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:

  Fair value 
through other 
Investments 19               19  
Loans advanced and non-current receivables 164       164          
Trade receivables 8 922       8 922          
Derivative instruments 2               2  
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          
Derivative instruments 5               5  
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                               
EBITDA    1 602            522     100     980    
Depreciation  (1 344)          (421)    (78)    (845)   
Operating profit  258           101     22     135    
Interest expense  (310)          (144)    (35)    (131)   
Profit before tax  (52)          (43)    (13)      
Financial position                               
Right-of-use assets  5 348           1 580     416     3 352    
Total assets  5 348           1 580     416     3 352    
Equity  475           208     35     232    
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:

  2019 2018
SA Rand:Euro
— closing 16,06 16,01  
— average 16,18 15,34  
SA Rand:US Dollar
— closing 14,10 13,71  
— average 14,18 12,86  
SA Rand:Pound Sterling
— closing 17,95 18,10  
— average 18,35 17,31  

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)   
   (1 112)          (113)   

8. Net finance cost

Net interest paid (411)       (564)  
Fair value loss on interest-rate swap instruments (4)       (5)  
  (415)       (569)  

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)   
Currency adjustments  65           359    
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   
Investing activities (320)       (70)  
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:

Level 1
financial instruments are those that are valued using unadjusted quoted prices in active markets for identical financial instruments.
Level 2
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.
Level 3
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.

  Level 1
Level 2
Level 3
Financial assets        
Investments 19      
Interest-rate swap instruments and foreign exchange contracts   2    
Financial liabilities        
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.

  Put options 
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)  
Settlements   (7) (7)  
Currency adjustments 26    26   
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.

in carrying
in carrying 
Financial instrument and key assumption        
Put option liabilities | earnings growth 951 19 (20)  
Contingent consideration liabilities | assumed profits 42   (3)  

13. Contingencies and commitments

Capital commitments 212       216  
Contingent liabilities 674       958  

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.