Notes to the summarised consolidated financial statements
for the year ended 30 June 2018
1. Basis of preparation
The summarised consolidated financial statements have been prepared in accordance with the framework concepts and recognition and measurement criteria of International Financial Reporting Standards (IFRS) and its interpretations adopted by the International Accounting Standards Board (IASB) in issue and effective for the group at 30 June 2018 and the SAICA Financial Reporting Guides as issued by the Accounting Practices Committee and financial reporting pronouncements as issued by the Financial Reporting Standards Council. The results are presented in accordance with the minimum requirement of IAS 34 – Interim Financial Reporting and comply with the Listings Requirements of the Johannesburg Stock Exchange Limited and the Companies Act of South Africa, 2008. These summarised consolidated financial statements are an extract of the full audited consolidated annual financial statements for the year ended 30 June 2018.
The directors take full responsibility for the preparation of the summarised consolidated financial statements and that the financial information has been correctly extracted from the underlying annual financial statements.
These summarised consolidated financial statements and the full set of consolidated annual financial statements have been prepared under the supervision of R Mumford, CA(SA), and were approved by the board of directors on 20 August 2018.
2. Accounting policies
The accounting policies adopted and methods of computation used in the preparation of the summarised consolidated financial statements are in accordance with IFRS and are consistent with those of the annual financial statements for the year ended 30 June 2017.
3. Restatement of comparative information
3.1 Revenue restatement
Revenue for continuing operations for 2017 has been restated. In 2017, inter-company revenue of R950 million was incorrectly included in external revenue and as a consequence was not eliminated from the consolidated revenue. This error originated from the International Logistics segment. The restatement had no impact on profits, cash flows or the financial position, it only affected revenue and net operating expenses as detailed below:
STATEMENT OF PROFIT OR LOSS
|Net operating expenses (decrease)||950|
|Profit from operations before depreciation and recoupments (no impact)|
3.2 Restatement of cash flows
The June 2017 statement of cash flows was restated to exclude short-term loans and overdrafts from cash and cash equivalents. The movements in short-term loans and overdrafts are now reflected as cash flows under financing activities as part of the net increase (decrease) in interest-bearing borrowings to facilitate improved understanding. The impact was an increase in outflow under financing activities of R896 million as illustrated below. The restatement had no impact on the group’s financial position.
STATEMENT OF CASH FLOWS
|Net decrease in interest-bearing borrowings||(896)|
4. Presentation of discontinued operations
The result of Imperial’s automotive business (Motus) is presented as a single line item in the summarised consolidated statement of profit or loss under discontinued operations. The assets and related liabilities are shown under “Assets held for distribution to owners of Imperial” and “Liabilities directly associated with assets held for distribution to owners of Imperial” on the summarised consolidated statement of financial position. The summarised consolidated statement of changes in equity and the summarised consolidated statement of cash flows are shown in total for continuing operations (Imperial Logistics), Motus and Regent for 2017. Further disclosure for Motus is provided on page 22 and in note 10.
Certain notes to the summarised consolidated statement of financial position include movements from Motus in the current and prior year up until the point of reclassification as held for distribution to owners of Imperial. The notes to the summarised consolidated statement of profit or loss relate to continuing operations (Imperial Logistics). The earnings per share information is reconciled in total and distinguishes between continuing and discontinued operations for the per share values.
5. New and revised IFRS in issue but not yet effective
IFRS that will become applicable to the group in future reporting periods include IFRS 9 – Financial Instruments (effective 1 January 2018), IFRS 15 – Revenue from Contracts with Customers (effective 1 January 2018) and IFRS 16 – Leases (effective 1 January 2019). Details of these standards are outlined in the 30 June 2018 annual consolidated financial statements. The following updates are provided:
The group anticipates that the application of IFRS 9 will have no material impact on amounts reported in respect of the group’s financial assets and financial liabilities.
A detailed review of the potential impact of IFRS 15 has been finalised. The group, especially in the Logistics operations, has a substantial number of long-term contracts. All material contracts have been assessed for any impact in terms of the five-step approach. This review shows that there will not be a material impact on the current measurement of revenue.
The initial assessment has been done and it is estimated that the right of use asset and lease liability that will be recognised on adoption of the standard in the continuing operations will amount to R7,7 billion (Motus: R1,6 billion).
6. Foreign exchange rates
|The following major rates of exchange were used in the translation of the group’s foreign operations:|
|SA Rand:US Dollar|
|SA Rand:Pound Sterling|
|SA Rand:Australian Dollar|
7. Other non-operating items
|Remeasurement of financial instruments not held for trading||73||(29)|
|Remeasurement of put option liabilities||42||(39)|
|Gain on remeasurement of contingent consideration liabilities||31||2|
|Reclassification of gain on disposal of investment in associate||8|
|Impairment of goodwill||(26)||(86)|
|Loss on disposal of subsidiaries, businesses and associates||(149)||(64)|
|Business acquisition costs||(11)||(78)|
8. Net finance cost
|Net interest paid||(649)||(826)|
|Fair value losses on interest-rate swap instruments||(5)|
9. Goodwill and intangible assets
|Cost||7 298||7 679|
|Accumulated impairment||(1 077)||(985)|
|6 221||6 694|
|Carrying value at beginning of year||6 694||5 424|
|Net acquisition and disposal of businesses||213||2 012|
|Reclassified to assets held for distribution to owners of Imperial||(953)|
|Carrying value at end of year||6 221||6 694|
|Intangible assets||2 354||2 835|
|Goodwill and intangible assets||8 575||9 529|
10. Assets and associated liabilities held for distribution to owners of Imperial
|The assets and associated liabilities held for distribution to owners of Imperial relate to Motus.|
|The major classes of assets and liabilities held for distribution to owners of Imperial were as follows:|
|Goodwill and intangible assets||1 230|
|Property, plant and equipment||6 787|
|Vehicles for hire||3 924|
|Investments, investment in associates and joint ventures||1 001|
|Trade and other receivables||5 258|
|Income tax assets||1 084|
|Cash resources||1 483|
|Properties held for sale||234|
|Assets held for distribution to owners of Imperial||36 637|
|Interest-bearing borrowings||7 328|
|Maintenance and warranty contracts||2 846|
|Trade and other payables and provisions||14 014|
|Income tax liabilities||672|
|Liabilities associated with assets held for distribution to owners of Imperial||24 954|
11. Cash resources
|Cash resources – as disclosed on the statement of financial position||2 818||4 499|
|Cash resources – included in assets held for distribution to owners of Imperial||1 483|
|4 301||4 499|
12. Fair value of financial instruments
Fair value hierarchy
The group’s financial instruments carried at fair value are classified in three categories defined as follows:
financial instruments are those that are valued using unadjusted quoted prices in active markets for identical financial instruments.
financial instruments are those valued using techniques based primarily on observable market data. Instruments in this category are valued using quoted prices for similar instruments or identical instruments in markets which are not considered to be active; or valuation techniques where all the inputs that have a significant effect on the valuation are directly or indirectly based on observable market data.
financial instruments are those valued using techniques that incorporate information other than observable market data. Instruments in this category have been valued using a valuation technique where at least one input, which could have a significant effect on the instrument’s valuation, is not based on observable market data.
Fair value of financial assets and financial liabilities carried at amortised cost
The following table sets out instances where the carrying amount of financial liabilities, as recognised on the statement of financial position, differ from their fair values.
|Listed corporate bonds^||3 548||3 533|
|Listed non-redeemable non-participating preference shares||441||322|
The fair values of the remainder of the group’s financial assets and financial liabilities approximate their carrying values.
The following table presents the valuation categories used in determining the fair values of financial instruments carried at fair value.
|R million||Level 2||Level 3|
|Interest-rate swap instruments and foreign exchange contracts (included in trade receivables)||9|
|Foreign exchange contracts (included in assets held for distribution to owners of Imperial)||432|
|Put option liabilities (included in other financial liabilities)||1 015|
|Contingent consideration liabilities (included in other financial liabilities)||14|
|Cross-currency and interest-rate swap instruments (included in other financial liabilities)||22|
|Foreign exchange contracts (included in trade, other payables and provisions)||15|
|Foreign exchange contracts (included in liabilities held for distribution to owners of Imperial)||46|
Transfers between fair value hierarchy levels
The group recognises transfers between levels of the fair value hierarchy as at the end of the reporting period during which the change has occurred. There were no transfers between the fair value hierarchies during the year.
Movement in level 3 financial instruments measured at fair value
The following table shows a reconciliation of the opening and closing carrying values of level 3 financial instruments carried at fair value:
|Carrying value at beginning of the year||1 553||45||1 598|
|Arising on acquisition of business||102||102|
|Fair value to profit or loss||(42)||(31)||(73)|
|Carrying value at end of year||1 015||14||1 029|
Level 3 sensitivity information
The fair values of the level 3 financial instruments were estimated by applying an income approach valuation method including a present value discount technique. The fair value measurements are based on significant inputs that are not observable in the market. Key assumptions used in the valuations include the assumed probability of achieving profit targets and the discount rates applied. The assumed profitabilities were based on historical performances but adjusted for expected growth.
|FINANCIAL INSTRUMENT AND KEY ASSUMPTION|
|Put option liabilities | earnings growth||1 015||3||(17)|
|Contingent consideration liabilities | assumed profits||14||(1)|
13. Contingencies and commitments
|Capital commitments||216||1 448|
14. Significant related party transactions
As part of the implementation process for separate listing of Imperial’s automotive operations, known as Motus, the following significant transfer of businesses, between related parties within the group occurred during the year:
Imperial Group Limited transferred its logistics business to Imperial Logistics South Africa Holdings Proprietary Limited. Imperial Group Limited changed its name to Motus Group Limited.
Imperial Holdings Limited transferred its interest in Motus Group Limited, Motus Corporation Proprietary Limited and Motus Capital Limited to the newly formed Motus Holdings Limited. Prior to the transfer of Motus Corporation and Motus Capital to Motus Holdings, Imperial Holdings transferred its automotive subsidiaries in South Africa to Motus Corporation and its southern African automotive subsidiaries to Motus Capital. Motus Holdings Limited, the new parent of Motus Group, Motus Corporation and Motus Capital, is the designated entity for separate listing on the Johannesburg Stock Exchange.
The above transfers of businesses were completed in terms of asset-for-share transactions, at fair value. The group’s consolidated financial statements were not affected by the above transactions as all inter-group income and expenses were eliminated in full.
15. Events after the reporting period
On 6 August 2018, the group redeemed its listed corporate bonds at market value out of existing facilities at a premium of R14 million over their carrying value.
On 13 August 2018, the group proposed the repurchase and delisting of the non-redeemable, non-participating preference shares.
For dividend declarations, refer to page 21 of this report.