cultural OperationsTotal Net Cash Flows Generated from Operating ActivitiesNote253302.32.330262722.2<strong>2008</strong>R’000186 117(378)8156 37022 8544 248220 026(3 795)(182 784)(11 904)21 543COMPANY2007R’000136 987-4665 41417 8221 285161 974(6 721)(128 347)(8 760)18 146<strong>2008</strong>R’000219 838(2 138)-6 37025 252-249 322(3 795)(213 647)(12 528)19 352GROUP2007R’000178 277--5 41417 822-201 513(8 233)(158 539)(7 164)27 577CASH FLOWS GENERATED FROMFINANCING ACTIVITIESFinancing ActivitiesIncrease/(Decrease) in Mortgage BondBequests and DonationsTotal Net Cash Flows Generated from Financing Activities-151151-10710727 61815127 769(13)10794CASH FLOWS GENERATED FROMINVESTING ACTIVITIESInvestment to Expand OperationsAdditions to Property and EquipmentSale/(Purchase) of interest in AssociatePurchase of investment propertyDecrease/(Increase) in Loans to SubsidiariesInvestment to Maintain OperationsProceeds on Disposal of Property and EquipmentNet Disposal/(Acquisition) of InvestmentsTotal Net Cash Flows Generated fromInvesting Operating Activities1028.11128.128.2(6 356)2 500-(35 386)32236 304(2 616)(1 931)(2 500)-358238(27 601)(31 436)(6 383)2 500(60 260)-32236 304(27 517)(2 027)(2 500)--238(27 601)(31 890)Net (Decrease) / Increase in Cash and Cash Equivalents19 078(13 183)19 604(4 219)Cash and Cash Equivalents at the beginning of the YearCash and Cash Equivalents at the End of the Year29148 907167 985162 090148 907179 242198 846183 461179 24226
NOTES TO FINANCIAL STATEMENTS1. ACCOUNTING POLICIESThe principal accounting policies applied in the preparation of these consolidated financial statements are set out below.These policies have been consistently presented, unless otherwise stated.1.1 Corporate InformationThe consolidated financial statements of the Southern African Music Rights Organisation (SAMRO) Limited and itssubsidiaries (the Group) for the year ended 30 June <strong>2008</strong> were authorised for issue in accordance with a resolution of thedirectors on 14 November <strong>2008</strong>. SAMRO Limited is a company Limited by Guarantee with no share capital and is incorporatedand domiciled in the Republic of South Africa. The principal activities of the group are described in the Director’s <strong>Report</strong>.1.2 Basis of PreparationThe consolidated financial statements of the Group have been prepared on the historical cost basis, except where otherwisenoted. The consolidated financial statements comprise the financial statements of SAMRO Limited and its subsidiaries asdisclosed below in the note on Basis of consolidation. The consolidated financial statements have been presented in SouthAfrican Rands and all values are rounded to the nearest thousand.NOTES TO FINANCIAL STATEMENTSStatement of ComplianceThe consolidated financial statements of the Group have been prepared in accordance with International Financial <strong>Report</strong>ingStandards (IFRS) and the requirements of the South African Companies Act, Act 61 1973 as amended.Basis of ConsolidationThe consolidated financial statements comprise the financial statements of SAMRO Limited and all its subsidiaries as at 30June <strong>2008</strong>.Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtains control, andcontinue to be consolidated until the date that such control ceases.The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistentaccounting policies.All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions areeliminated in full.Minority interests represent the portion of profit or loss and net assets in Fifteen Melle Street (Proprietary) Limited not heldby the Group and are presented separately in the income statement and within funds and reserves in the consolidated balancesheet from the parent members’ funds and reserves.Changes in Accounting Policy and DiclosuresThe accounting policies adopted are consistent with those of the previous financial year except as follows:The Group has adopted the following new and amended IFRS and IFRIC interpretations during the year. Adoption of theserevised standards and interpretations did not have any effect on the financial performance or position of the Group. They didhowever give rise to additional disclosures, including in some cases, revisions to accounting policies• IFRS 7 Financial Instruments: Disclosures• IAS 1 Amendment – Presentation of Financial Statements27
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSIFRS 7 Financial Instruments: DisclosuresThis standard requires disclosures that enable users of the financial statements to evaluate the significance of the Group’sfinancial instruments and the nature and extent of risks arising from those financial instruments. The new disclosures areincluded throughout the financial statements. While there has been no effect on the financial position or results, comparativeinformation has been revised where needed.IAS 1 Presentation of Financial StatementsThis amendment requires the Group to make new disclosures to enable users of the financial statements to evaluate theGroup’s objectives, policies and processes for managing capital. These new disclosures are shown in Note 321.3 Significant Accounting Judgements, Estimates and AssumptionsThe preparation of the Group’s financial statements requires management to make judgements, estimates and assumptionsthat affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at thereporting date. However, uncertainty about these assumptions and estimates could result in outcomes that could require amaterial adjustment to the carrying amount of the asset or liability affected in the future.JudgementsIn the process of applying the Group’s accounting policies, management has made the following judgement, apart from thoseinvolving estimations, which has the most significant effect on the amounts recognised in the financial statements.Operating Lease Commitments – Group as LessorThe Group has entered into commercial property leases on its investment property portfolio. The Group has determined,based on an evaluation of the terms and conditions of the arrangements, that it retains all the significant risks and rewards ofownership of these properties and so accounts for the contracts as operating leases.Estimates and AssumptionsThe key assumptions concerning the future and other key sources of estimation uncertainty at the balance sheet date, thathave a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the nextfinancial year, are discussed below.1.3.1 Recognition of Licence RevenueLicence revenue arises out of annual invoiced blanket licence assessments, except for major broadcasters, which are assessedon a monthly basis. Management judge it imprudent to accrue as revenue, the total invoiced licence assessments, as suchthe outstanding invoiced licence revenue is assessed and a provision for doubtful debts is raised based on the likelihood ofcollection of the full amount due.1.3.2 Determination of Social and Cultural Allocations, Transfers to/from Reserves and Amounts for DistributionIn the determination of the amounts for distribution, management together with the board, use their judgement to determinethe amounts to be set aside for future development and Social and Cultural allocations. The amounts transferred to or fromthe General Reserve and Development Reserve and the Amounts for Distribution are consequently determined.1.3.3 Carrying Value of Property and EquipmentIn determining the carrying value of property and equipment, management exercise their judgement in the estimation ofuseful lives and residual carrying values of individual and groups of assets.1.3.4 Carrying Value held to maturity Investments and/or Loans and ReceivablesThe group assesses its Trade Receivables and held to maturity investments and/or loans and receivables for impairment at each balancesheet date. In determining whether an impairment loss should be recorded in the income statement, the group makes judgements asto whether there is observable data indicating a measurable decrease in the estimated future cash flows from a financial asset.28
NOTES TO FINANCIAL STATEMENTS1.3.5 Distributions in ProgressManagement exercise their judgement in determining the number of prior distribution periods provided for, and the valuationof distributions in progress.1.3.6 Impairment TestingThe recoverable amounts of cash-generating units and individual assets are reviewed at each reporting date and have beendetermined based on the higher of “value-in-use” calculations and fair value less costs to sell. These calculations require theuse of estimates and assumptions which is subject to risk and uncertainties. It is reasonably possible that the assumption maychange which may then impact on estimations and may then require a material adjustment to the carrying value of assets.1.3.7 Post Employment BenefitsThe post employment benefits disclosed in the annual financial statements require actuarial valuation on an annual basis. Thisincludes a number of assumptions and estimates by the actuaries which are disclosed in the notes. [Refer Note 31]1.3.8 Deferred Tax AssetA deferred tax asset has been raised as the management of the Group believe that future taxable profits will be availableagainst which the deferred tax asset can be offset.NOTES TO FINANCIAL STATEMENTS1.4 Unlisted InvestmentsUnlisted investments are valued by an external independent professional valuer every second year.1.5 Principle Accounting PoliciesThe following are the principle accounting policies which unless otherwise stated conform to IFRS. These policies areconsistent for both years disclosed.1.5.1 Income and Revenue RecognitionIncomeIncome for the Group is all increases in economic benefits during the accounting period that result in increases in members’funds available for distribution. Income comprises both revenue and gains.RevenueRevenue for the Group is determined as income that arises in the course of ordinary activities in the organisation. Revenuefor the Group comprises revenue earned from licensing activities, dividends, interest revenue, rental revenue, investmentactivities, administration fees and the hire and sale of dramatic literature. Revenue excludes profit or losses from the sale ofproperty, plant and equipment, and from investments. Revenue is measured at the fair value of the consideration received,excluding discounts, rebates and other sales taxes or duty.Income from License and Royalty OperationsLicence fees are based on licence assessments for the use of music within the group’s repertoire. Licence fees are accountedfor on an accrual basis. Foreign royalty income received from affiliated societies attributable to music represents the royaltieswithin SAMRO’s repertoire in those territories and is recognised on a receipt basis, as the substance of the agreementindicates that it is more appropriate to recognise revenue on a receipt basis, as SAMRO neither determines nor invoices thisincome.Licence fees for literary, dramatic and artistic works are accounted for on an accrual basis.29
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSInvestment IncomeExcept for interest on Government Bonds and Stocks, interest is recognised on a time proportion basis according to theeffective interest rate method which takes into account the effective yield on the asset over the period it is expected to be held.Interest on Government Bonds and Stocks is recognised on an accrual basis, interest is raised at year end for the proportionateshare of interest earned but not yet received up to the accounting date. Dividends are recognised when the shareholders rightto receive dividends is established.Rental IncomeRent is recognised over the accounting period and is accrued in the financial statements based on the underlying rentalagreements.Administration FeesAdministration fees are recognised on the basis of pre-determined rates in terms of existing service agreements and areaccrued monthly and confirmed annually.1.5.2 DistributionThis amount represents net revenue from licence revenue available for allocation in royalty distributions and net non-licencerevenue for allocation in the non-licence revenue distribution per the income statement. Royalty distributions are standardprocesses, whereby net licence income from the licensing of Public Performance, Broadcast and Diffusion Rights in musicalworks, owned by those whose rights are administered by SAMRO is allocated in the form of royalties to those rights holderswhose musical works were logged as performed, broadcast or played by licensed users of music. The Non-Royalty Distributionsare standard processes, whereby non-licence revenue is allocated to members and affiliated societies in accordance with theorganisation’s established rules, practices and procedures. Amounts pertaining to distributions in progress, which remainundistributed after a period of three years as well as allocations for public domain shares and distribution corrections arewritten back to current income for re-distribution in the Income Statement.1.5.3 Transfers to Social and Cultural FundsAllocations to social and cultural funds are made expressly for the purpose of the social well being of writer members andpromotion of the national arts, and are determined and approved by SAMRO’S board of directors. The allocation comprisesbequests and donations received and a deduction from net SAMRO licence revenue. The deduction is made in terms of theprovisions contained in the standard CISAC approved reciprocal agreement as adopted by SAMRO. Net SAMRO licencerevenue is determined by deducting licensing administration expenses from gross licence revenue for SAMRO territory. Thededuction is applied to the SAMRO Retirement Annuity Fund (SRAF) and the SAMRO Endowment for the National Arts(SENA).1.5.4 Property and EquipmentAn item of property and equipment is recognised as an asset when:- it is probable that future economic benefits associated with the item will flow to the entity; and- the cost of the item can be measured reliably.Property, plant and equipment is initiallly recognised at cost. Subsequent to initial recognition, plant and equipment isrecorded at cost, excluding the costs of day to day servicing less accumulated depreciation and any accumulated impairmentin value. Costs include costs incurred initially to acquire or construct an item of property and equipment and costs incurredsubsequently to add to, replace part of, or refurbish the asset. [Refer Note 10].Freehold land and buildings are held as either owner occupied or investment property.SAMRO House is considered as an owner occupied property and is stated at cost, plus any appreciation on revaluation, lessaccumulated depreciation and any impairment in value. The building and improvement costs are depreciated on a straight-30
NOTES TO FINANCIAL STATEMENTSline basis over the expected economic life of the property. The group’s policy in respect of this property is to obtain anindependent valuation of the property on a regular basis. Any increase in value is recognised on the balance sheet.Equipment, consisting of Furniture and Fittings, Computer Information Systems and Motor Vehicles are shown at cost, lessaccumulated depreciation and any accumulated impairment losses. Each part of an item of property and equipment, with acost that is significant in relation to the total cost of the item shall be depreciated separately. [Refer Note 10].Depreciation is provided on each item of property and equipment, other than freehold land, to write down the cost, lessresidual value, on a straight line basis over their useful lives are as follows:- Fixed Property - Office Block 2.0%- Furniture, Fittings and Equipment - 16.67% to 20%- Computer Information Systems - 16.67% to 33.33%- Motor Vehicles - 20%The residual value and the useful life of each asset group are reviewed at least at each financial year-end.NOTES TO FINANCIAL STATEMENTSThe depreciation charge for each period is recognised in the income statement. The depreciation methods are re-assessed atleast at each financial year end.The gain or loss arising from de-recognition of an item of property and equipment is included in the income statement whenthe item is de-recognised. The gain or loss arising from de-recognition of an item of property and equipment is determinedas the difference between the net disposal proceeds, if any, and the carrying amount of the item.1.5.5 Investment PropertiesInvestment property comprises land or buildings held to earn rentals or for capital appreciation or both.Investment property is measured initially at cost including transaction cost. The carrying amount includes the cost of replacingpart of an existing investment property at the time the cost is incurred if the recognition criteria are met; and excludes thecosts of day to day servicing of an investment property. Subsequent to initial recognition, investment properties are stated atfair value, which reflects market conditions at the balance sheet date.Investment properties are derecognised when either they have been disposed of or when the investment property is permanentlywithdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement ordisposal of an investment property are recognised in the income statement in the year of retirement or disposal. Transfers aremade to or from investment property only when there is a change in use. For a transfer from investment property to owneroccupied property, the deemed cost for subsequent accounting is the fair value at the date of change in use. If owner occupiedproperty becomes an investment property, the group accounts for such property in accordance with the policy stated underproperty, plant and equipment up to the date of change in use.1.5.6 Financial InstrumentsFinancial instruments recognised on the balance sheet include cash and cash equivalents, available for sale investments, tradeand other receivables, loans receivable and trade and other payables.31
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSFair ValueThe fair value of investments that are actively traded in organised financial markets is determined by reference to quotedmarket bid prices at the close of business on the balance sheet date. For investments where there is no active market, fair valueis determined using valuation techniques. Such techniques include using recent arm’s length market transactions; referenceto the current market value of another instrument which is substantially the same; discounted cash flow analysis or othervaluation methods.Amortised CostHeld-to-maturity investments and loans and receivables are measured at amortised cost. This is computed using the effectiveinterest method less any allowance for impairment. The calculation takes into account any premium or discount on acquisitionand includes transaction costs and fees that are an integral part of the effective interest rate.Credit RiskThe Group’s material exposure to credit risk is in its investments, receivables, deposits and cash balances. Receivablesrepresent amounts owed to the company in terms of their licence agreements. The objective of the risk management policy isto safeguard the value of the Group’s assets and minimise bad debts. The maximum exposure to credit risk is reflected in thebalances of trade and other receivables.Interest Rate RiskThe Group’s exposure to the risk of changes in the market interest rates relates primarily to the Group’s term deposits whichare invested at floating interest rates and the long term debt obligations with floating interest rates.The Group’s policy is to manage its investments in such a way as to minimise exposure to interest rate risk and to negotiatethe most favourable interest rates available with its bankers.The long term debt obligation is monitored closely and the interest cost versus the return on investment is compared, debtlevels are maintained to ensure that the interest cost does not exceed the return on investment.Liquidity RiskThe Group’s liquidity risk is its exposure to meet its royalty distribution obligations in terms of predetermined distributiondates as well as being able to meet its operational financial obligations when they fall due. This risk is managed by regularlyundertaking cash flow projections and ensuring that the appropriate level of funds are invested in such instruments that arereadily convertible to cash as and when requested.Initial recognition and measurementThe group classifies financial instruments or their component parts on initial recognition as a financial asset, a financialliability or an equity instrument in accordance with the substance of the contractual arrangement. All financial instrumentsare initially recognised at fair value. Transaction costs for financial instruments not classified as fair value through profit andloss are included in the carrying amount of the financial asset.Investments are recognised and de-recognised on a trade date basis where the purchase or sale of an investment is under acontract, whose terms require delivery of the investment within the timeframe established by the market concerned.Subsequent measurementAvailable-for-sale investments are measured at fair value. Fair value for listed investments is the active market value per thestock exchange listing price, Gains and losses arising from changes in fair value are recognised as a separate component ofequity until the investment is sold or otherwise disposed of, or until the investment is determined to be impaired, at whichtime the cumulative gain or loss previously reported in equity is included in the income statement for the period. All listedinvestments are held in this category.32
NOTES TO FINANCIAL STATEMENTSSubsequently the financial instruments are accounted for as follows:Cash and Cash EquivalentsCash and short-term deposits in the balance sheet comprise cash at banks and in hand deposits in money market accountsand short-term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flowstatement, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts.The carrying amount of cash and cash equivalents is stated at amortised cost. [Refer Note 29].Other InvestmentsLoans and ReceivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an activemarket. After initial measurement, loans and receivables are carried at amortised cost using the effective interest methodless any allowance for impairment. Gains and losses are recognised in profit or loss when the loans and receivables arederecognised or impaired, as well as through the amortisation process. Trade receivables are payable 30 days from the dateof invoice and no interest is charged.NOTES TO FINANCIAL STATEMENTSLoans and PayablesLoans and payables are carried at cost which is the fair value of the consideration to be paid in the future for goods andservices received, whether or not billed to the Company. Gains and losses are recognised in the income statement. Tradepayables are payable 30 days from the date of statement and do not attract interest.Impairment of Financial AssetsThe company assesses at each balance sheet date whether a financial asset or group of financial assets is impaired.Assets carried at amortised costIf there is objective evidence that an impairment loss on loans and receivables carried at amortised cost has been incurred, theamount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated futurecash flows (excluding future expected credit losses that have not been incurred) discounted at the financial asset’s originaleffective interest rate (ie the effective interest rate computed at initial recognition). The carrying amount of the asset is reducedthrough use of an allowance account. The amount of the loss shall be recognised in profit or loss.The company first assesses whether objective evidence of impairment exists individually for financial assets that are individuallysignificant, and individually or collectively for financial assets that are not individually significant. If it is determined that noobjective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset isincluded in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectivelyassessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continuesto be recognised are not included in a collective assessment of impairment.If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to anevent occurring after the impairment was recognised, the previously recognised impairment loss is reversed. Any subsequentreversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceedits amortised cost at the reversal date.In relation to trade receivables, a provision for impairment is made when there is objective evidence (such as the probability ofinsolvency or significant financial difficulties of the debtor) that the company will not be able to collect all of the amounts dueunder the original terms of the invoice. The carrying amount of the receivable is reduced through use of an allowance account.Impaired debts are derecognised when they are assessed as uncollectable.33
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSDerecognition of financial assets and liabilitiesFinancial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:• the rights to receive cash flows from the asset have expired;• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in fullwithout material delay to a third party under a ‘pass through’ arrangement; or• the Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantiallyall the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks andrewards of the asset, but has transferred control of the asset.Where the Group has transferred its rights to receive cash flows from an asset and has neither transferred nor retainedsubstantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of theGroup’s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferredasset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration thatthe Group could be required to repay.Where continuing involvement takes the form of a written and/or purchased option (including a cash settled option orsimilar provision) on the transferred asset, the extent of the Group’s continuing involvement is the amount of the transferredasset that the Group may repurchase, except that in the case of a written put option (including a cash settled option or similarprovision) on an asset measured at fair value, the extent of the Group’s continuing involvement is limited to the lower of thefair value of the transferred asset and the option exercise price.Financial liabilitiesA financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of anexisting liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liabilityand the recognition of a new liability, and the difference in the respective carrying amounts is recognised in the income statement.1.5.7 Impairment of Non-Financial AssetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any such indicationexists or when annual impairment testing for an asset is required, the Group makes an estimate of the asset’s recoverable amount.An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use andis determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those fromother assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is consideredimpaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and therisks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations arecorroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.Impairment losses of continuing operations are recognised in the income statement in those expense categories consistent withthe function of the impaired asset, except for property previously revalued where the revaluation was taken to equity. In this casethe impairment is also recognised in equity up to the amount of any previous revaluation.For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previouslyrecognised impairment losses may no longer exist or may have decreased. If such an indication exists, the Group makes anestimate of the recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in theestimates used to determine the assets recoverable amount since the last impairment loss was recognised. If that is the case thecarrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount34
NOTES TO FINANCIAL STATEMENTSthat would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Suchreversal is recognised in the income statement unless the asset is carried at revalued amount, in which case the reversal is treatedas a revaluation increase. Impairment losses recognised in relation to goodwill are not reversed for subsequent increases in itsrecoverable amount.1.5.8 Key Management PersonnelKey management personnel are those personnel who by virtue of their office are able to influence strategic decisions. Managementconsider key management to include Non Executive Directors, Executive Directors and General Managers.1.5.9 InventoryInventory comprising of publications of literary, dramatic, and musical dramatic works for sale or for hire. Inventory is valuedat the lower of cost , calculated using the weighted average method, and net realisable value. When inventories are sold, thecarrying amounts of those inventories are recognised as an expense in the period in which the related revenue is recognised.The amount of any write-down of inventories to net realisable value and all losses of inventories are recognised as an expensein the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from anincrease in net realisable value, are recognised as a reduction in the amount of inventories recognised as an expense in theperiod in which the reversal occurs.NOTES TO FINANCIAL STATEMENTS1.5.10 TaxationCurrent Income TaxCurrent income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recoveredfrom or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted orsubstantively enacted by the balance sheet date.Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.Deferred Income TaxDeferred income tax is provided using the liability method on temporary differences at the balance sheet date between the taxbases of assets and liabilities and their carrying amounts for financial reporting purposes.Deferred income tax liabilities are recognised for all taxable temporary differences, except:• Where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in atransaction that is not a business combination, and at the time of the transaction, affects neither the accountingprofit nor taxable profit or loss; and• In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests injoint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable thatthe temporary differences will not reverse in the foreseeable future.Deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits andunused tax losses to the extent that it is probable that taxable profit will be available against which the deductible temporarydifferences and the carry forward of unused tax credits and unused tax losses can be utilised except:• Where the deferred income tax asset relating to the deductible temporary difference arises from the initialrecognition of an asset or liability in a transaction that is not a business combination and, at the time of thetransaction, affects neither the accounting profit nor the taxable profit or loss; and• In respect of deductible temporary differences associated with investments in subsidiaries, associates and interestsin joint ventures, deferred income tax assets are recognised only to the extent that it is probable that the temporarydifferences will reverse in the foreseeable future and taxable profit will be available against which the temporarydifferences can be utilised.35
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSThe carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is nolonger probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.Unrecognised deferred income tax assets are reassessed at each balance sheet date and are recognised to the extent that it hasbecome probable that future taxable profit will allow the deferred tax asset to be recovered.Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset isrealised or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the balancesheet date.Deferred income tax relating to items recognised directly in equity is recognised in equity and not in the income statement.Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assetsagainst current tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority1.5.11 Funds and ReservesGeneral ReserveTransfers to or from the reserves are at the discretion of the Board. The retained income of the Dramatic, Artistic and Literary RightsOrganisation (Proprietary) Limited (DALRO), the unexpended grants in Gratia Artis (Proprietary) Limited, and the company’sattributable share of the subsidiary company’s retained income since acquisition are treated as part of the General Reserve.Development FundTransfers to the fund are at the discretion of the Board with the object of setting aside amounts deemed necessary for futureregional copyright administration and technological and business development within the group. The utilisation of this fundcomprises identified expenditure incurred which is considered to be related to development and is recorded as transfer from thefund.Unrealised Gains ReserveGains and losses arising from changes in fair value are recognised as a separate component of equity until the investment issold or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or losspreviously reported in equity is included in the income statement for the period.Social and Cultural FundsAllocations to social and cultural funds are made expressly for the purpose of the social well being of writer members andpromotion of the national arts, and are determined and approved by SAMRO’s board of directors. The allocation comprisesbequests and donations received and a deduction from net SAMRO licence revenue. The deduction is made in terms of theprovisions contained in the standard CISAC approved reciprocal agreement as adopted by SAMRO.1.5.12 Distribution in ProgressDistributions in progress comprise amounts pertaining to royalty allocations made in the previous three distribution periods,to works or rights holder shares that cannot be distributed in accordance with established distribution rules, standards,practices and procedures. These allocations are retained to allow on-going research in respect of identification of the worksand rights holder shares and obtaining the necessary documentation and complying with the required documentation updateprocedures. Until such time as the necessary identification, contractual information and other documentation is obtainedand processed, such royalties cannot be correctly distributed. The amounts are retained until such time as they are dulydistributed as royalties or written back to income.36
NOTES TO FINANCIAL STATEMENTS1.5.13 Employee BenefitsRetirementThe Company has a retirement benefit plan for all permanent employees that provide amongst other benefits a pension of 1/50thof final emolument per year of pensionable service. The full details of the benefits payable by the scheme can be found in theregistered rules of the scheme. The plan is an approved defined benefit plan and is governed by a Board of Trustees in accordancewith the Rules of the Fund and the Pension Funds Act of 1956 as amended, in terms of which valuations should be performedevery three years. Any shortfall that may occur is required to be funded by the Company and written-off against income.The retirement benefit plan is funded by payments from employees and the Company, taking account of the recommendationsof independent actuaries.The administration of payment of the monthly pension benefit to the pensioners has beenoutsourced by the fund. The pension plan assets are invested in a balanced portfolio managed by Trail Finders (Pty) Limitedand administered by Investment Solutions (Pty) Limited and direct investment in shares.In the case of the defined benefit fund the related benefit costs and obligations are assessed using the projected unit creditmethod. Under this method, the cost of providing benefits is charged to the income statement so as to spread the regular costsover the service lives of employees in accordance with the advice of the actuaries who perform a statutory valuation of the planevery three years and a valuation for financial reporting purposes annually. The net surplus or deficit in the benefit obligationis the difference between the present value of the funded obligation and the fair value of plan assets. Where a positive fundedstatus is disclosed, no asset has been recognised by the Company. The disclosure of funded status does not necessarily indicateany assets available to the Company.NOTES TO FINANCIAL STATEMENTSThe portion of actuarial gains and losses recognised is the excess over the greater of:-10% of the present value of the defined benefit obligation at the end of the previous reporting period (before deductingplan assets); and10% of the fair value of any plan assets at the same date, divided by the expected average remaining working lives of theemployees participating in the fund.Ownership of SurplusThe funded status disclosed in the valuation of the fund for accounting purposes can be significantly different from thatdisclosed by a funding valuation. The surplus assets disclosed by the accounting valuation have been treated in the mannerprescribed by IAS 19. Ownership of surplus in a pension fund has historically been a contentious issue, but has now beenaddressed by way of the Pension Funds Second Amendment Act. The disclosure of the funded status is for accountingpurposes only, and does not indicate available assets to the Company.MedicalThe Company provides defined benefit health care for the benefit of the employees. The present value of the post employmentmedical benefits for retired employees is actuarially determined annually using the projected unit credit method and anydeficit is recognised immediately in the income statement. This benefit is unfunded.Short-Term BenefitsThe cost of all short-term employee benefits, such as salaries, bonuses, housing allowances, medical and other contributionsare recognised during the period in which the employee renders the related service.1.5.14 ProvisionsProvisions are recognised where the Group has a present legal or constructive obligation as a result of a past event, a reliableestimate of the obligation can be made and it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation. Where the time value of money is material, the amount of a provision shall be the present37
value of the expenditures expected to be required to settle the obligation.NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS1.5.15 LeasesThe determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangements at inceptiondate of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangementconveys a right to use the asset.Group as LesseeFinance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item,are capitalised at the inception of the lease at the fair value of the leased property or, if lower, at the present value of theminimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability, soas to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are reflected in profit or loss.Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term, if there isno reasonable certainty that the Group will obtain ownership by the end of the lease term.Operating lease payments are recognised as an expense in profit or loss on a straight line basis over the lease term.Group as LessorLeases where the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified asoperating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leasedasset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised in revenue inthe period in which they are earned.1.5.16 Foreign CurrenciesForeign currency transactions are recorded at the exchange rate ruling on the transaction date. Assets and liabilities designatedin foreign currencies are translated at rates of exchange ruling at balance sheet date. Foreign currency gains and losses arecharged to the income statements.1.6. Statements Issued and not yet EffectiveThe Group has not applied various IFRS and IFRIC interpretations that have been issued but are not yet effective and doesnot plan on early adoption. These are as follows:• IFRS8 Operating Segments – effective date 1 January 2009• IAS23 Borrowing Costs – Revised – effective date 1 January 2009• IAS1R Amendment – Presentation of Financial Statements- effective date 1 January 2009• IFRS2R Amendment – Vesting Conditions and Cancellations – effective date 1 January 2009• IFRS3R Amendment– Business Combinations – effective date 1 July 2009• IAS27R Amendment – Consolidated and Separate Financial Statements – effective date 01 July 2009• IAS32R and IAS1R Amendment – Puttable Financial Instruments and Obligations Arising on Liquidation –effective date 01 January 20091.7. Business CombinationsBusiness combinations are accounted for using the purchase method.38
NOTES TO FINANCIAL STATEMENTSRelationships39
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS2. INCOME2.1 LICENCE AND ROYALTY INCOMEMusic RightsPerforming RightsMechanical RightsTotal SAMRO TerritoryRoyalties from Affiliated SocietiesTotal Music RightsLiterary and Dramatic RightsReprographic Reproduction Income- Blanket- TransactionalOther Licences- Primary Rights- HiringTotal Literary and Dramatic Rights<strong>2008</strong>R‘000328 858246 7609 449256 2097 301263 510COMPANY2007R‘000292 676220 675-220 6755 384226 059<strong>2008</strong>R‘000360 305246 7609 449256 2097 301263 51014 5387 90322 4412 2312602 49124 932GROUP2007R‘000322 213220 675-220 6755 384226 05913 4508 08721 5371 6263691 99523 532Sundry and Grand Rights-8-8Total Licence and Royalty Income263 510226 067288 442249 5992.2 INCOME FROM SUBSIDIARY COMPANIESInterestAdministration, Computer and Management FeesTotal Income from Subsidiary Companies8154 2485 0634661 2851 7512.3 INVESTMENTSAvailable for Sale InvestmentsDividendsInterest from Debentures and Loan StockInterest from Bonds and NotesInterest from Short Term InvestmentsGain on Disposal of SharesTotal Income from Available for Sale Investments6 3706 4716 6069 77729 49458 7185 4145 2504 6177 95539 98763 2236 3706 4716 60612 17529 49461 1165 4145 2504 6177 95539 98763 2232.4 OTHER INCOMEAdministration FeesInterest on loans and cash balancesRentSundry Incidental IncomeGain on Disposal of Property and EquipmentHire and Sale of Dramatic LiteratureTotal Other IncomeTotal Income601966----1 567328 858653870--112-1 635292 6766 0641 3183 323--4210 747360 3055 9682 3828648112579 391322 2132.5 REVENUETotal IncomeGain on Disposal of InvestmentsGain on Disposal of Property and EquipmentSundry and Incidental IncomeTotal Revenue328 858(29 494)--299 364292 676(39 987)(112)-252 577360 305(29 494)--330 811322 213(39 987)(112)(8)282 10640
NOTES TO FINANCIAL STATEMENTS3. EXPENSES3.1 ADMINISTRATION EXPENSESAccommodation CostsOperating CostsPersonnel CostsPost Employment Medical CostMarketing CostLoss on Disposal of Property and EquipmentOther CostsTotal Administration ExpensesIncluded in Other Costs are:Auditors RemunerationFees – Current ProvisionFees – Under Provision Previous YearsOther Services<strong>2008</strong>R’00071 6782 84611 99347 7757172 1262485 97371 678COMPANY70180-7812007R’00065 1411 92913 44037 1874 8711 561-6 15365 14141711335565<strong>2008</strong>R’00077 4072 34413 20051 5067172 1702487 22277 407GROUP80880-8882007R’00069 3051 14914 46839 9284 8711 662-7 22769 30550411335652NOTES TO FINANCIAL STATEMENTSInvestment Managers’ FeesIncluded in Operating Costs:DepreciationFurniture and EquipmentComputer Information SystemsMotor VehiclesBuilding Fixtures and Equipment1 1462501 193304-1 7471 0352191 024234-1 4771 1462501 1933042011 9481 0562191 0242342011 6783.2 FINANCE COSTSInterest on loansFinance charges payable under finance leases378-378378----21381 7603782 138----4. DISTRIBUTION ADJUSTMENTS PRIOR YEARSComprises undistributed distribution in progressamounts and Public Domain shares written backand distribution corrections and adjustments29 42229 42229 4225 3425 3425 34229 42229 42229 4225 3425 3425 3425. DISTRIBUTIONLicence and RoyaltyNon-RoyaltyTotal Distribution250 686193 92156 765250 686210 967144 88266 085210 967274 109217 34456 765274 109233 449162 04971 400233 4496. TAXATIONCurrent charge S.A. Normal TaxOverprovision prior yearDeferred TaxTotal Taxation6 3737 562-(1 189)6 3737682 531(1 392)(371)7686 8998 088-(1 189)6 8991 9583 721(1 392)(371)1 958Reconciliation of the Tax RateStandard Rate of TaxAdjust for:Disallowable ExpenditureNon Taxable IncomePrior Year OverprovisionDeferred Tax ChargeEffective Tax Rate28.00%3.81%(10.62%)-(3.33%)17.86%29.00%9.71%(27.21%)(6.32%)(1.69%)3.49%28.00%3.76%(9.43%)-(3.28%)19.05%29.00%8.58%(22.64%)(5.59%)(1.49%)7.86%41
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS7. SOCIAL AND CULTURAL ALLOCATIONSocialCulturalTotal Social and Cultural Allocation8. TRANSFERS TO FUNDS AND RESERVES8.1 General Reserve:Subsidiary Net after Tax IncomeTransfer to General ReserveTotal Transfer to General Reserve8.2 Development Fund:Transfer from Development FundTransfer to Development FundTotal Transfer to Technological Developmen Fund<strong>2008</strong>R’00014 6276 8747 75314 62714 689-9 1899 189(8 239)13 7395 500COMPANY2007R’00012 9526 0886 86412 9528 297-2 7972 797(1 771)7 2715 500<strong>2008</strong>R’00015 0427 1247 91815 04214 283(506)9 1898 683(8 239)13 7395 500GROUP2007R’00013 2186 0887 13013 2189 7321 3412 7974 138(1 771)7 2715 500Total Transfers to Funds and ReservesTransfer Minority Shareholders Interest14 689-8 297-14 1831009 63894Out of Surplus per Income Statement14 6898 29714 2839 73242
NOTES TO FINANCIAL STATEMENTS9. KEY MANAGEMENT EMOLUMENTSFrom the Company and its controlled Subsidiariesfor:DirectorsCurrent emoluments- Non-Executive Directors’ Fees- Executives Directors’ Fees- Salaries and Bonuses- Pension and Medical Aid Contributions- Other Fringe BenefitsTotal Directors’ Current EmolumentsPost Retirement Benefits- Estimated Post Retirement BenefitsTotal Directors EmolumentsPaid by- Company- SubsidiariesTotal Paid<strong>2008</strong>R‘00011 973COMPANY266314 1765787885 8399826 8216 795266 8212007R‘0009 302308444 2144483485 3629826 3445 334285 362<strong>2008</strong>R’00011 973266314 1765787885 8399826 8216 795266 821GROUP2007R’0009 302308444 2144483485 3629826 3445 334285 362NOTES TO FINANCIAL STATEMENTSOther Key ManagementCurrent emoluments- Salaries and Bonuses- Pension and Medical- Other Fringe BenefitsTotal Key Management current emolumentsPost Retirement Benefits- Estimated Post Retirement BenefitsTotal Other Key Management Emoluments3 6316635994 8932595 1522 0133573292 6992592 9583 6316635994 8932595 1522 0133573292 6992592 958Total Key Management Emoluments11 9739 30211 9739 302Number of Non-Executive DirectorsNumber of Executive Directors of the groupNumber of General ManagersA service agreement exists betweenthe Company and the CEO1337102613371026Months in OfficeJJ BaloyiAM JohnstonY MaduraiM MochoariMN MotsatseI NapierP NoxakaBG RobinsonJ SchultenL van WykT WindischG Zoghby123121212112121212212-126812-112412-12123121212112121212212-126812-112412-1243
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS10. PROPERTY AND EQUIPMENTLand and BuildingsProperty – SAMRO House & Fifteen Melle StreetBeginning of the YearCostAccumulated DepreciationCarrying Amount at the beginning of the YearAdditionsRevaluationDepreciationCarrying Amount at the end of the YearSummaryAssets at CostRevaluationAccumulated DepreciationNet Carrying Amount at the end of the Year<strong>2008</strong>R’00015 622COMPANY2007R’00014 444<strong>2008</strong>R’00022 8908 966(1 524)7 44227-(201)7 2685 8773 116(1 725)7 268GROUP2007R’00018 8865 755(1 323)4 432953 116(201)7 4425 8503 116(1 524)7 442Office Furniture and EquipmentBeginning of the YearCostAccumulated DepreciationCarrying Amount at the beginning of the YearAdditionsDisposalsDepreciation charge for the YearNet carrying Amount at the end of the Year4 289(1 934)2 355512(10)(250)2 6073 872(1 715)2 157417-(219)2 3554 289(1 934)2 355512(10)(250)2 6073 872(1 715)2 157417-(219)2 355SummaryAssets at CostAccumulated DepreciationNet carrying Amount at the end of the Year4 758(2 151)2 6074 289(1 934)2 3554 758(2 151)2 6074 289(1 934)2 355Computer Information SystemsBeginning of the YearCostAccumulated DepreciationCarrying Amount at the beginning of the YearAdditionsDisposalsDepreciation Charge for the YearCarrying Amount at the end of the Year14 948(6 504)8 4442 492(71)(1 193)9 67213 554(5 480)8 0741 394-(1 024)8 44414 948(6 504)8 4442 492(71)(1 193)9 67213 554(5 480)8 0741 394-(1 024)8 444SummaryAssets at CostAccumulated DepreciationNet carrying Amount at the end of the Year17 129(7 457)9 67214 948(6 504)8 44417 129(7 457)9 67214 948(6 504)8 444Motor VehiclesBeginning of the YearCostAccumulated DepreciationCarrying Amount at the beginning of the YearAdditionsDisposalsDepreciation Charge for the YearCarrying Amount at the end of the Year1 222(577)645329(350)(140)4841 228(343)885120(126)(234)6451 222(577)645329(350)(140)4841 228(343)885120(126)(234)64544
NOTES TO FINANCIAL STATEMENTSMotor VehiclesSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the end of the YearLeased Assets – Motor VehiclesAdditionsDepreciation Charge for the YearCarrying Amount at the end of the YearSummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the end of the Year<strong>2008</strong>R’000COMPANY749(265)4843 023(164)2 8593 023(164)2 8592007R’0001 222(577)645------<strong>2008</strong>R’000749(265)4843 023(164)2 8593 023(164)2 859GROUP2007R’0001 222(577)645------NOTES TO FINANCIAL STATEMENTSTotal Property and EquipmentBeginning of the YearCostAccumulated DepreciationCarrying Amount at the beginning of the YearAdditionsDisposalsDepreciation Charge for the YearRevaluation of land and buildingsNet Carrying Amount20 460(9 016)11 4446 356(431)(1 747)-15 62218 655(7 539)11 1161 931(126)(1 477)-11 44429 426(10 540)18 8866 383(431)(1 948)-22 89024 410(8 862)15 5482 027(126)(1 678)3 11518 886SummaryAssets at CostAccumulated DepreciationNet Carrying Amount at the End of the Year25 659(10 037)15 62220 460(9 016)11 44434 652(11 762)22 89029 426(10 540)18 88610.1Land and BuildingThe estimated Open Market Values of the Land and Buildings as determined by the sworn valuators are set out below:-- Samro HouseA fourteen storey office block on consolidated Freehold Stand No. 4490, Johannesburg, situated in Juta Street,Braamfontein, was purchased in 1973. In August 2007 the land and buildings were valued for existing use byIndependent Valuators Messrs. Mills Fitchet (registered Valuators and Appraisers) at 30 June 2007, the value inuse at 30 June 2007 was R6,7 million.11. INVESTMENT PROPERTYInvestment Property – 15 Melle StreetCarrying amount at the beginning of the yearRevaluationCarrying Amount at the end of the YearInvestment Property – Samro PlacePurchase priceCost of refurbishment in processCarrying Amount at the end of the Year63 1102 5373132 85056 1604 10060 2602 8502 5373132 850---SummaryAssets at CostRevaluationNet Carrying Amount at the End of the Year62 79731363 1102 5373132 85045
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS- Fifteen Melle StreetERF 2767,2768 & 2769 Johannesburg Township, Registration Division, I.R. Transvaal in August 2007 the buildings were valued forexisting use by Independent Valuators Messrs. Mills Fitchet (registered Valuators and Appraisers) at 30 June 2007- Samro PlaceA nine storey office block on ERF 4518, 2896, 2897, 2898, 2899, 2900, 2901, 2902 Johannesburg Township, Registration DivisionI.R. Transvaal. The building was purchased on effective 1 February <strong>2008</strong> for a consideration of R56 000 000.00. Transfer costs ofR160 000.00 were incurred in the transaction. The building is being refurbished and to date R4 100 000.00 refurbishment costs havebeen incurred.COMPANYTotal Valuation Land and Buildings12. INVESTMENT IN SUBSIDIARIES12.1 Shares at CostDramatic, Artistic and Literary Rights Organisation(Proprietary) LimitedGratia Artis (Proprietary) LimitedFifteen Melle Street (Proprietary) LimitedSamro House Holdings (Proprietary) LimitedSamro IP Technologies (Proprietary) LimitedTotal Cost of Shares<strong>2008</strong>R45 441175^^^17411752007R12 555175^^^1741175^ denotes a holding of less than R1 000.00Refer to the Directors <strong>Report</strong> on Subsiduary andAssociate Company’s for effective holding12.2 Loans to SubsidiariesDramatic, Artistic and Literary Rights Organisation(Proprietary) LimitedGratia Artis (Proprietary) LimitedFifteen Melle Street (Proprietary) LimitedSamro House Holdings (Proprietary) LimitedSamro IP Technologies (Proprietary) LimitedTotal IndebtednessTotal Investment in Subsidiaries2 549-1 06041 810(153)45 26645 4411 42911 0607 3912 49912 38012 555The loans to subsidiaries have no fixed repayment terms, interest is charged at a nominal rate agreed by both parties for the loansto Samro House Holdings (Proprietary) Limited and Fifteen Melle Street (Proprietary) Limited. The loans to Gratia Artis(Proprietary) Limited Dramatic, Artistic and Literary Rights Organisation (Proprietary) Limited and Samro IP Technologies(Proprietary) Limited are interest free.13. INVESTMENT IN ASSOCIATESIn April 2007, the Group entered into an agreement to acquire a 49.9% shareholding in Media Guide (Proprietary) Limited throughthe wholly owned subsidiary Samro IP Technologies (Proprietary) Limited for R2,5 million. A payment was made to B Nicholettesfor the purchase of shares held by him in Media Guide (Proprietary) Limited. The agreement was terminated and theconsideration repaid to SAMRO IP Technologies (Proprietary) Limited due to the right of Mr Nicholettes to dispose of the sharesbeing disputed by the majority shareholder of Media Guide (Proprietary) Limited. No revenue was received from Media Guidewhich is involved in the monitoring of music usage. Media Guide is a private entity that is not listed on any public exchange. Theinvestment was disposed of on 02 February <strong>2008</strong>.46
NOTES TO FINANCIAL STATEMENTS14. DEFERRED TAXBalance at the Beginning of the yearPrior Year adjustment for bad debt provision raisedAdjusted opening balanceMovement for the yearDeferred Tax on leave and bonus provision as at <strong>2008</strong>Deferred Tax on post retirement medical benefitDeferred Tax adjustment due to change in tax rateDeferred Tax on bad debt provisionTotal Deferred Tax15. AVAILABLE FOR SALE INVESTMENTSCostListed SharesListed Bonds and Unitised InvestmentsListed Investments at CostUnlisted InvestmentsTotal Investments at CostFair ValueListed InvestmentsShares at Fair ValueBonds and Unitised InvestmentsTotal Listed Investments at Fair ValueUnlisted InvestmentsParticipation Bonds, Notes and OtherTotal Unlisted Investments at Fair ValueTotal Investments at Fair ValueFair Value AdjustmentTotal Investment at Fair ValueTotal Investment at CostTotal Unrealised Gain at the end of the YearTotal Unrealised Gain at the beginning of the YearTotal Fair Value Adjustment related to other InvestmentsOther Fair Value AdjustmentsTotal Fair Value AdjustmentA register of Listed and Unlisted Investments isavailable for inspection by members.<strong>2008</strong>R12 0664 2046 67310 8771 189696201(145)43712 066299 68098 13176 517174 64827 486202 134190 34581 849272 19427 48627 486299 680299 680(202 134)97 546(130 609)(33 063)-(33 063)COMPANY2007R4 2041053 7283 833371(1 043)1 414--4 204332 688111 20163 174174 37527 486201 861236 30568 897305 20227 48627 486332 688332 688(201 861)130 827(103 756)27 071(218)26 853<strong>2008</strong>R12 0664 2046 67310 8771 189696201(145)43712 066299 70398 13176 517174 64827 509202 157190 34581 849272 19427 50927 509299 703299 703(202 157)97 546(130 609)(33 063)-(33 063)GROUP2007R4 2041053 7283 833371(1 043)1 414--4 204332 711111 20163 174174 37527 634202 009236 30568 897305 20227 50927 509332 711332 711(202 009)130 702(103 631)27 071(93)26 978NOTES TO FINANCIAL STATEMENTS16. TRADE AND OTHER RECEIVABLESTrade DebtorsOther ReceivablesTotal Trade and Other Receivables45 24542 3832 86245 24519 26015 9403 32019 26048 05244 1443 90848 05220 00116 3773 62420 00147
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSAs at 30 June <strong>2008</strong>, trade receivables at a nominal value of R25 393 246 (2007: R24 350 575) were impaired and fully provided for.Movements in the provision for impairment of receivables were as follows:At 1 July 2006Charge for the yearUtilisedAt 30 June 2007Charge for the yearUtilisedAt 30 June <strong>2008</strong><strong>2008</strong>2007TotalR’00042 38315 940CurrentR’00025 2216 51530 daysR’0006 0187 138IndividuallyImpairedR‘0004 1686 503-10 6717 97518 646Trade and other receivables do not attract interest and are payable 30 days from the date of invoiceAs at 30 June, the ageing analysis of trade receivables is as follows:COMPANY60 daysR’0002 384311CollectivelyImpairedR‘00016 871(3 192)13 6793 042(9 974)6 74790 daysR’000181162TotalR‘00021 0396 503(3 192)24 35011 017(9 974)25 393120 daysR’000111641GROUP120+ daysR’0008 4681 17317. INVENTORYInventory comprises of:Stationery and paperBooks and Musical Sheets for SaleBooks and Musical Sheets for HireTotal Inventory<strong>2008</strong>R’000123123--1232007R’000-----<strong>2008</strong>R’000342123591603422007R’000192-5913319218. POST EMPLOYMENT MEDICAL BENEFITS18 44317 72618 44317 726Net Liability ReconciliationOpening Balance of the LiabilityIncome Statement ChargeClosing Balance of the Liability17 72671718 44312 8554 87117 72617 72671718 44312 8554 87117 726Present Value of ObligationsOpening BalanceCurrent Service CostInterest CostBenefits Paid / Expected to be PaidActuarial Gain/(Loss) on ObligationClosing Balance of Funded Defined Benefit Obligations17 7268751 357(422)(1 093)18 44312 8557311 014(356)3 48217 72617 7268751 357(422)(1 093)18 44312 8557311 014(356)3 48217 726A valuation was carried out by a firm of consulting actuaries at 30 June <strong>2008</strong>. At 30 June <strong>2008</strong> there were 107 in service members(2007 : 102) and 9 continuation members (2007: 9).Present Value of ObligationsCurrent Service CostInterest CostActuarial (Gain)/Loss RecognisedActuarial Assumptions:Discount RateMedical Inflation Rate8751 357(1 515)71710.25%9.25%7311 0143 1264 8717.75%6.75%8751 357(1 515)71710.25%9.25%7311 0143 1264 8717.75%6.75%48
NOTES TO FINANCIAL STATEMENTSValuation AssumptionsPost Employment Medical LiabilityAccrued Liability 30 June <strong>2008</strong> (R’million)% ChangeCurrent Service Cost + Interest Cost <strong>2008</strong>/9 (R’million)% ChangeAccrued Liability 30 June <strong>2008</strong> (R’million)% ChangeAccrued Liability 30 June <strong>2008</strong> (R’million)% ChangeAccrued Liability 30 June <strong>2008</strong> (R’million)% ChangeHealth Care Cost InflationCentral Assumption9.25% -1% +1%18 443-2 794-Central Assumption9.25%18 443-15 521-15.8%2 308-17.4%Health Care Cost Inflation+5% for 5years22 782+23.5%Discount Rate22 189+20.3%3 427+22.7%+10% for 5 years27 928+51.4%Central Assumption10.25% -1% +1%18 443-Central Assumption60 Years18 443-22 196+20.3%Expected Retirement Age1 yearyounger19 584+6.2%15 563-15.6%+1 year older17 671-4.2%NOTES TO FINANCIAL STATEMENTSCOMPANYGROUP19. LOANS (NON CURRENT LIABILITIES)Mortgage Loan ReceivedCapital Repayment MadeLoan RepaymentsMortgage Loan Closing Balance<strong>2008</strong>R’000-----2007R’000-----<strong>2008</strong>R’00028 35244 500(15 000)(1 882)27 6182007R’000734----BOE Private BankSecured by a cession and pledge of the share portfolio in the name of Southern AfricanMusic Rights Organisation Limited, managed by BOE Private Clients, account numberSOUT03FT. The term of the loan is 60 months. The interest rate is prime less 1.25%ABSA Bank LimitedSecured by first mortgage bond over Fifteen Melle Street (Pty) LtdERF 2768 & 2769 Johannesburg Township, Registration Division, I.R. TransvaalThe interest rate on this loan is prime plus 0.75%. The loan is repayable in August 2012,however the loan has been settled early, but the facility remains until the maturity date.Outside Shareholders Loans 15 Melle Street (Pty) LtdInterest at 11% per annum was paid on these loans during the year.No date has been set for repayment, however it is not expected to be paid within the 12months. The Directors and shareholders consider this to be a long term liability as they aresubject to the provisions of a share holders agreement.Total Loans (Long Term Liabilities)--27 618(7)74128 352-(7)74173420. FOR DISTRIBUTIONRoyalty DistributionNon Royalty DistributionCurrent Amount per Income StatementSocial BenefitsPrior Periods AmountsDistributions and AdvancesTotal for Distribution272 189193 92156 765250 6866 85423 099280 639(8 450)272 189219 082144 88266 085210 9676 06811 853228 888(9 806)219 082289 323211 88262 227274 1098 07626 917309 102(19 779)289 323237 588162 04971 400233 4496 33423 786263 569(25 981)237 58849
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS21. DISTRIBUTIONS IN PROGRESS21.1 Shares in Musical WorksBalance at the beginning of the YearDistributed during the YearArising out of Distributions during the YearDistribution Adjustment prior yearsBalance at the end of the Year21.2 Musical WorksBalance at the beginning of the YearDistributed during the YearArising out of Distributions during the YearDistribution Adjustment prior yearsBalance at the end of the Year<strong>2008</strong>R’00087 1047 365(796)6 5693 82810 397(2 561)7 83681 125(14 460)66 66538 119104 784(25 516)79 268COMPANY2007R’00088 4906 807(2 882)3 9254 0808 005(640)7 36552 641(11 382)41 25942 96884 227(3 102)81 125<strong>2008</strong>R’00087 1047 365(796)6 5693 82810 397(2 561)7 83681 125(14 460)66 66538 119104 784(25 516)79 268GROUP2007R’00088 4906 807(2 882)3 9254 0808 005(640)7 36552 641(11 382)41 25942 96884 227(3 102)81 125Total Distributions in Progress87 10488 49087 10488 49022. SOCIAL AND CULTURAL FUNDS23 02820 15526 58123 15822.1 SOCIAL FUNDSOther Social Funds not included in DistributionsBalance at the beginning of the YearUtilisation during the YearCurrent Funding for the YearBalance at the end of the YearCopyrights Training FundBalance at the beginning of the YearUtilisation during the YearCurrent Funding for the YearBalance at the end of the YearNamrro Development FundBalance at the beginning of the YearUtilisation during the YearBalance at end of the Year5 724(6 078)6 8746 5205 113(5 477)6 0885 7245 724(6 078)6 8746 5201 091(197)2501 14479(13)665 113(5 477)6 0885 724978(137)2501 091-7979Total Social Funds6 5205 7247 7306 89422.2 CULTURAL FUNDSSAMRO Endowment for the National Arts andRelated ProvisionsBalance at the beginning of the YearUtilisation during the YearCurrent Funding for the YearUnexpended Grants / ScholarshipsBalance at the end of the Year13 234(7 590)7 7521 77715 1739 689(4 497)6 7571 28513 23413 234(7 590)7 7521 77715 1739 689(4 497)6 7571 28513 234Bequests and DonationsBalance at the beginning of the YearUtilisation during the YearCurrent Funding for the YearBalance at the end of the Year1 197(13)1511 3351 162(72)1071 1971 197(13)1511 3351 162(72)1071 19750
NOTES TO FINANCIAL STATEMENTS22.2 CULTURAL FUNDS Cont.Reprobel – Belgium Bilateral AgreementBalance at the beginning of the YearUtilisation during the YearCurrent Funding for the YearBursary FundsArts and Culture Trust BursaryTrewehela-Breytenbach BursaryInterestTotal Cultural FundsTotal Social and Cultural Funds<strong>2008</strong>R’000--------16 50823 028COMPANY2007R ‘000--------14 43120 155<strong>2008</strong>R’0001 655(414)7592 0001501781534318 85126 581GROUP2007R’000-(414)2 0691 655-1621617816 26423 158NOTES TO FINANCIAL STATEMENTSBalance at the beginning of the Year20 15515 96423 15817 104Utilisation during the YearCurrent Funding for the YearNet transfer to Social and CulturalBalance at the end of the Year(11 904)14 7772 87323 028(8 760)12 9524 19120 155(12 528)15 9513 42326 581(9 312)15 3666 05423 15823. TRADE AND OTHER PAYABLESMembers and Affiliated SocietiesAccounts PayableNon-Residents Royalty Tax22 7569 84112 78513022 7569 0517 8531 0801189 05124 6349 84114 66313024 63410 5327 8532 56111810 53224. PROVISIONSComprise:Interest payable on shareholders loans – 15 Melle StrMoving CostsStaff Leave Pay and BonusesTotal Provisions4 325-7203 6054 3253 272--3 2723 2724 9436187203 6054 9433 890618-3 2723 890.Interest Payable on Shareholders Loans – 15 Melle StOpening BalanceProvision utilised during the yearProvision raised during the yearLicence CancellationsOpening BalanceProvision utilised during the yearMoving CostsOpening BalanceProvision raised during the yearLeave Pay and BonusesOpening BalanceProvision utilised during the yearProvision raised during the yearLeave Pay Provision is computed in terms of employees’current salary and accrued days leave at the financial yearend. This method accounts for any utilisations during theyear.--------7207203 272(5 848)6 1813 605----54(54)----6 865(12 378)8 7853 272618--618----7207203 272(5 848)6 1813 605602(62)78618------6 745(12 258)8 7853 27251
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTS25. CASH GENERATED FROM LICENSINGOPERATIONSOperating SurplusAmount Distributable before TaxAdjustments for:DepreciationAdministration and Management FeesLoss/(Surplus) on Disposal of Property and EquipmentRealised Impartment on Disposal of PropertySurplus on Disposal of InvestmentsInterest from SubsidiariesIncome from InvestmentsInterest from Term and Call DepositsBequests and DonationsFinance ChargesMovement in ProvisionsDistribution Adjustment prior yearsPost Employment Medical BenefitsOperating Surplus before Working Capital Changes<strong>2008</strong>R’000186 117286 3751 747(4 248)108140(29 494)(815)(19 447)(9 777)(151)3781 053(29 422)717197 164COMPANY2007R ‘000136 987232 9841 477(1 285)(112)-(39 987)(466)(15 281)(7 955)(107)--(5 342)4 871168 797<strong>2008</strong>R’000219 838310 3331 948-108140(29 494)-(19 447)(12 175)(151)2 1381 690(29 422)717226 385GROUP2007R’000178 277258 3571 678-(112)-(39 987)-(15 281)(7 955)(107)--(5 342)4 871196 122Working Capital Changes(Increase) / Decrease in Current Asset ItemsDistribution and AdvancesAccounts ReceivableInventoryIncrease / (Decrease) in Current Liability ItemsMembers and Affiliated SocietiesAccounts Payable, Provisions and Royalty TaxTotal Working Capital ChangesTotal Cash Generated from Licensing Operations1 356(25 985)(123)1 98811 717(11 047)186 117(6 674)(5 545)-(11 704)(7 887)(31 810)136 9877 547(28 051)(151)1 98812 120(6 547)219 8383 768(2 515)5(11 704)(7 399)(17 845)178 27726. TAXATION PAIDOpening BalanceCurrent TaxationClosing BalanceNet AdjustmentNet Tax Adjustment Deferred TaxTotal Taxation Paid(3 795)1 263(6 373)2 504(2 606)(1 189)(3 795)6 721)(4 319)(768)(1 263)(6 350)(371)(6 721)(3 795)596(6 899)3 698(2 605)(1 190)(3 795)(8 233)(3 545)(3 721)(596)(7 862)(371)(8 233)27. ROYALTY AND NON-ROYALTY DISTRIBUTIONS TOMEMBERS AND AFFILIATED SOCIETIESAvailable for Distribution at the beginning of the YearPrior Periods AmountsAvailable for DistributionDistributions in Progress at the beginning of the Year- Shares- WorksDistributions in Progress at the end of the Year- Shares- WorksSpecial Distribution Mechanical RightsLess Distribution Adjustment Prior yearsAmounts Distributed during the Year182 784228 888(23 099)205 7897 36581 125294 279(7 836)(79 268)207 1755 031(29 422)182 784128 347174 585(11 853)162 7326 80752 640222 179(7 365)(81 125)133 689-(5 342)128 347213 647263 569(26 917)236 6527 36581 125325 142(7 836)(79 268)238 0385 031(29 422)213 647158 539206 709(23 786)182 9236 80862 640252 371(7 365)(81 125)163 881-(5 342)158 53952
NOTES TO FINANCIAL STATEMENTS28. NON-LICENSING ACTIVITIES28.1 Decrease /(Increase) in Loans to SubsidiaryCompaniesOpening Balance Subsidiary LoansClosing Balance Subsidiary LoansIncrease in Subsidiary LoansAdd Intercompany interest and feesIndebtedness of SubsidiariesLoan to purchase shares in associateInterestAdministration, Computer and Management FeesNet Cash Inflow From / (Outflow To) Subsidiaries28.2 Movements in InvestmentsProceeds on Disposal of InvestmentsTransfer to FundsInvestments PurchasedNet Cash Inflow/(Outflow)<strong>2008</strong>R’000(35 386)12 380(45 266)(32 886)5 063(27 823)(2 500)(815)(4 248)(35 386)36 30468 631(3 896)(28 431)36 304COMPANY2007R’00035810 238(12 380)(2 142)1 751(391)2 500(466)(1 285)358(27 601)85 190(2 419)(110 372)(27 601)<strong>2008</strong>R’00036 30468 631(3 896)(28 431)36 304GROUP2007R’000(27 601)85 190(2 419)(110 372)(27 601)NOTES TO FINANCIAL STATEMENTS29. CASH AND CASH EQUIVALENTSCash and Cash Equivalents consist of cash on hand,balances with Banks and Investment in Money MarketInstruments and are made up as follows:Cash on Hand and Balances with BanksShort Term InvestmentsTotal Cash and Cash Equivalents167 98566 513101 472167 985148 90760 75188 156148 907198 84680 957117 889198 846179 24274 286104 956179 24230. RELATED PARTY TRANSACTIONSSubsidiariesAdministration and Management FeesInterest ReceivedDalro (Pty) Ltd3 965-3 965Samro HouseHoldings (Pty) Ltd-815815Samro House(Pty) Ltd-283283Total3 9651 0985 063Details of Income from Investments in Subsidiaries are disclosed in Note 2.2.Details of loans to subsidiaries are disclosed in Note 12DirectorsThere are two groups of SAMRO Directors, Writer directors and Publisher directors. These directors and parties related to them areentitled to royalty and non-royalty distributions from SAMRO. These distributions are computed on the same basis as those forother rights holders and are not considered to be emoluments for services as directors.31. RETIREMENT BENEFITSIn line with the statutory requirements for an actuarial valuation every three years, a statutory valuation of the SAMRO StaffPension Fund was carried out by and independent firm of consulting actuaries on 30 June 2006, an IAS 19 valuation is conductedannually by independent counsulting actuaries as at 30 June each year. In terms of their report it was concluded that the fundwas in a sound financial condition in terms of Section 16 of the Pension Fund Act of 1956 as amended..Summary of ResultsThe Pension Funds Second Amendment Act, 2001, does not allow companies sponsoring retirement funds, to recognise any ofthe assets in a retirement fund, unless as a result of a surplus apportionment exercise, or if the fund’s rules allow it.The balance sheet item that the Company can recognise was calculated to be nil as at 30 June 2007 and 30 June <strong>2008</strong>. The “adjustedexpense” for the year ended 30 June <strong>2008</strong> was therefore calculated to be R5 512 000. (2007 : R5 370 000).53
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSActive number of MembersTotal <strong>Annual</strong> SalariesNumber of Pensioners (outsourced by the fund)Present Value of Funded Defined Benefit ObligationFair Value of Plan Assets in Respect of Defined Benefit ObligationFunded Status of Defined Benefit PlanUnrecognised Actuarial GainsAssetParagraph 58 LimitUnrecognised due paragraph 58 limitAsset recognised on Balance SheetCompany and Group<strong>2008</strong>R‘00014720 00222(43 662)72 17328 511-28 511-(28 511)-2007R‘00014720 00022(49 454)78 14528 691-28 691-(28 691)-The “paragraph 58 limit” ensures the asset to be recognised on the company balance sheet is subject to a maximum of the sum of anyunrecognised actuarial losses, past service cost and the present value of any economic benefit available to the company in the formof refunds or reductions in future contributions.In respect of those retirement arrangements which disclosed a positive funded status, no asset has been recognised by the Company.The disclosure of funded status does not necessarily indicate any assets available to the Company.Actuarial Valuation AssumptionsDiscount RateInflation RateSalary Increase RateExpected Rate of Return on AssetsPension Increase Allowance<strong>2008</strong>7.75%4.75%5.75%8.50%2.62%20077.50%4.50%5.50%8.50%2.38%Determination of the Net Periodic Pension Cost for the Fiscal Year ending 30 June <strong>2008</strong>Components of Income Statement Pension ExpenseCurrent Service CostInterest CostExpected Return on AssetsAmortisation:a. Unrecognised Net Transition Obligation / (Asset)b. Unrecognised Past Service Costc. Unrecognised Net (Gain) / Lossd. Unrecognised due to LimitParagraph 58A(Gain)/LossExpense / (Income)<strong>2008</strong>R‘0004 2634 216(6 845)-3 125-(180)9335 5122007R‘0002 8173 651(5 011)-1 500(10 687)--(7 730)Estimated Contributions, Benefit Payments, Expenses andRisk Premiums for the Period 1 July 2007to 30 June <strong>2008</strong>Member ContributionsAdditional Voluntary ContributionsCompany ContributionsSpecial Company ContributionsRisk PremiumsBenefit PaymentsEstimated return on Assets for the period ending 30 June <strong>2008</strong>1 904304 3061 206(858)(17 138)4 5781 728-5 370-(1 082)(3 969)18 89754
NOTES TO FINANCIAL STATEMENTSReconciliation of Asset / (Liability) on the Balance Sheet(Liability) / Asset as at 30 June 2007Net (Expenses) / Income Recognised in the Income StatementCompany Contributions(Liability) / Asset as at 30 June <strong>2008</strong>Paragraph 59 LimitUnrecognised due to Paragraph 59 Limit(Liability) / Asset Recognised on the Balance SheetAdjusted Net Expenses Recognised in the Income StatementReconciliation of Defined Benefit ObligationDefined Benefit Obligation as at 30 June 2007Service CostMember ContributionsInterest CostPast Service CostActuarial (Gain) / LossBenefits PaidRisk PremiumsDefined Benefit Obligation as at 30 June <strong>2008</strong><strong>2008</strong>R‘000(5 512)5 512----5 51249 4544 2631 9344 2163 125(1 334)(17 138)(858)43 6622007R‘000-(5 370)5 370----5 37045 0742 8171 7283 6511 500(265)(3 969)(1 082)49 454NOTES TO FINANCIAL STATEMENTSReconciliation of Fair Value of Plan AssetsAssets at Fair Market Value as at 30 June 2007Expected Return on AssetsContributionsRisk PremiumsBenefits PaidActuarial Gain / (Loss)Assets at Fair Market Value as at 30 June <strong>2008</strong>78 1456 8457 446(858)(17 138)(2 267)72 17357 2015 0117 098(1 082)(3 969)13 88678 145Estimated Asset Composition as at 30 June <strong>2008</strong>CashEquityBondsProperty and OtherInternationalTotal20.53%69.50%3.30%6.67%0.00%100.0020.95%68.06%4.76%6.23%0.00%100.0%Determination of Estimated Pension Expensefor the Fiscal Year ending 30 June 2007Components of Income Statement Pension ExpenseCurrent Service CostInterest CostExpected Return on AssetsAmortisation:a. Unrecognised Net Transition Obligation / (Asset)b. Unrecognised Past Service Costc. Unrecognised Net (Gain) / LossExpense / (Income)4 3945 045(8 259)---1 1804 2634 216(6 845)---1 634Expected Contributions, Expenses and Risk Premiums forPeriod 1 July <strong>2008</strong> to 30 June 2009Member ContributionsAdditional Voluntary ContributionsCompany ContributionsRisk Premiums2 061324 661(929)1 827-4 093(1 144)55
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSValuation AssumptionsA summary of the assumptions used in the valuation, together with a short comment on each, are given below.Discount RateSalary Increase RateExpected Rate of Return on AssetsInflationPension Increase AllowanceDiscount RateAsset as at 30June 2007 andexpense for theyear ending30 June <strong>2008</strong>7.75%5.75%8.50%4.75%2.62%Asset as at 30June <strong>2008</strong> andexpense for theyear ending30 June 200910.25%8.25%11.00%7.25%5.00%The rate used to discount post-employment benefit obligations should be determined by reference to market yields at the balance sheet dateon high quality corporate bonds. In countries where there is no deep market in such bonds, the market yields (at the balance sheet date) ongovernment bonds should be used. In South Africa there is no deep market in Corporate Bonds and as such we have set our recommendedassumption with reference to the yield on South African government bonds of medium duration. This converts into and effective yield of10.25% as at 31 May <strong>2008</strong>. In terms of the accounting standards historical yields are less important and we consequently consider it appropriateto use the discount rate of 10.25% per annum.Inflation RateWhile not explicitly used in the valuation, we have assumed the underlying future rate of consumer price inflation (CPI) to be 7.25% per annum.This assumption has been based on the relationship between the current conventional bond yields and the current index-linked bond yields.Salary Increase RateWe have assumed that the general level of salary increases to be awarded in the long term will, on average, be 1% above inflation.Expected Return on AssetsThe Fund’s expected long term return is a function of the expected long-term returns on equities, cash and bonds. In setting these assumptionswe made use of the asset split as at 30 April <strong>2008</strong>. The expected long-term rate of return on bonds was set at the same level as the discountrate. This implies a yield on government bonds of 10.25% per annum as at 30 April <strong>2008</strong>. The expected long-term rate of return on equitieswas set at a level of 3% above the bond rate, whilst the expected long-term rate of return on cash was set at a level of 2% below the bond rate.Adjustments were made to reflect the effect of expenses.Pension Increase RateWe have used a post retirement discount rate of 5% per annum, which is consistent with the funding valuation as at 30 June 2006. Taken in conjunctionwith a pre-retirement rate of 10.25% this implies an allowance for increases to pensions in payment of approximately 5.00% per annum.These assumptions differ from those used in the funding valuation and have been based on the requirements of the reporting standard. Allother assumptions adopted in the funding valuation were left unchanged.56
NOTES TO FINANCIAL STATEMENTS32. FINANCIAL RISK MANAGEMENTThe Group’s principal financial liabilities comprise finance leases, trade payables and loans given. The main purpose of these financialliabilities is to raise finance for the Group’s operations. The Group has various financial assets such as trade receivables, cash and short termdeposits which arise directly from its operations.The main risks arising from the Group’s financial instruments are cash flow interest rate risk, liquidity risk, foreign currency risk and credit risk.The Board of Directors reviews and agrees the policies for managing each of these risks which are summarised below.Interest rate riskThe Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s long-term debt obligations withfloating interest rates and short and medium term deposits with floating interest rates.Interest rate risk tableThe following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, ofthe Group’s profit before tax (through the impact on floating interest rate borrowings and investments). There is no impact on the Group’sequity.NOTES TO FINANCIAL STATEMENTS<strong>2008</strong>Mortgage bondTreasury funds2007Increase/decreasein basis points+1%-1%+1%-1%Increase/decreasein basis pointsEffect on profitbefore tax(279)2791 179(1 179)Effect on profitbefore taxMortgage bondTreasury funds+1%-1%+1%-1%--1 150(1 150)Credit RiskThe Group trades only with recognised, creditworthy third parties. In addition receivable balances are monitored on an ongoing basis with theresult that the Group’s exposure to bad debts is limited. The maximum exposure is the carrying amount as disclosed in Note 16.With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents and availablefor-salefinancial investments, the Group’s exposure to credit risk arises from default of the counterparty, with a maximum exposure equalto the carrying amount of these instruments.Liquidity RiskThe Group monitors its risk to shortage of funds .The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of investment planning andtreasury management57
NOTES TO FINANCIAL STATEMENTSNOTES TO FINANCIAL STATEMENTSYear ended 30 June <strong>2008</strong>Interest bearing loans and borrowingsTrade and other payablesFor DistributionOther liabilitiesYear ended 30 June 2007Interest bearing loans and borrowingsTrade and other payablesFor DistributionOther liabilitiesOnDemandOnDemand---------Less than3 monthsLess than3 months-23 997--23 997-10 532--10 5323 months –1 year-289 32396 382385 7053 months –1 year--237 58892 380329 9681 to 5 years27 618---27 6181 to 5 years-----Total27 61823 997289 32396 382437 320Total-10 532237 58892 380340 500Capital ManagementThe primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in orderto support its business.The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust thecapital structure, the Group may adjust the distribution payments to members and transfers to and from the Group’s reserves. No changeswere made in the objectives, policies or processes during the years ended 30 June <strong>2008</strong> and 30 June 2007.33. FINANCIAL INSTRUMENTSFair ValuesSet out below is a comparison by category of the carrying amounts and fair values of all the Group’s financial instruments.Carrying AmountsFair ValueFinancial AssetsCashAvailable-for-sale investmentsFinancial LiabilitiesInterest bearing loans<strong>2008</strong>198 846299 70328 3522007179 242332 711734<strong>2008</strong>198 846299 70328 3522007179 242332 711734Market values have been used to determine the fair value of available-for-sale financial assets. For investments where there is no active marketfair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to thecurrent market value of another instrument which is substantially the same, discounted cash flow analysis or other valuation methods.58
NOTES TO FINANCIAL STATEMENTSTrust59
CORPORATE INFORMATIONCORPORATE INFORMATION – 30 JUNE <strong>2008</strong>REGISTERED OFFICEFifth Floor,SAMRO Place20 de Korte StreetBRAAMFONTEIN2001 JohannesburgREGISTRATION NUMBER1961/002506/09POSTAL ADDRESSP O Box 31609BRAAMFONTEIN2017TELEPHONE(011) 712 8000FACSIMILE(011) 403 1934WEBSITEwww.<strong>samro</strong>.org.zaCHIEF EXECUTIVEMN MOTSATSECHIEF OPERATING OFFICERGJ ZOGHBYBANKERSStandard BankABSA BankAUDITORSErnst & Young Inc.LEGAL ADVISORSCheadle Thompson & HaysomAdams & AdamsSpoor & FisherEdward Nathan SonnenbergsINVESTMENT ADVISORSBOEInvestecStandard Corporate & Merchant Bank60