BASIS OF REPORTING

REPORTING ENTITY

AECI Limited ("the Company") is a public company domiciled in South Africa. The address of the Company's registered office is AECI Place, 24 The Woodlands, Woodlands Drive, Woodmead, Sandton. The consolidated financial statements of the Company as at and for the year ended 31 December 2009 comprise the Company and its subsidiaries (together referred to as "the Group" and individually as "Group entities") and the Group's interest in associates and jointly-controlled entities.The Group is involved primarily in the manufacture and distribution of explosives, mainly to the mining sector; chemicals to the mining and manufacturing sectors; as well as the realisation of property surplus to the Group's operational requirements.

BASIS OF PREPARATION

STATEMENT OF COMPLIANCE

The consolidated financial statements and the separate financial statements have been prepared in compliance with International Financial Reporting Standards (IFRS), and interpretations of those standards, as adopted by the International Accounting Standards Board (IASB) and applicable legislation, and in accordance with the requirements of the Companies Act of South Africa, No. 61 of 1973, as amended.

The following accounting standards, interpretations and amendments to published accounting standards, which are relevant to the Group but not yet effective, have not been adopted in the current year:

• IFRS 3 – relating to revision of the standard on business combinations (effective for annual periods commencing on or after 1 July 2009).
  
  Revised IFRS 3 Business Combinations (2008) incorporates the following changes that are likely to be relevant to the Group's operations:
  
  

  –	the definition of a business has been broadened, which is likely to result in more acquisitions being treated as business combinations;
  –	contingent consideration will be measured at fair value, with subsequent changes therein recognised in profit or loss;
  –	transaction costs, other than share and debt issue costs, will be expensed as incurred;
  –	any pre-existing interest in the acquiree will be measured at fair value with the gain or loss recognised in profit or loss; and
  –	any non-controlling (minority) interest will be measured at either fair value, or at its proportionate interest in the identifiable assets and liabilities of the acquiree, on a transaction-by-transaction basis.

Revised IFRS 3, which becomes mandatory for the Group's 2010 consolidated financial statements, will be applied prospectively and, therefore, there will be no impact on prior periods in the Group's 2010 consolidated financial statements.

• IAS 27 – accounting for ownership changes in a subsidiary (effective for annual periods commencing on or after 1 July 2009).
  
  Amended IAS 27 requires accounting for changes in ownership interests by the Group in a subsidiary, while maintaining control, to be recognised as an equity transaction. When the Group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The amendments to IAS 27, which becomes mandatory for the Group's 2010 consolidated financial statements, are not expected to have a significant impact on the consolidated financial statements.
  
  
• IAS 39 – amendments relating to eligible hedged items (effective for annual periods commencing on or after 1 July 2009).
  
  Amendments to IAS 39 clarify how the principles that determine whether a hedged risk or portion of cash flows is eligible for designation should be applied in particular situations.
  
  The amendments to IAS 39, which becomes mandatory for the Group's 2010 consolidated financial statements, are not expected to have
  a significant impact on the consolidated financial statements.
  
  
• IFRIC 17 – distributions of non-cash assets to owners (effective for annual periods commencing on or after 1 July 2009).
  
  This interpretation provides guidance in respect of distributions of non-cash assets to owners acting in their capacity as owners. Distributions within the scope of IFRIC 17 are measured at the fair value of the assets to be distributed. Any gain or loss on settlement of the liability for the dividend payable is recognised in profit or loss.
  
  The scope of IFRS 5 was expanded to include distributions of non-cash assets to owners. IFRIC 17, which becomes mandatory for the Group's 2010 consolidated financial statements, will be applied prospectively and, therefore, there will be no impact on prior periods in the Group's 2010 consolidated financial statements.
  
  
• IFRS 5 – amendments relating to non-current assets held for sale and discontinued operations (effective for annual periods commencing on or after 1 July 2009).
  
  The amendments specify that:
  
  

  –	if an entity is committed to a plan to sell a subsidiary, then it would classify all of that subsidiary's assets and liabilities as held for sale when the held for sale criteria are met; this applies regardless of the entity retaining an interest (other than control) in the subsidiary; and
  –	disclosures for discontinued operations are required by the parent when a subsidiary meets the definition of a discontinued operation.

The revised IFRS 5, which becomes mandatory for the Group's 2010 consolidated financial statements, will be applied prospectively and, therefore, there will be no impact on prior periods in the Group's 2010 consolidated financial statements.

• IFRS 2 – amendments that clairfy the scope of share-based payments (effective for annual periods commencing on or after 1 July 2009).
  
  The amendments clarify business combinations that are outside the scope of IFRS 2. Business combinations among entities under common control and the contribution of a business upon the formation of a joint venture will not be accounted for under IFRS 2. The revised IFRS 2,
  which becomes mandatory for the Group's 2010 consolidated financial statements, is not expected to have a significant impact on the consolidated financial statements.
  

BASIS OF MEASUREMENT

The consolidated financial statements and the separate financial statements have been prepared on the going concern basis using the historical cost convention, except for financial instruments at fair value through profit or loss, available-for-sale financial assets, derivative instruments, the Pension Fund employer surplus and liabilities and for cash-settled share-based payment arrangements which are measured at fair value.

FUNCTIONAL AND PRESENTATION CURRENCY

The consolidated financial statements and the separate financial statements have been prepared in South African rand, which is the Company's functional currency. All the financial information has been rounded to the nearest million of rand, except where otherwise stated.

JUDGEMENTS MADE BY MANAGEMENT AND SOURCES OF ESTIMATION UNCERTAINTY

The preparation of the financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Certain accounting policies have been identified as involving particularly complex or subjective judgements or assessments, as follows:

DEFERRED TAX ASSETS

Deferred tax assets are recognised to the extent that it is probable that taxable income will be available in future against which they can be utilised. Future taxable profits are estimated based on business plans which include estimates and assumptions regarding economic growth, interest, inflation and tax rates and competitive forces.

ENVIRONMENTAL REMEDIATION

Estimating the future costs of environmental and rehabilitation obligations is complex and requires management to make estimates and judgements because most of the obligations will be fulfilled in the future and contracts and laws are often not clear regarding what is required. The resulting provisions are further influenced by changing technologies and political, environmental, safety, business and statutory considerations. As explained in note 14 to the financial statements, the Group has to apply judgement in determining the environmental remediation provision. The provision may need to be adjusted when detailed characterisation of the land is performed or when the end use is determined.

ASSET LIVES AND RESIDUAL VALUES

Property, plant and equipment is depreciated over its useful life taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account. Residual value assessments consider issues such as current market conditions, the remaining useful life of an asset and disposal values.

POST-RETIREMENT BENEFIT OBLIGATIONS

Post-retirement defined benefits are provided for certain existing and former employees. Actuarial valuations are based on assumptions which include employee turnover, mortality rates, the discount rate, the expected long-term rate of return of retirement plan assets, healthcare inflation costs and rates of increase in compensation costs. The net present value of current estimates for post-retirement medical aid benefits has been discounted to its present value at 10,0% per annum (2008: 7,9%) being the estimated investment return assuming the liability is fully funded. Medical cost inflation of 7,8% per annum has been assumed (2008: 5,8%). See note 31 to the financial statements.

RESTATEMENT OF COMPARATIVES

The Group has made enhancements to the disclosure in the 2009 annual financial statements. This has resulted in expanded disclosure of certain Group and Company comparative information. The changes affect the 2008 disclosures and do not affect the opening statement of financial position for that year.

There is no effect on the face of the income statement, the statement of changes in equity or the statement of financial position of the Group. The statement of cash flows has changed to provide more detailed disclosure relating to the earnings-based incentive scheme provision disclosed in note 14. The increase in the provision is disclosed under non-cash adjustments to cash generated by operations and cash paid against the provision is disclosed on the face of the statement of cash flows as expenditure relating to non-current provisions. The cash flows were previously disclosed in changes in working capital.