Notes to the summarised consolidated financial statements
1. Basis of preparation
The summarised consolidated financial statements have been prepared in accordance with the 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 2019 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 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 do not include all the information required for full annual financial statements and should be read in conjunction with the consolidated annual financial statements for the year ended 30 June 2019.
These summarised consolidated financial statements have been prepared under the supervision of WS Buckton, CA(SA) and were approved by the board of directors on 27 August 2019.
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 2018, with the exception of the new and revised IFRS as detailed in note 3.
3. IFRS standards that became effective during the year
IFRS 9 – Financial Instruments and IFRS 15 – Revenue from Contracts with Customers became effective to the group during the financial year. The adoption of these standards had no material impact on the amounts previously reported, hence no restatement of comparative information was required.
The group's revised policy regarding financial instruments and revenue are summarised below:
IFRS 9 – Financial Instruments
Classification and measurement of financial instruments
IFRS 9 – Financial Instruments introduces a single classification and measurement model for financial assets which is dependent on the group's business model for managing financial assets and on the contractual cash flow characteristics of those financial assets. The contractual terms of the group's financial assets give rise on specific dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Trade receivables, loans advanced and other non-current receivables are held to collect contractual cash flows and are categorised as subsequently measured at amortised cost. Investments are held to collect contractual cash flows and to sell the financial asset and are categorised as measured at fair value through profit or loss (FVTPL).
The group's financial liabilities are classified as subsequently measured at amortised cost except for the contingent consideration liabilities and the put option liabilities which are measured at fair value through profit or loss (FVTPL).
Impairment of financial instruments
The group recognises an allowance for expected credit losses for trade receivables, contract assets, lease receivables and loans receivables. Expected credit loss is the difference between the contractual cash flows due to the group and all the cash flows the group expects to recover from the assets.
For trade receivables the group applies a simplified approach in calculating the expected credit losses. This is aided by a provision matrix that is based on historical credit loss experiences for each past due ageing category, adjusted for forward looking information.
Expected credit losses are recognised in a loss allowance account which is separate from the gross contractual amounts receivable. Changes to the loss allowance due to changes in credit risk is recognised in profit or loss. Expected credit losses that materialise are written off against the gross contractual amounts. Gross contractual amounts that were previously written off and subsequently recovered are credited to profit or loss. Receivables are included on the statement of financial position net of the loss allowance.
The adoption of IFRS 9 had no impact on the carrying amounts reported at 30 June 2018.
Under IFRS 9 the group's financial assets and financial liabilities at 30 June 2019 can be categorised as follows:
|Loans advanced and non-current receivables||164||164|
|Trade receivables||8 922||8 922|
|Cash resources||1 646||1 646|
|Financial assets||10 753||10 732||21|
|Interest-bearing borrowings||7 412||7 412|
|Put option liabilities||951||951|
|Contingent consideration liabilities||42||42|
|Trade payables and other accruals||10 019||10 019|
|Other financial liabilities||82||20||62|
|Financial liabilities||18 511||17 451||62||998|
IFRS 15 – Revenue from Contracts with Customers
The group recognises revenue from contracts with customers as it satisfies a performance obligation by delivering the promised goods or services to the customer. The amount of revenue recognised is the transaction price allocated to that performance obligation that at least compensates the group for the performance completed and to which it is entitled to. The amount of revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf of third parties. Performance obligations regarding the group's revenue from freight management and contract logistics are satisfied overtime whereas revenue from distributorships are recognised at a point in time. A significant portion of the group’s revenue is derived from contracts with customers in which the transfer of control coincides with the fulfilment of performance obligations.
The adoption of IFRS 15 resulted in a reclassification on the statement of financial positionposition. Included in Trade, other receivables and contract assets is R875 million (2018: R872 million) of contract assets.
The amount of the group’s revenue by service capability is disclosed in the secondary segmental information section.
|Revenue based on service capability||2019
|Freight management||24 877||22 997|
|Contract logistics||14 603||15 041|
|Distributorship||10 539||8 999|
|Head office and eliminations||(299)||(189)|
|Businesses held for sale||1 717|
|49 720||48 565|
Freight management entails the movement of goods on behalf of clients between specified sources and destinations; using different transportation modes (road, river, rail, air and ocean) and different transportation types (Express Less Than Load (LTL), Palletised Full Trunk Load (FTL), Liquid and dry bulk, Ambient and refrigerated).
Contract logistics encompasses warehousing, distribution and synchronisation management provided as dedicated or multiprincipal services; often incorporating professional and managed services and integrated with transportation management to evolve to achieving Lead-Logistics Provider status.
Distributorship takes ownership of product inventory to provide our clients with unparalleled access to their end-consumers through an integrated logistics and sales service; leveraging sourcing, warehousing, distribution, synchronisation and transportation management as enablers.
4. New and revised international financial reporting standards in issue but not yet effective
IFRS 16 – Leases
IFRS 16 – Leases, applicable to the group in 2020, introduces a single lease accounting model that requires the group as a lessee to recognise assets and liabilities for all leases with a term longer than 12 months.
The group's existing accounting policy is to expense operating lease payments on a straight-line basis over the lease term. From 2020 the group will recognise right-of-use assets and lease liabilities, which represents the group's right to use the underlying leased asset and its obligation to make lease payments, on the statement of financial position. The right-of-use assets will be amortised and interest on the lease liability will be expensed, both in profit or loss. The operating lease payments will be accounted for as settlement of the lease liabilities. The lease payments will be reclassified from operating activities to financing activity in the statement of cash flows.
The group's assessment determined that the right-of-use asset and lease liability to be recognised on adoption of IFRS 16 will amount to R5 348 million and R5 823 million respectively. These amounts have been revised from the initial assessment at the end of June 2018 primarily as a result of certain leases being cancelled or renewed.
The provisional impact on the 30 June 2018 financial statements before taking tax into consideration is summarised below.
|Profit or loss|
|Profit before tax||(52)||(43)||(13)||4|
|Right-of-use assets||5 348||1 580||416||3 352|
|Total assets||5 348||1 580||416||3 352|
|Lease liabilities||5 823||1 788||451||3 584|
|Total equity and liabilities||5 348||1 580||416||3 352|
In terms of lessor accounting, IFRS 16 substantially carries forward the requirements in IAS 17 and accordingly a lessor continues to account for its leases as operating leases or finance leases.
5. 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|
6. Significant transactions during the year
The unbundling of Motus
On 22 November 2018 Imperial distributed its interest in Motus Holdings Limited to its ordinary shareholders by way of a distribution in specie such that each ordinary shareholder received one Motus share for every one ordinary share held in Imperial. The distribution resulted in the deconsolidation of Motus.
The fair value of the distribution of R17 058 million was determined with reference to the unadjusted listed price of Motus on 22 November 2018. As the distribution value exceeded the consolidated net asset value of Motus a fair value gain of R4 339 million was recognised in profit or loss. The fair value gain, is net of the cost to distribute and taxes and together with the trading results of Motus, is presented as a discontinued operation in the summarised profit or loss statement.
Impairment of goodwill
Goodwill of R1 139 million was impaired during the year. The impairments were driven by significant deterioration in macroeconomic conditions in all three of our operating segments, which includes a depressed growth outlook, uncertainty and higher weighted average cost of capital and discounts rates. These factors resulted in the reduction in the value in use of certain cash-generating units, leading to the goodwill impairment. The affected businesses are, however, still cash generative and profitable.
The remaining goodwill relates to cash-generating units which are in growing markets and industries, with positive cash generation and low capital requirements.
Discontinuation of CPG
The group's CPG business has been classified as a discontinued operation following the announcement on 3 June 2019 to exit the business due to the multi-principal warehouse distribution model becoming unviable and uncompetitive. The decision to exit the business resulted in an after tax charge of R1 438 million in profit or loss for asset impairments, staff retrenchment costs and onerous leases and other liabilities.
7. Other non-operating items
|Remeasurement of financial liabilities||51||73|
|Remeasurement of put option liabilities||51||42|
|Gain on remeasurement of contingent consideration liabilities||31|
|Capital items||(1 163)||(186)|
|Impairment of goodwill||(1 139)||(26)|
|Profit (loss) on disposal of subsidiaries, businesses and associates||64||(149)|
|Impairment of investment in associates and loans advanced to associates||(73)|
|Business acquisition costs||(15)||(11)|
8. Net finance cost
|Net interest paid||(411)||(564)|
|Fair value loss on interest-rate swap instruments||(4)||(5)|
9. Goodwill and intangible assets
|Cost||7 387||7 298|
|Accumulated impairment||(2 477)||(1 077)|
|4 910||6 221|
|Carrying value at beginning of year||6 221||6 694|
|Net acquisition and disposal of businesses||24||213|
|Impairment charge (including CPG goodwill of R261 million)||(1 400)||(92)|
|Reclassified to assets held for distribution to owners of Imperial (Motus)||(953)|
|Carrying value at end of year||4 910||6 221|
|Intangible assets||1 809||2 354|
|Goodwill and intangible assets||6 719||8 575|
10. Cash resources
|Cash resources — as disclosed on the statement of financial position||1 646||2 818|
|Cash resources — included in assets held for distribution to owners of Imperial||1 483|
|1 646||4 301|
11. Cash flows for discontinued operations
|Cash flows for the discontinued operations were as follows:|
|Operating activities||(1 807)||3 441|
|Financing activities||614||(2 743)|
12. Fair value of financial instruments
Fair value hierarchy
The group's financial instruments carried at fair value are classified into 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 fair values 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.
|Interest-rate swap instruments and foreign exchange contracts||2|
|Put option liabilities||951|
|Contingent consideration liabilities||42|
|Cross-currency and interest-rate swap instruments and foreign exchange contracts||67|
Transfers between fair value hierarchy levels
The group recognises transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. There were no transfers between the fair value hierarchies during the period.
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 year||1 015||14||1 029|
|Arising on buyout of non-controlling interest||(39)||35||(4)|
|Fair valued to profit or loss||(51)||(51)|
|Carrying value at end of year||951||42||993|
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 includes the assumed probability of achieving profit targets, expected future cash flows 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||951||19||(20)|
|Contingent consideration liabilities | assumed profits||42||(3)|
13. Contingencies and commitments
14. Business combinations during the year
There were no material acquisitions of businesses during the year or before the financial statements were authorised for issue.
15. Events after the reporting period
Except for the dividend declaration of this report there were no material events after the reporting period.